Donate Bitcoin

Donate Paypal


PeakOil is You

PeakOil is You

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 Zarquon » Sun 02 Apr 2017, 01:06:17

It's probably peripheral to the topic, but I googled Automated Trading in crude oil last week, and came up with this paper by the Commodity Futures Trading Commission:

http://www.cftc.gov/idc/groups/public/@ ... rading.pdf

2017-04-02_072924.jpg
2017-04-02_072924.jpg (80.87 KiB) Viewed 7858 times

2017-04-02_072823.jpg
2017-04-02_072823.jpg (44.33 KiB) Viewed 7858 times

2017-04-02_073825.jpg
2017-04-02_073825.jpg (28.96 KiB) Viewed 7858 times


(Note that the data is from 2012-2014).

Purely manual trading (human traders involved on both sides) is today only a small part of the market (19%). 75% involve at an ATS on at least one side, and 45% of trade volumes are already moved without any human involvement at all.

So if you're speculating about who's trying to drive prices in what direction and why, it's getting difficult. You'd have to estimate to what degree the strategies these algorithms follow are still closely controlled by human traders, if at all.
Zarquon
Tar Sands
Tar Sands
 
Posts: 200
Joined: Fri 06 May 2016, 19:53:46

Re: THE Price of Crude pt 13

Unread postby ROCKMAN » Sun 02 Apr 2017, 08:12:21

Z - "...manual trading (human traders involved on both sides) is today only a small part of the market (19%).". Interesting...thanks. But it also begs the question: how much "automatic trading" is really automatic? My owner's cash cow (that funds my company's ops) is a high frequency stock trading company. And it only trades with the family's money. Since it buys/sells in seconds obviously there's no one clicking a mouse to make trades: the computer does it. But the computer is only making trades based upon metrics set by humans. And my owner's "quants" (quantitative stock analysts) constantly adjust those metrics as needed. So yes: the trades are made automatically based on parameters set by humans. The computer isn't making decisions...it's just executing what humans have instructed it to do.

It's not like the quants make trading decisions on Monday and come back in on Friday to see how much money the computer made them. LOL.
User avatar
ROCKMAN
Expert
Expert
 
Posts: 10625
Joined: Tue 27 May 2008, 02:00:00
Location: TEXAS

Re: THE Price of Crude pt 13

Unread postby ROCKMAN » Tue 04 Apr 2017, 10:32:47

"The KSA in an undeclared war in Yemen. A war that led to a US Navy ship being fired upon and forced to retaliate with a deadly response."

So the battle still rages on and off in Yemen. But saw a map that made me curious: what's going on just next door in Oman, Yemen's neighbor immediately to its east? Interesting: prior to 2003 it had been producing about 900k bopd but the slumped to 700k by 2008. But then higher oil prices brought it very close to a new PO of 1 million bopd by 2016:

http://www.tradingeconomics.com/oman/cr ... production

Oman is very stable today. But in the future? A view from the Middle East Institute:

http://www.mei.edu/content/can-oman’s-stability-outlive-sultan-qaboos

"As political and humanitarian crises destabilize many Arab states, the Sultanate of Oman is a beacon of tranquility in a tumultuous region. The nation’s unique cohesion and stability is largely attributable to the legitimacy of Sultan Qaboos bin Said Al Busaidi, the longest serving Arab ruler still in power. Since ascending to the throne in 1970, Qaboos has transformed Oman from an impoverished state into a wealthy country with first-world infrastructure, a vibrant tourism industry and a military alliance with the United States and Britain.

{Perhaps that US warship cruising in the neighborhood had more to do with Oman then Yemen}

Yet, as Qaboos ages, the Gulf Arab nation will in the near future transition to a new sultan, and the timing could not be more inopportune. Oman’s next ruler—still yet to be determined—will inherit the legacy of Qaboos, as defined by his domestic governance and foreign policy, which has placed Muscat at the center of regional and global security issues. The sultan is popular and Omanis revere him to the point of high emotion. However, Qaboos’ successor will face a host of domestic and international challenges that represent threats to stability in a post-Qaboos Oman.

Internally, economic problems appear to be the most difficult challenge. Low oil prices have severely damaged Oman’s state finances, further underscoring the economic dangers of over reliance on the petroleum sector."

