[Cog]

I prefer LOMR or Line of Maximum Retardation. Have none of you doomers heard of supply/demand affecting oil price just like it does every single commodity on the planet?

[asg70]

I prefer LOMR or Line of Maximum Retardation. Have none of you doomers heard of supply/demand affecting oil price just like it does every single commodity on the planet?

Peak-oilers have been warping correlation into causation since 2008. Why stop now? Even with PStarr gone, the sentiment will continue.

[shortonoil]

@ Baduila



The graph also gives us an estimate for the minimum price; which appears to be in the high $20 range. That would be the minimum cost of production without reserve replacement, and where operations would cease because of a negative cash flow. It represents the average operational, or lifting cost. The maximum and minimum appear to converge around the 2030 "dead state" as can be calculated from the Etp Model. .

Over the next few years we can expect that what has occurred in Venezuela will begin to happen to other higher cost producers. Production will go down one level at a time, and will be accompanied with a declining economy. Even the economic data is supporting the reality that we are fast approaching the end of the oil age.

http://www.thehillsgroup.org/depletion2_022.htm

[rockdoc123]

Since 2008, five oil price maxima exist, which are points of demand destruction. A these points the oil price crashed because it got too high for the economy. They can be connected by a straight line. LODD, which stands for "Line of Demand Destruction", is a good name for this line.

given that the fall in oil price had nothing to do with demand for oil. In fact across all the points you correlate from there is only one in which demand actually decreased after the recessions started for a very short period, 2008. What we do know is that the fall in oil prices in 2008 were a consequence of global recession related to toxic mortgages, their derivatives and consequential bank failures (less activity, less need for all the oil that was out there), the fall in 2014 was clearly due to oversupply (US unconventional mainly but combined with SA and Russia increases) as has been pointed out time and again by pretty much every oil economist in the world and the current drop in prices is once again from the fear of too much oil out there as can be seen from numerous articles posted on the likes of Oil Price.com , Bloomberg, CNBC etc. and the continuing analysis on supply/demand from the IEA. Throughout the last two points you correlate global oil demand continued to increase year on year as backed by actual global consumption data.

Given your premise of a "Line of Demand Destruction" is complete and utter nonsense that flies in the face of actual data on global consumption and scores of published economic analyses, any support it might offer for ETP is pretty much meaningless.

[Baduila]

Distractions and red herrings.

Please explain, why the Points of Demand Destruction are on a line.
And explain, why the line is going down.

[kublikhan]

Distractions and red herrings.

Please explain, why the Points of Demand Destruction are on a line.
And explain, why the line is going down.

Because oil in storage remains elevated. When a large amount of oil is in storage, prices go down. Conversely, when there is a smaller supply cushion of oil, prices rise:


EIA: U.S. Stocks of Crude Oil and Petroleum Products

Storage levels have come down a bit from their 2016/early 2017 highs. That explains why price levels have risen from their 2016 lows. However they are still elevated compared to the previous decades. Oil demand has not go down, it has gone up. However oil supply has gone up even more. When a commodity(in this case oil) is in high supply relative to demand, the price goes down. 2020 looks to be another year of more supply additions than demand additions.

* Demand to grow 1.4 million b/d in 2020, supply by 2.3 million
* OPEC now pumping more than what will be needed next year: IEA

Even though growth in world oil demand will accelerate to 1.4 million barrels a day in 2020, it will be eclipsed by a 2.3 million barrel-a-day surge in output, as the ongoing boom in U.S. shale is augmented by new fields in Brazil, Norway and Canada.

“A clear message from our first look at 2020 is that there is plenty of non-OPEC supply growth available to meet any likely level of demand, assuming no major geopolitical shock,” said the Paris-based IEA. “This is welcome news for consumers and the wider health of the currently vulnerable global economy, as it will limit significant upward pressure on oil prices.” The IEA expects that demand will pick up markedly, averaging 1.2% in 2019 as a whole and 1.4% next year.

Oil Supply to Swamp Demand, Squeeze OPEC in 2020

[Baduila]

Kublikhan, your explanation could be used to explain why the last point is below the second to last. But there are five points.
Your explanation is insufficient.

