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THE Price of Crude pt 13

General discussions of the systemic, societal and civilisational effects of depletion.

Re: THE Price of Crude pt 13

Unread postby asg70 » Mon 06 Nov 2017, 17:26:34

GoghGoner wrote:I still predict that prices are going to run away and crash the economy before too long.


How long before our resident ETP sycophants start to say the same?
Hubbert's curve, meet S-curve: https://www.youtube.com/watch?v=2b3ttqYDwF0
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Re: THE Price of Crude pt 13

Unread postby Outcast_Searcher » Mon 06 Nov 2017, 18:48:40

GoghGoner wrote:I still predict that prices are going to run away and crash the economy before too long.

And roughly how high do you believe those prices are?

Clearly near $100 didn't do it 2010 - 2014.

Clearly near $150 didn't do it in 2008, though it did begin to apply some stress. Though, given all the problems caused by the real estate crash, it's hard to evaluate that. Also, 2008 was the culmination of a big spike -- not sustained prices near $150 (which inflation adjusted would be roughly 18% higher, or about $177 today).

....

Since a strong global economy drives higher oil demand, wouldn't such a "crash" be self-correcting? Or do you see this crash as "the big one" that essentially destroys the global economy?
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Re: THE Price of Crude pt 13

Unread postby GHung » Mon 06 Nov 2017, 19:00:47

Outcast_Searcher wrote:
GoghGoner wrote:I still predict that prices are going to run away and crash the economy before too long.

And roughly how high do you believe those prices are?

Clearly near $100 didn't do it 2010 - 2014.

Clearly near $150 didn't do it in 2008, though it did begin to apply some stress. Though, given all the problems caused by the real estate crash, it's hard to evaluate that. Also, 2008 was the culmination of a big spike -- not sustained prices near $150 (which inflation adjusted would be roughly 18% higher, or about $177 today).

....

Since a strong global economy drives higher oil demand, wouldn't such a "crash" be self-correcting? Or do you see this crash as "the big one" that essentially destroys the global economy?


Clearly you continue to conveniently ignore the $trillions in funny money pumped into economies after 2008.
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Oil Price Expected to Remain Steady Despite Shock Arrests in

Unread postby AdamB » Mon 06 Nov 2017, 22:41:21

The market for oil, Saudi Arabia's most lucrative export, is unlikely to be affected by the arrest of dozens of former Saudi state officials and at least 11 Saudi princes in an anti-corruption drive, financial analysts have said. On Sunday, it was reported that 11 Saudi princes, four incumbent ministers of the Saudi government and dozens of former government ministers had been arrested in an anti-corruption drive. Reportedly among those arrested is prominent billionaire Prince Alwaleed bin Talal, owner of the Kingdom Holding Company which has large stakes in businesses and property around the world including Citigroup, Twitter and several luxury hotel chains. The arrests took place just hours after Saudi ruler King Salman decreed the creation of a powerful new anticorruption committee led by his son and heir, Crown Prince Mohammed bin Salman. King Salman also fired several high-profile ministers. The new agency will "preserve public money, punish corrupt people and those who


Oil Price Expected to Remain Steady Despite Shock Arrests in Saudi Arabia
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Re: THE Price of Crude pt 13

Unread postby ROCKMAN » Tue 07 Nov 2017, 11:54:09

"Clearly you continue to conveniently ignore the $trillions in funny money pumped into economies after 2008." And isn't that one of this county's great advantages? How long it remains so: who knows? But as you said it has saved our bacon so far. And the good news: much of that debt is owned by foreigners and other govts who are motivated to see the US survive. At least till we pay them back...which will likely be never. LOL.
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Re: THE Price of Crude pt 13

Unread postby Yoshua » Tue 07 Nov 2017, 12:40:48

I have read that Europe is today the swing consumer and the one that drives the oil price higher or lower. The Brent WTI spread is today perhaps pulling the WTI higher as it gives an incentive for US crude producers to export its crude production.

US inventories fall when the US exports oil due to a counting error by EIA. US crude in transit to US refineries are counted as inventory, but foreign crude in transit to US refineries are not counted as inventory. The switch in counting increases or decreases inventories and causes the WTI to rise or fall.

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Re: THE Price of Crude pt 13

Unread postby Yoshua » Tue 07 Nov 2017, 12:47:41

A comment on Art Berman's site (hope he won't sue me).