{With 1 million bopd on the line this situation is far from unimportant}
User avatar
ROCKMAN
Expert
Expert
 
Posts: 10625
Joined: Tue 27 May 2008, 02:00:00
Location: TEXAS

Re: THE Price of Crude pt 13

Unread postby sparky » Wed 05 Apr 2017, 07:32:11

.
it seems increasingly evident that the very sudden change in crude oil price was purely market driven ,
after a sharp drop , now it's a sharp rise ,
nothing technical about it , just some screen jockeys playing with your money
User avatar
sparky
Fission
Fission
 
Posts: 3265
Joined: Mon 09 Apr 2007, 02:00:00
Location: Sydney , OZ

Re: THE Price of Crude pt 13

Unread postby Tanada » Wed 05 Apr 2017, 08:56:47

sparky wrote:.
it seems increasingly evident that the very sudden change in crude oil price was purely market driven ,
after a sharp drop , now it's a sharp rise ,
nothing technical about it , just some screen jockeys playing with your money


Agreed, we are still in the phase when surplus storage makes the price very volatile. If you look at 2011-2014 prices were remarkably stable within a range as producers were supplying market demand but prices were relatively high. During that entire period storage was as low as practical because every producer wanted to sell at the high prices, but the bottleneck in Cushing kept the flow rate slower than production for Bakken oil. When all those problems were straightened out Bakken oil started to empty out of storage and flow to the ports on the GOM where it was the major competitor with imports from overseas. The ripple effect was a sudden drop in international oil that caused KSA to decide on the 'market share' strategy instead of the 'price stability' strategy.

Production in North Dakota has taken a substantial drop in the last two years, but the amount of oil in storage is just as bad now as it was in 2012 before the Cushing issues were fixed. This time however it is a surplus of low price oil that has lead to the massive storage inventory. However world demand has almost caught up with world supply capacity, baring something unexpected like a truly massive new source coming online or another mideast war shutting down exports for months or a year the market will be in balance very soon, and from then on storage will be on the down slope back to where the supply chain is most efficient according to the accountants.

It occurred to me some time ago that the definition of 'working storage' is set by the accountants based on the time value of money principal. Under time value of money the refining system would be leaned out under the Just in Time theory so that only the bare minimum crude storage to prevent shutdowns from unforeseen delays in delivery. So far the USA refiners have not been running that close to the bottom possible inventory because the risk of a forced shut down is too great. You can get away with JIT model shipping for toys and consumer junk that doesn't matter much if it is delayed a week, but to shut a refinery for a week and then restart it because of a supply delay would be incredibly expensive for any of the big companies.

I don't know what the federal regulations are on storage. I suspect they are all about the quality of the tanks and not the absolute volume in storage. If for some reason the Energy Department passed a new regulation requiring every refinery to have X number of days of crude in storage against emergency needs and that number was substantially higher than the JIT number pushed by the accountants that would place a large chunk of the currently stored oil into the 'working storage' category. In the physical world nothing would change, but in the company accounting world the definition of JIT would have to include that regulatory quantity which would in effect take all that stored oil off the market because refiners would have to buy and hold those contracts to be in compliance.

I don't KNOW what effect that would have, but I strongly suspect it would give a substantial boost to oil prices simply by removing so much storage from the potential sale market. Of course timing is everything, such a change in 2015 would have kept prices up for a few months as new storage was filled, where such a change now would artificially drive prices up because the market is tightening. IMO the key question now is, as world demand meet current world supply with Fracking production grow at the same rate as demand growth, or will it grow faster and drive prices back down? As little as a 1 percent shortage of $50/bbl oil leads to $60/bbl oil overnight. But by the same token as little as 1 percent going into saleable storage instead of consumption drives prices down from $55/bbl to $45/bbl. The idea that any government could adjust such a balance efficiently is absurd, but that doesn't mean the government has no influence. Regulatory changes constantly force prices up or down by small increments.
I should be able to change a diaper, plan an invasion, butcher a hog, design a building, write, balance accounts, build a wall, comfort the dying, take orders, give orders, cooperate, act alone, solve equations, pitch manure, program a computer, cook, fight efficiently, die gallantly. Specialization is for insects.
User avatar
Tanada
Site Admin
Site Admin
 
Posts: 14041
Joined: Thu 28 Apr 2005, 02:00:00
Location: South West shore Lake Erie, OH, USA

Re: THE Price of Crude pt 13

Unread postby sparky » Thu 06 Apr 2017, 19:17:44

.
for the engineers , optimum storage capacity is an important variable
the input storage should be pretty full , 77% is considered as a base line
the products output storage is deemed optimum around 50%
There is a lot of variables
the rate of production , the seasonable variations , planned outages ( and unplanned crashes) and shipping disturbances
the general idea is that the input storage is controlled by your output shipping rate .
uppermost is not shorting your customers and keeping the plants ticking , even at a low rate