[kublikhan]

Look again Baduila.
1. Highest oil price on your graph, early 2008. Oil in stock at that time: one of the lowest amounts of oil stored on record.
2. Next 2 highest points on your graph: late 2013/early 2014. Oil in stock at that time: 2nd lowest amount of oil in stock since 2008.
3. Huge price crash around late 2014 to early 2017. Oil in stock at that time: highest amount of oil in stock EVER.
4. Large run up in price from mid 2017 to late 2018. Oil in stock at that time: crashes 25%.

[Baduila]

Kublikhan,

there might a connection between the height of the US oil stocks and the percentage the oil price goes down, if it goes down.
But there is no connection of the timing of a price crash to the stocks. And there is no connection between the actual oil price and the stocks at the moment when the crash happens.

So, neither the time of a crash nor the oil price at a crash can be deducted from the US stocks. This is no explanation, why the 5 points are on a line, and why the line goes down.

[kublikhan]

No explanation for why the line goes down? I just explained this to you Baduila. When a commodity is high in supply relative to demand, it's price goes down. Are you with me so far? Now let's see if this expanation hold up for oil. From 2011 to late 2014, supply and demand of oil were more or less in a tight balance. However starting in Q4 2014, world supply of oil started to pull ahead of world oil demand. Not because oil demand fell. But because oil supply grew faster than demand. This over supply of oil continued through 2015 and most of 2016. Now in late 2016, OPEC signed a deal to implement a production cut for 2017. This caused supply to fall below demand in 2017. You can see this in the oil production and demand figures below:


That is the oil supply/demand picture, so what happened with oil prices during that time? Well markets tend to look forward to see what the future will look like. So when the markets in Q3 2014 saw next quarter was going to be an oil surplus, oil prices started falling in Q3 2014. They continued to fall throughout 2015 and bottomed out in 2016. Finally in 2016, it looked like an OPEC deal may finally be signed and the glut may start to ease. So prices slowly started creeping up from Dec 2016 into 2017-2018. You can see that here:
Crude Oil Prices

Now wait you ask, if the oil glut started getting cut in 2017, why are prices still lower than 2008? The glut now may not be as bad as in 2015-2016, however we are once again producing more oil than demand. If you look on the oil supply/demand graph you can see that we went back into over production in 2018.

Do you understand Baduila? As long as we have supply of oil greater than demand(and a comfortable supply of oil stocks), we are not going to see oil prices anywhere near 2008 levels. And if prices stay below 2008 levels, no matter what your line will slope down.

[Baduila]

@shortonoil,

the minimum line is about 30$. At the moment, only two minimum points in the oil price diagram are available. So it is difficult to extrapolate the gradient of the minimum diagram. If the gradient is zero, we have a constant minimum of about 30$. In 2025 both the LODD and the linear fit hit the 30$ constant line.

The green dotted line in the diagram hits even earlier.

[Baduila]

Kublikhan, the supply/demand evaluation is a tool, with which in hindsight all changes can be wunderfully explained. It gives information about relative changes, but not about absolute levels. It always 100% correct for the past, but is inaccurate. It is totally useless for prediction of the future.

Well markets tend to look forward to see what the future will look like. So when the markets in Q3 2014 saw next quarter was going to be an oil surplus, oil prices started falling in Q3 2014 .
Lets look at the price crash octobre 2018. The price climbed up from Q1 to Q3 2018 despite over supply. Here the market recognized at the end of the supply phase that the supply is higher. They did not see the future. Sorry, but your explanation is full of wormholes.

And the crash in may 2019 ? Your forgot to mention the massive crude production cut of OPEC+ in Dec 2018, which up to now has cost 3 million barrel per day. Your diagram shows an crude undersupply from Q4 2018 to Q2 2019. Despite under supply, the oil price crashed. Again, your explanation is full of wormholes.

Your improved explanation gives a rough estimate for the timing of the first four price crashes. They may happen during over supply phases. Again, there is no explanation for the oil prices at the point of crash. Why are the five points on a line ?

And: Why is the oil price today only half of 2013 ?

[kublikhan]

It always 100% correct for the past, but is inaccurate. It is totally useless for prediction of the future.

