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Is this the calm before the storm?

Why are prices dropping?

snow hope wrote:Is this the calm before the storm?

Why are prices dropping?

A guess from the basis of non-expert ignorance and what Ive been reading in the press...

lack of demand due to high inventories of heating oil in North America. Until the weekends monster snow storm in the North East, North America had been having a very warm winter.

I've been reading stories about ski resort operators bemoaning the lack of snow, and Canadians whinging that their ponds and rivers were still liquid - they couldnt go out and enjoy their normal winter pursuits , ice skating, ice hockey , curling etc...

In reality prices havent dropped much. They go up - traders make money they go down, traders make money. When markets are tight, as the oil market is now, theres always a lot of 'jitter' - prices shoot up and down in the short term on the slightest provocation. I wouldnt worry to much about the short term jitter. The long term averages are still relentlessly on the up and up...

Light Crude Chart 1999-2006 with Moving Averages
http://www.futuresource.com/charts/char ... A(9,18,65);

hmm you'll have to Copy&Paste that URL ...forum software obviously doesnt like brackets.

What skeptik said.

In January new hedge fund money artificially kept the crude market pumped up but eventually the extremely high US inventory levels (caused by speculator-driven high prices (aka "risk premium") sucking in supplies to the US) has started to drag prices down. This is exacerbated by an increasing amount of spare global crude supply capacity and relatively lax demand. The most likely thing to turn this situation around in the short term is an OPEC production quota cut which we should start expecting to see if the outright crude price drops below $60.

After that, I think barring any catastrophic supply outages (eg Iranians stop pumping or Saudis have a revolution) we will see supply spare capacity rising until 2008 and prices thus subdued until peak oil appears on the supply radar (ie when forecast new supply clearly wont meet forecast demand growth). Before you shout out that this is already the case, let me quickly point out that the evidence isn't yet clear enough for the markets to react in any significant manner. New supply coming on in 2009 onwards looks very weak, but right now traders can assume that this will change in the next year or two and that new supply will magically appear.

Oil now below $60/barrel

I?m not persuaded about the declared spare capacity of Saudis. And what is the quality of this reserve crude? I?ve heard that sulfurous content was high and the crude was thick. The factor of reserve inventories is overrated by the market. How long would we be able to last with these reserves only? Few weeks? This is merely market play with numbers. And normal price fluctuation. And the credibility of these inventory figures is also questionable. The inventory reports are based on computer modelling, not on the real physical check of the storage reservoirs. Saudis were pumping 10mil/bbl./day in 1980 and so far they have never been pumping more. Today they are pumping 9,5mil/day and I?m eager to see them going over 10 mil. Or did they peak 25 years ago?

Fair comments. The only thing is that the markets can be wrong longer than you or I can stay solvent, so forecasting the market is less about having the right view and more about understanding how other traders or investors will respond to items of news and analysis.

Most of us in the crude market are long-term bullish, but in the short term few people are going to risk buying when the US crude inventories are reported as overflowing. It doesn't even need to be true or accurate.

An amusing aside: One of our US oil analysts was over in the UK this week so we took him out to lunch, whereupon it emerged that his favourite energy news website is energybulletin.net! I think that shocked my boss who always likes to poo-poo that sort of site as run by my 'anarchist friends'. So now my boss is saying that he might have to start reading it himself now... Victory is mine, muhahaha.

Tess wrote:An amusing aside: One of our US oil analysts was over in the UK this week so we took him out to lunch, whereupon it emerged that his favourite energy news website is energybulletin.net! I think that shocked my boss who always likes to poo-poo that sort of site as run by my 'anarchist friends'. So now my boss is saying that he might have to start reading it himself now... Victory is mine, muhahaha.

Be careful! There are few comments which result in lifelong enemies as fast as: "I told you so. If you had listened to me this mess would not have happened". Specially when you are right and have been previously ridiculed.

Strange really. The proper thing to say would be "yes, you were right and I was wrong, I should have listened to you", but nonono, it's "I hate that bastard!"

Is this true? How the hell should I know. All I do know is that energy is a highly political subject just now and that politicians and governments lie when they think it advantageous. Overall, I'm somewhat skeptical of the entire subject.

http://financialsense.com/fsn/BP/2006/0204.html#seg4

"With regard to energy we have had a dramatic example of what the government can do in natural gas just recently ? a fall from 14 to now under $9, with no technical analysis stops along the way, it was essentially a vertical fall. And this came actually right after the Federal Reserve announced that JP Morgan was entering the natural gas market. Indeed, for each day that they were in the natural gas market, following the Federal Reserve?s announcement, the markets fell by 1%."

"The same is true as you pointed out in natural gas where the stocks were reported as going up when one day 2 months ago the EIA web page showed that there was a notice to participants that the pressure readings inside the salt-dome storage capacities were so low that the structural integrity of the pressure chambers was called into question. There?s a limit below which the pressure would cause the chamber to collapse. This was reported on the website and immediately removed in a matter of hours later. When you look at the official information on storage there is no record of that low pressure reading in the long term EIA natural gas storage chart. So there?s clear evidence that the government is playing around with the storage information for natural gas. We could talk about the Strategic Petroleum Reserve too. It?s overfilled now by quite a margin with physical barrels, but we do not know how many of those barrels have been sold forward. So we really have no information at all ? useful information ? to tell us where the government stands in terms of how much oil it has to drop on the trading markets to steer the prices. And it?s this ? I?m glad you brought this up, Jim ? because this is one of the crucial weaknesses that commodities traders face today: they just don?t have any trustworthy information in the energy markets and specifically in precious metals. And this handicap makes an average trader who wants to go against the government ? and by the way anybody who takes a long position is taking an anti-government position ? those people are terribly handicapped because of this opacity and this major effort to hide the storage available to information analysts such as myself."

skeptik wrote:Is this true? How the hell should I know. All I do know is that energy is a highly political subject just now and that politicians and governments lie when they think it advantageous. Overall, I'm somewhat skeptical of the entire subject.

http://financialsense.com/fsn/BP/2006/0204.html#seg4

Dont know. It's not unthinkable. A lot of fun stuff on that site, and the interviews can be interesting to listen to, but I think it's important to remember that they advertise for financial services of various kind, and try to attract a contrarian crowd. As well as governments can lie, so can "investment advisers". Not entirely unheard of...

Prices could drop until April May time due to seasonal factors also notice how the Iran situation has gone very quiet, energy traders seem to have the attention span of a goldfish. I assume traders would be nervous of going long at the moment, but if the price goes down to $53-50$ then airlines etc will start hedging again.

SILVERHARP2 wrote: energy traders seem to have the attention span of a goldfish.

It's true. Bane of my life.

Just curious, why is it the bane of your life?

SILVERHARP2 wrote:Just curious, why is it the bane of your life?

Because I work for oil traders, and their short attention span makes my job harder.

Looks like prices are rebounding , nearly $60 again!

How high on this run do you think tess? Or will we see new highs in the US driving season?