The following is my brief presentation. If you would like to have a more detailed version with a bit more explanation, please just email me and let me know. Now to the presentation:

I am a former senior financial executive of two vey large crude oil trading companies and two merchant refiners. I have financed many billions of dollars of physical domestic oil trades. As such, I know the operations of these transactions. Likewise, I have studied the detail of the EIA web site and I have communicated with them several times. In fact I was able to get them to change the way they communicated “biased” statements about oil in their weekly report.
My reason for writing to you is very simple – I am trying to let you and others know that the EIA is misleading the market about crude oil inventory levels and changes over the last few years. I have brought this to the attention of the EIA, and they agree with me. The problem – they will not advise the market of their practice. The market can’t know what they’re doing, it takes someone with my experience and willingness to get in the weeds of their reporting process to discover the consequences.

Actually, it is very simple. Refiners, like other manufacturers have two kinds of inventory. First they have inventory on hand, and second they have inventory in transit.

When the EIA counts foreign crude oil supply (particularly waterborne shipments that may take up to 45 days) in transit, they do not count it as in transit inventory. Foreign crude oil shipments are counted when they are unloaded at or very near refinery docks. So, for foreign supply, they only count inventory on hand. They call this Refinery Stocks and that is the number that is counted for foreign supply.
The other part of the refiners supply comes from domestic production. When it comes to domestic production, the EIA counts inventory on hand, and unlike foreign supply, it also counts inventory in transit. Without going into the mechanics now, domestic inventory in transit can easily take 45 days or more. So, when domestic production in transit to the refiner is counted, it is a very large number, several times larger than inventory on hand. Obviously, this is because the long transit time causes the same barrel to be counted in several weekly reports.

Over the last few years, the shale revolution caused domestic production to rise by about 4 million bopd. As this increase occurred, refiners switched from about 4 million barrels a day of foreign supply to the additional domestic production. Here is where the EIA “tricked” the market – unnententionally!
The EIA did not count the refiners’ foreign inventory in transit. But it did count their domestic inventory in transit. So, as the refiners switched from foreign supply to the increased domestic production as a replacement supply, the barrels counted as inventory in transit (in the switch) went from zero for the replaced foreign supply to 45 days of in transit inventory for the new domestic supply.

Just by switching the sourcing of the refiners’ supply from foreign to domestic over the last several years, EIA reported inventories increased from around 350 million barrels to around 500 million barrels. This happened even though the refiners’ operating inventory level didn’t increase at all. The only thing that changed was the increased domestic inventory in transit, while the UNCOUNTED foreign inventory in transit declined by a like amount.

As long as domestic production and inventories remain at these levels, U.S. Inventory levels, won’t go down, except for seasonal and weekly ups and downs. While the world waits for our “glut” inventories to fall, the EIA will not come out and announce their “trick” in counting inventory balances and the impact it had as inventories rose and now remain “high.” Ironically, the IEA is already starting to sound like they are going to be the first to recognize and report on the coming shortage of crude supply.

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Re: THE Price of Crude pt 13

Unread postby ROCKMAN » Tue 07 Nov 2017, 13:27:25

Yoshua - Great find...mucho thanks. In the past I've tried to explain in a simplistic fashion how many folks completely misread the US "inventory". Specifically the "working volume". In addition to the categorization change your post highlights there's also the increase in physical oil stored by speculators. And for the same reasons: increased US production and ower oil prices.

If one looks at the details of the ownership of oil stored at Cushing a significant amount IS NOT owned by producers unable to find buyers. Much of that oil is owned by oil trading companies that have never produced a bbl themselves. Here's a partial list of the owners of oil storage tanks at Cushing. Notice the lack of oil producers:

Magellan Midstream Partners, 7,800,000 bbls

Enbridge Energy Partners, 20,060,000 bbls

Enterprise Products, 3,100,000 bbls

JP Energy, 3,000,000 bbl

Plains All American Pipeline, 20,000,000 bbls

SemGroup, 7,600,000 bbls

And every bbl stored by such companies was PURCHASED from producers. Combined with the change in counting methods by the EIA and the speculative purchases there has been no "glut" in US oil production. Every bbl has been purchased by someone. And those bbls are either in transit or are being held by speculators waiting for higher prices. Higher prices which have arrived and why inventories are declining: speculators are selling and collecting their profits.
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Re: THE Price of Crude pt 13

Unread postby tita » Tue 07 Nov 2017, 14:05:12

Outcast_Searcher wrote:
GoghGoner wrote:I still predict that prices are going to run away and crash the economy before too long.

And roughly how high do you believe those prices are?

Clearly near $100 didn't do it 2010 - 2014.

Clearly near $150 didn't do it in 2008, though it did begin to apply some stress. Though, given all the problems caused by the real estate crash, it's hard to evaluate that. Also, 2008 was the culmination of a big spike -- not sustained prices near $150 (which inflation adjusted would be roughly 18% higher, or about $177 today).