If we could predict the future we would all be billionaires by playing the stock market. Nothing can predict the future. That goes double for the maximum affordability nonsense where if you followed short's investment advice you would have lost a buttload of money by now:

Sat Feb 11, 2017 - As we have previously stated we expect a major crisis to appear in the market later on in 2017. That will result from the ongoing inventory build that has now extended itself into the finished products sector. We are presently setting up a trading desk to take advantage of this upcoming situation by employing the trading of options on 3x ETFs. This method will allow anyone with a trading account to participate for as little as a couple hundred dollars. Once our positions are in place (so we aren't bidding against our own clients) we will be sending emails explaining the transactions used to our present clients. If you have acquired an unregistered copy of our report you may register it by sending an email to "contact" at our site.

Feb 14, 2017 - By the way, we are presently going to be playing put options on 3x ETFs. It gives about 7 to 1 leverage. Since they are six month options they give good lead time. The down pressure from the Max Affordability function should trigger the market about the next OPEC meeting, which is in May. We will probably take the position about the 1st of April. Let's hope that it doesn't crash before then. If it moves to $50 before then we will assume that who ever is keeping it propped up has finally given up, and jump in.

The Etp Model, Q & A Pt. 7
The Etp Model, Q & A Pt. 8

Turns out those 3x short oil ETF funds did not do so good last year:

Code: Select all

Nov 03, 2018
Fund                               YTD Return
ProShares Daily 3x Inverse Crude   -51.01%
United States 3x Short Oil Fund    -52.47%
VelocityShares 3x Inverse Crude    -74.56%

or this year:

Code: Select all

June 15, 2019
Fund                               YTD Return
ProShares Daily 3x Inverse Crude   -28.38%
United States 3x Short Oil Fund    -43.53%
VelocityShares 3x Inverse Crude    -74.56%


Short Oil ETF List

Lets look at the price crash octobre 2018. The price climbed up from Q1 to Q3 2018 despite over supply. Here the market recognized at the end of the supply phase that the supply is higher. They did not see the future. Sorry, but your explanation is full of wormholes.

What price climb? The price was $58 in Jan 2018 and $61 in August 2018. That's only a 5% change in price. That is easily explained by Trump rhetoric at the time of upcoming Iran sanctions. IE, the market priced in an upcoming supply cut. Turns out, Trump granted a buttload of waivers that pretty much nullified the sanctions. So the expected supply cut did not happen. So what happened when the market forecast was readjusted to reality? Prices crashed to $48 by Feb 2019. Nothing surprising here.

And the crash in may 2019? Your forgot to mention the massive crude production cut of OPEC+ in Dec 2018, which up to now has cost 3 million barrel per day.

OPEC production cuts were offset by production rises from non OPEC sources. Total global production actually went up despite the OPEC cuts. Here's the production breakdown:

Code: Select all

Global Oil production in million barrels per day
year OPEC Non-OPEC Total
2017 37.4 63.4     98.1
2018 37.3 63.4     100.7
2019 35.3 65.5     100.9

Global Petroleum and Other Liquids

The entire reason OPEC cut supplies was because of growing oil stocks and fears of future price falls:

Worried by a drop in oil prices and rising supplies, the Organization of the Petroleum Exporting Countries and its allies including Russia agreed in December to make supply cuts. In a sign of excess supply, OPEC’s report said oil inventories in developed economies were above the five-year average in December.

OPEC said in the report that 2019 demand for its crude would decline to 30.59 million bpd, a drop of 240,000 bpd from its last report, as rivals such as the United States boost output. OPEC forecast global oil demand would grow by 1.24 million bpd in 2019. Non-OPEC producers will boost output by 2.18 million bpd, 80,000 more than expected previously.

OPEC cuts oil supply steeply but sees growing 2019 headwinds

Those fears were well justified. Despite the cut crude oil stocks grew:

Code: Select all

OECD commercial inventory in million barrels per day
year stocks
2017 2844
2018 2861
2019 2871

Global Petroleum and Other Liquids

Your improved explanation gives a rough estimate for the timing of the first four price crashes. They may happen during over supply phases. Again, there is no explanation for the oil prices at the point of crash. Why are the five points on a line ?

You mean your "line of demand destruction"? There is no demand destruction. Oil consumption has continued to grow year after year. You picked the year in which oil prices were the highest ever and then act surprised when oil prices didn't hit that high again a few years later? When oil prices last hit that level in 1980 it took 3 decades for the prices to go that high again. Don't act so surprised that after only 1 decade we have not breached those levels again.