That's for the engineering , the bean counters have other concerns
if the input price is fluctuating , the input storage get filled if the price is low , rather to be run lean if the price spike
the output is not controlled so much , one sell everything one can ,
top concern are large regular customers , small occasional sales drop at the bottom of the list .

futures simply play the backwardation /contango game ,
the large majority of the futures are not Crude at all just nominal rights to buy or sell ,
they get mutually cancelled at the end of the given term ,
real users don't buy their crude from the NIMEX , It doesn't have any to sell , only digital paper
User avatar
sparky
Fission
Fission
 
Posts: 3265
Joined: Mon 09 Apr 2007, 02:00:00
Location: Sydney , OZ

Re: THE Price of Crude pt 13

Unread postby Zarquon » Thu 06 Apr 2017, 23:53:14

Tanada wrote:I don't know what the federal regulations are on storage. I suspect they are all about the quality of the tanks and not the absolute volume in storage. If for some reason the Energy Department passed a new regulation requiring every refinery to have X number of days of crude in storage against emergency needs and that number was substantially higher than the JIT number pushed by the accountants that would place a large chunk of the currently stored oil into the 'working storage' category.


No need for that. That would be the Strategic Petroleum Reserve, which has a capacity of more than 700 million barrels and is currently pretty much full.
Zarquon
Tar Sands
Tar Sands
 
Posts: 200
Joined: Fri 06 May 2016, 19:53:46

Re: THE Price of Crude pt 13

Unread postby Subjectivist » Fri 07 Apr 2017, 04:54:32

Zarquon wrote:
Tanada wrote:I don't know what the federal regulations are on storage. I suspect they are all about the quality of the tanks and not the absolute volume in storage. If for some reason the Energy Department passed a new regulation requiring every refinery to have X number of days of crude in storage against emergency needs and that number was substantially higher than the JIT number pushed by the accountants that would place a large chunk of the currently stored oil into the 'working storage' category.


No need for that. That would be the Strategic Petroleum Reserve, which has a capacity of more than 700 million barrels and is currently pretty much full.


In America the government is infamous for passing regulations known as Unfunded Mandates, which means a law requiring someone do something without paying them to do it. The government could pass this kind of unfunded mandate and then turn over the Strategic Reserve and the expenses that go with it.
II Chronicles 7:14 if my people, who are called by my name, will humble themselves and pray and seek my face and turn from their wicked ways, then I will hear from heaven, and I will forgive their sin and will heal their land.
User avatar
Subjectivist
Fusion
Fusion
 
Posts: 4106
Joined: Sat 28 Aug 2010, 06:38:26
Location: Northwest Ohio

Re: THE Price of Crude pt 13

Unread postby Tanada » Fri 07 Apr 2017, 10:17:44

Subjectivist wrote:
Zarquon wrote:
Tanada wrote:I don't know what the federal regulations are on storage. I suspect they are all about the quality of the tanks and not the absolute volume in storage. If for some reason the Energy Department passed a new regulation requiring every refinery to have X number of days of crude in storage against emergency needs and that number was substantially higher than the JIT number pushed by the accountants that would place a large chunk of the currently stored oil into the 'working storage' category.


No need for that. That would be the Strategic Petroleum Reserve, which has a capacity of more than 700 million barrels and is currently pretty much full.


In America the government is infamous for passing regulations known as Unfunded Mandates, which means a law requiring someone do something without paying them to do it. The government could pass this kind of unfunded mandate and then turn over the Strategic Reserve and the expenses that go with it.



While that is a good point and a sneaky move I was talking a bout creating something like a 'Tactical Commercial reserve' in addition to the SPR to change the quantity of commercial inventories without effecting the SPR in any way.
I should be able to change a diaper, plan an invasion, butcher a hog, design a building, write, balance accounts, build a wall, comfort the dying, take orders, give orders, cooperate, act alone, solve equations, pitch manure, program a computer, cook, fight efficiently, die gallantly. Specialization is for insects.
User avatar
Tanada
Site Admin
Site Admin
 
Posts: 14041
Joined: Thu 28 Apr 2005, 02:00:00
Location: South West shore Lake Erie, OH, USA

Re: THE Price of Crude pt 13

Unread postby ROCKMAN » Fri 07 Apr 2017, 14:21:24

"I don't know what the federal regulations are on storage. I suspect they are all about the quality of the tanks and not the absolute volume in storage." Exactly. The govt doesn't mandate how much oil or gasoline ExxonMobil holds in storage. Inventory is a major factor in determining profit/loss. As far as "tactical storage" goes I suppose you could classify much of the oil in storage at Cushing that is owned by speculating investors as such. But they have to decide at what price they sell since that determines their profit/loss.