....

Since a strong global economy drives higher oil demand, wouldn't such a "crash" be self-correcting? Or do you see this crash as "the big one" that essentially destroys the global economy?

We could also make an analogy with a structure (like a scaffolding stage) vulnerable to wind. A single wind gust, even higher than what the structure is supposed to resist, won't make it fall apart. It's the repetitive gusts, each of them weakening a little bit more some parts of the structure, that eventually lead to the collapse. Of course, a really big one would also have the same effect... But it never starts with a big one first.

Each time the price of crude goes high, the economy is weaken (hundreds of billions $ are diverted globally to one commodity), and the price return to a lower level when the economy slow down or oversupply appear, or both... It's not a problem if some balance is found with a stable growth in global economy and oil supply with a stable price. But if the system begins oscillating through a few cycles (it could takes years though), the economy won't resist and will just collapse in the end.

But it's not that simple... The gust of 2008 happened in the same time as the financial crisis, which was the real cause of the slowdown that followed. Several factors led to a balance around 100$... non-OCDE countries (China, India, South America, middle east) doing well (oil consumption +38% between 2005 and 2014) while OCDE countries were struggling with the aftermath of the crisis (-10% oil consumption between 2005 and 2014). The question of the 2014 price collapse is still a debate... Oversupply or not enough growth at 100$/barrel (China's economy was slowing).

Now, everything is ready for the next gust. Or some balance. Who knows?
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Re: Oil Price Expected to Remain Steady Despite Shock Arrest

Unread postby Subjectivist » Tue 07 Nov 2017, 21:48:48

If it wasn't steady before any arrests were made why in the world would it be steady afterwards?
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Re: THE Price of Crude pt 13

Unread postby Tanada » Tue 07 Nov 2017, 22:00:54

For the USA is there is one crucial difference in your gust analogy. When prices went high in 2008 and went back up by late 2009 it created tens of thousands of high paying fracking industry jobs that helped offset some years worth of offshoring manufacturing to China and other foreign countries.

You can say Consumers spending more for oil was a terrible thing for the economy, but in reality if the Americans spending money for fuel were buying USA produced oil and employing USA workers to provide that oil to refiners then the economic impact was a net positive compared to using that same cash flow to employ Chinese workers to make iPhone's and Mac-PC's and Schwinn bicycles and all the other off-shored industries employing non-Americans and stimulating foreign economies.
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Re: THE Price of Crude pt 13

Unread postby tita » Wed 08 Nov 2017, 06:40:13

@Tanada
Of course, my little analogy is rather simplistic. It was just to illustrate that big swings of oil prices actually have a negative impact on the balance of global markets. It's not the end product, we don't need oil, but we need it for the energy and ressource it is used in the goods we want. Of course, USA oil industry benefits directly from a higher oil price... But on the other side, all the other sectors suffered a little bit. The same happens when the oil price quickly decrease. The difference is that the oil industry is a specific sector, tiny in the number of people working in compared to all the rest. A few people becoming richer while a lot becomes poorer is not good for everybody.

It takes time (years) before the economy adjust itself. I just think that repetitive swings would prevent the global economy to find a balance and grow, and eventually break it. But of course, this has not happened yet.
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Re: THE Price of Crude pt 13

Unread postby Yoshua » Wed 08 Nov 2017, 12:54:50

The oil traders/speculators are of course trying to buy low and sell high. As they store the oil, the inventories rise and the price falls further. As long as U.S crude production is at todays level and all that crude in transit through the pipe lines are counted as inventory, the inventory won't fall to the level they are hoping for.

Still the inventories have declined due to exports of U.S crude and the shift in EIA's counting practice. The increase in the Brent-WTI spread created an incentive for U.S crude exports.

The decline in inventories was the signal the hedge funds waited for and have now gone all in on oil. The producers hedged their production and are now pumping at record levels and filling the pipe lines. Today the WTI is falling again. The hedge funds will lose their money again.

But if the Brent-WTI spread continues to expand since Europe's crude production is in terminal decline and Russia and Opec is cutting their production and exports to Europe...then I guess the oil price could continue to rise...especially if U.S producers increases their exports to Europe and U.S inventories continue to decline with EIA's counting practice.

The Fed and the Ecb are expecting inflation/oil prices to rise. The Fed has decided to start QT and the Ecb has decided to cut QE to half of today starting Jan 1st 2018.

I guess we will all just have to see how all this plays out.
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Re: THE Price of Crude pt 13

Unread postby GoghGoner » Wed 08 Nov 2017, 13:16:59

US household debt is at record levels. It has been rising since 2013 after falling for 5 years after the financial crisis. The fall in gasoline prices allowed consumers to increase their debt levels past the 2008 level. My hypothesis is that they are not ready for higher gasoline prices -- meaning they will not be paying off their loans. I would think a quick rise to $120 would trigger another financial crisis.

On the other hand, I do think that oil is becoming less important to the economy. At least it was until recently when folks started buying those huge trucks instead of more fuel efficient options.

While there is increasing momentum behind electric vehicles (EVs) and greener energy, in general, light truck sales for both GM and Ford are up, 6.6% and 3.6%, respectively, through the first 10 months of the year. Across all automotive brands, light trucks sales were up 3.6% year-over-year in October, and are up 4.3% through the first 10 months of the year.


If I had to guess the weak point, it would be student and auto loans this time.

More People Are Taking Out Long-Term Car Loans

Auto loans are the third largest category of household debt for American consumers behind mortgages and student loans. There are almost 100 million auto loans outstanding, totaling more than $1 trillion, according to the CFPB.
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Re: THE Price of Crude pt 13

Unread postby ROCKMAN » Wed 08 Nov 2017, 16:11:02

Yoshua - "Still the inventories have declined due to exports of U.S crude and the shift in EIA's counting practice. The increase in the Brent-WTI spread created an incentive for U.S crude exports." Actually long term storage has been reduced much more increasing product exports then that of raw oil. In 2016 more then 1.7 BILLION bbls of product were exported compared to only 216 MILLION bbls of crude oil. IOW more the 8X as much oil was drawn from inventory to make those exported products as crude oil.

https://www.eia.gov/dnav/pet/pet_move_e ... mbbl_a.htm

Even more significant: after holding steady for many years in just the last 10 years the amount of oil pulled from inventory to make exported product has increased about 4X. Which is why the US is the largest refinery product exporter on the planet. As the chart in the link shows oil exports have only jumped in the last 5 years.
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Re: THE Price of Crude pt 13

Unread postby Outcast_Searcher » Wed 08 Nov 2017, 16:27:22

tita wrote:It takes time (years) before the economy adjust itself. I just think that repetitive swings would prevent the global economy to find a balance and grow, and eventually break it. But of course, this has not happened yet.

Economic swings have happened in economies or centuries. Price swings have been happening in many commodities for many decades, at least.

For volatile commodities like oil, this is normal. Do you have any meaningful evidence that price swings will "break" the global economy? Why didn't it break in the ensuing decades after 1970, once the massive and rapid swings from OPEC ensued.

Sorry, but "I think" isn't much of a reason to back an economic idea. If it were, the fast crash doomers would have been right years (or even decades) ago.
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Re: THE Price of Crude pt 13

Unread postby ROCKMAN » Wed 08 Nov 2017, 16:34:28

tita - Perhaps a better analogy would be earthquakes. Everyone understands the magnitude on the Richter scale. While it's the commonly reported metric reported another very imported one is seldom mention: duration. Often big quakes shake for 15 to 30 seconds. But smaller magnitude tremors lasting 2+ minutes can be much more destructive.

Thus with oil prices. The consumer side of the economy can suffer for a number of years from peaking oil prices but still recover relatively quickly. Consider 2006 to 2014. Not that short...8 years before the feedback loop kicked in. But what if PO pushes the "shaking" to 12 years...or 15 years...or more? In 2014 producers had enough oil production capability to increase sales to generate higher income even at the lower price. But what if the KSA et al had not that ability? Or worse: depletion would have been reducing the delivery capability y-o-y?

The critical question: will the feedback loop kill demand faster then depletion reduces production?
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Re: THE Price of Crude pt 13

Unread postby Yoshua » Wed 08 Nov 2017, 16:42:18

European crude production is in terminal decline and our refineries are old and run down. We are the old world, the weak link in the Transatlantic pact.

American and European banks are intertwined...Too Connected To Fail.

But do not worry. There is no systemic risk...yet.
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Re: THE Price of Crude pt 13

Unread postby Cog » Wed 08 Nov 2017, 16:55:55

Are you on any medications we should be aware of Yoshua? I really don't want to read about you in the news.
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Re: THE Price of Crude pt 13

Unread postby Yoshua » Wed 08 Nov 2017, 17:29:22

Cog wrote:Are you on any medications we should be aware of Yoshua? I really don't want to read about you in the news.


"The recent financial crisis has shown how interconnected the financial world has become. Shocks in one location or asset class can have a sizable impact on the stability of institutions and markets around the world."

https://www.bis.org/publ/work376.htm

Relax Cog
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