But given how little oil is stored in the SPR compared to global consumption (remember we have treaties requiring SPR released to supply other nations also) and the limitations on how much/how fast we release SPR oil it should really be called the TPR...Tactical Petroleum Reserve. The only long term strategic value is how long we've had that oil in storage. In a sever shortage it has no long term capability...just a number of months of tactical use.

After all what is the "strategy" of the SPR other then a short term limited "Band-Aid"? LOL. Like the "strategy" of keeping a hundred $ bill in your wallet in case you need to pay for emergency by-pass surgery: it might cover the cab ride to the hospital but not much more.LOL
User avatar
ROCKMAN
Expert
Expert
 
Posts: 10625
Joined: Tue 27 May 2008, 02:00:00
Location: TEXAS

Re: THE Price of Crude pt 13

Unread postby sparky » Fri 07 Apr 2017, 20:37:22

.
The international energy Agency has a recommendation for its member to have 90 days imports storage capacity
it can be either private or public ,

"Each IEA member country has an obligation to have oil stock levels that equate to no less than 90 days of net imports.

Currently, there are three net exporting IEA member countries (Canada, Denmark and Norway) which do not have a stockholding obligation under the I.E.P. Agreement.

The IEA minimum stockholding obligation is based on net imports of all oil, including both primary products (such as crude oil, natural gas liquids [NGLs]) and refined products. It does not cover naphtha and volumes of oil used for international marine bunkers.

The 90-day commitment of each IEA member country is based on average daily net imports of the previous calendar year. This commitment can be met through both stocks held exclusively for emergency purposes and stocks held for commercial or operational use, including stocks held at refineries, at port facilities, and in tankers in ports.

The obligation specifies several types of stocks that cannot be counted toward the commitment, including military stocks, volumes in tankers at sea, in pipelines or at service stations, or amounts held by end-consumers (tertiary stocks). It also does not include crude oil not yet produced.

Member countries can arrange to store oil outside of their national boundaries and include such stocks in meeting their minimum requirement. This option is particularly important for countries in which storage capacity constraints or supply logistics make domestic storage insufficient."
User avatar
sparky
Fission
Fission
 
Posts: 3265
Joined: Mon 09 Apr 2007, 02:00:00
Location: Sydney , OZ

Re: THE Price of Crude pt 13

Unread postby ROCKMAN » Fri 07 Apr 2017, 22:45:49

sparky - Exactly: having just 90 days of backup storage ain't a long term "strategic solution". Hell, it bare rates as a valuable short term tactical insurance policy IMHO. Imagine what lived would be like on the 91st after the Iranian situation and Straight of H goes sideways. Hell, even if the US had the same volume available from local and imported oil and the SPR lasted for more then a year: think about the global upheaval that would still inflict great damage on the US economy.

Even with the SPR the US couldn't "strategerize" ourselves out of that cluster f*ck. LOL.
User avatar
ROCKMAN
Expert
Expert
 
Posts: 10625
Joined: Tue 27 May 2008, 02:00:00
Location: TEXAS

Re: THE Price of Crude pt 13

Unread postby Tanada » Sat 08 Apr 2017, 08:50:46

I wonder if President trump will argue that the 'fracking revolution' means the USA can dispose of half the SPR because we are domestically producing about twice as much as we were 10 years ago?
I should be able to change a diaper, plan an invasion, butcher a hog, design a building, write, balance accounts, build a wall, comfort the dying, take orders, give orders, cooperate, act alone, solve equations, pitch manure, program a computer, cook, fight efficiently, die gallantly. Specialization is for insects.
User avatar
Tanada
Site Admin
Site Admin
 
Posts: 14041
Joined: Thu 28 Apr 2005, 02:00:00
Location: South West shore Lake Erie, OH, USA

Re: THE Price of Crude pt 13

Unread postby Cog » Sat 08 Apr 2017, 10:16:19

The cost to maintain the SPR is minimal. Can't see it being on his radar. About $250 million a year to keep it ready.
User avatar
Cog
Anti-Matter
Anti-Matter
 
Posts: 9479
Joined: Sat 17 May 2008, 02:00:00
Location: Metro-East Illinois

Re: THE Price of Crude pt 13

Unread postby ROCKMAN » Sat 08 Apr 2017, 15:25:34

T - The SPR has nothing to do with how much oil we produce on a daily basis. Its value is based upon US oil imports. More precisely the loss of some of that volume. The SPE can respond days. Increasing domestic shale production to make up for a significant reduction of those imports would take a year or more. And only then if oil prices got very high.
User avatar
ROCKMAN
Expert
Expert
 
Posts: 10625
Joined: Tue 27 May 2008, 02:00:00
Location: TEXAS

Re: THE Price of Crude pt 13

Unread postby ROCKMAN » Wed 12 Apr 2017, 16:12:26

Just a few more details about changes in the "price" of oil the MSM throws out daily. That apparertly simple number is that simple and doesn't begin to capture the complexity of the dynamic:

Options Traders' `Butterfly' Bets Signal Oil Rally Not Over

https://www.bloomberg.com/news/articles ... y-not-over
User avatar
ROCKMAN
Expert
Expert
 
Posts: 10625
Joined: Tue 27 May 2008, 02:00:00
Location: TEXAS

Re: THE Price of Crude pt 13

Unread postby ROCKMAN » Wed 12 Apr 2017, 16:14:34

Just a few more details about changes in the "price" of oil the MSM throws out daily. That apparertly simple number is not that simple and doesn't begin to capture the complexity of the dynamic:

Options Traders' `Butterfly' Bets Signal Oil Rally Not Over

https://www.bloomberg.com/news/articles ... y-not-over

"More than 15,000 “butterfly” call spreads worth about $20.5 million exchanged hands in block trades, according to data compiled by Bloomberg. The profit on the deal, which includes $52, $57 and $62 call options, would shrink and potentially turn into a loss if oil keeps rising to $62."
User avatar
ROCKMAN
Expert
Expert
 
Posts: 10625
Joined: Tue 27 May 2008, 02:00:00
Location: TEXAS

Re: THE Price of Crude pt 13

Unread postby GoghGoner » Thu 13 Apr 2017, 08:20:22

Whether that July bet works out or not will be up to the consumers. If demand increases along with prices... I used to have a more inelastic view of demand but now I am not confident that consumption won't crater quickly in the US. Health care costs eat up quick a bit of discretionary income and wages have been stagnant for way too long. All of the job openings around town don't pay enough to afford high-priced gasoline. I think the current spike will tell what we need to know about 2017 demand.

Gasoline Futures Hit 20-Month High
GoghGoner
Light Sweet Crude
Light Sweet Crude
 
Posts: 1623
Joined: Thu 10 Apr 2008, 02:00:00
Location: Stilłwater subdivision

Re: THE Price of Crude pt 13

Unread postby ROCKMAN » Thu 13 Apr 2017, 14:11:12

Goner - "Whether that July bet works out or not will be up to the consumers." Buddy, I don't like sounding like I'm picking on you. But if you're referring to the "... $52, $57 and $62 call options..." in my post then the value of those bets won't depend on what consumers will be doing at that time. But the statement "...and potentially turn into a loss if oil keeps rising to $62." may mislead you. It doesn't mean if the price of physical oil sales rises to $62. It's referring to what oil futures are trading at upon expiration of those July option contracts. And that price will be determined by what traders are bidding for August contracts. It's that price compared to the expiring July contracts that will determine profit or loss.

And who knows what will be the basis for those August contracts: reports of big changes in consumption (+ or -), reports of big inventory drawdowns, Saudi announcing a big production cut...or increase? Or some combination of such reports...or another half dozen potential circumstances?

And remember the lag time: when those August bids are made that determine the value of those options taken in July the latest consumption stats we might be seeing at that time could be from June. Same with changes in storage volume, refinery inputs and imports. Domestic oil production numbers will be even more lagged: 2+ months.

And to beat that dead horse one more time: no one knows (and will never know) what the Rockman or ExxonMobil got paid for oil we sold in March under our long term contracts. Those contracts use various benchmarks, such as WTI futures contract bids THAT ARE ADJUSTED, up or down, subject to the contract terms. Those prices might be just 20¢ or 30¢ different per bbl then the benchmark or $5 to $10. All subject to the location and composition of each particular oil as well as the specific terms of each long term sales contract.
User avatar
ROCKMAN
Expert
Expert
 
Posts: 10625
Joined: Tue 27 May 2008, 02:00:00
Location: TEXAS

Re: THE Price of Crude pt 13

Unread postby sparky » Thu 13 Apr 2017, 18:08:30

.
We've just seen a 6 weeks crash /bounce ,
obviously a trillions dollar industry fundamental hasn't changed that fast ,
futures are always wrong , too dear or too cheap , but it average OK .

if you want to know the trend of crude price by watching the Nymex trading of West Texas Intermediate ,
only the monthly average is worth your time , the rest is just waves of guesswork in a pretty choppy sea
User avatar
sparky
Fission
Fission
 
Posts: 3265
Joined: Mon 09 Apr 2007, 02:00:00
Location: Sydney , OZ

PreviousNext

Return to Peak Oil Discussion

Who is online

Users browsing this forum: No registered users and 21 guests