And: Why is the oil price today only half of 2013 ?

The oil supply in 2013 was tighter than today. In 2013, we were sitting on around 55 days of oil supply. In May it spiked up to around 62 days of supply. It might not sound like much of a change, but the worst it ever got to when oil prices crashed to the $20 range was in feb 2016 oil supply hit 66 days of supply. Then there is the trade war which doesn't look to be ending anytime soon and is hurting demand.

Oil prices erased an early advance Monday, falling on continued worries of a supply glut. Prices are down 20% from their April peaks on fears that crumbling demand and steady production will lead to excess supply and entered a bear market.

Fears about trade tensions between the U.S., Mexico and China hurting the world economy and crimping commodity demand have hurt oil and industrial materials recently. Many analysts remain wary that uncertainty about trade policies between the U.S. and China will cause an economic slowdown overseas to spread to the U.S. Domestic inventories have risen to their highest level in nearly two years amid tepid gasoline demand and record U.S. output, adding to the pressure on oil in recent weeks.

Oil Prices Fall Amid Fears of Oversupply

[asg70]

Kub, you're throwing pearls before swine.

You're dealing with people who have clung to a simplistic model and are expecting you to do their homework FOR them. The day-to-day swings in oil price was all discussed and explained (right here in this forum even) as it happened. There's nothing mysterious or suspicious about those swings. But nevertheless there are doomers who become entranced by a line on a chart and throw all those details out the window in order to draw some imaginary conclusions, retroactively explaining ups and downs in a self-serving way. It's like a convenient case of amnesia mixed with intentional ignorance.

You know who used to lean heavily on charts?

The Oil Drum.

I once bought into the wisdom of their charts back in the day. Charts feel legit. But it's not the chart that's the problem so much as the interpretation surrounding the chart. TOD "called" peak oil around 2005 and then coined the phrase "undulating plateau" to explain why it was we didn't immediately fall into Mad Max territory. Then the fracking boom happened and TOD (and later ASPO) disbanded.

Nevertheless there are people who are, like I said, simply transfixed by the seeming simplicity of charts, charts that either trend upwards or downwards. But the devil is really in the details and I think no amount of explanation will stop certain people from their love-affair with their favorite chart and what they zealously believe (keyword believe) it's telling them.

[Yoshua]

The Etp Model is only looking into the petroleum production.

The falling maximum oil price (green line) in Baduila's graph is perhaps the maximum oil price that the economy can pay generated by the the energy mix?

The maximum price is falling by USD 20 every three years...

1 Jan 2019 - USD 75
1 Jan 2022 - USD 55
1 Jan 2025 - USD 35

...which equals USD 6.66 annually. We are plunging into darkness.

[Cog]

Stock market chartists think that charts are some magical device that can predict future stock prices or better yet control future stock prices. A laughable concept blown away by reality.

[marmico]

baduilla's raison d'etre is that next year or the year after Joe6Pack will be able to purchase 14.0 gallons of gasoline for each hour worked, like he could in Q1 1999. A peak oiler's raison d'etre is that next year or the year after Jane Chardonnay will be able to purchase 4.7 gallons of gasoline for each hour worked, like she could in Q3 2008.



On the road, YMMV.

[shortonoil]

The falling maximum oil price (green line) in Baduila's graph is perhaps the maximum oil price that the economy can pay generated by the the energy mix?

The base line (blue line in the graph below) also gives a reasonable projection of how far it can fall before shut-ins begin. As it is all an energy relationship (unless the Chinese start brushing their teeth with crude) the economy will decline in advance of that occurrence.

The FED will be forced to cut rates, the stock market will zoom to the stratosphere in a free money euphoria, and world trade will come to a stand still. Since the world only has 200 Gb of economically extractable supplies remaining to recover the bottom of the graph is not far away.

[shortonoil]

The maximum price is falling by USD 20 every three years...

1 Jan 2019 - USD 75
1 Jan 2022 - USD 55
1 Jan 2025 - USD 35

...which equals USD 6.66 annually. We are plunging into darkness.

Then someone will push the BIG RED Button.

"I don't know what will happen with WWIII, but WWIV will be fought with sticks and stones", V. Putin.

[EdwinSm]

The maximum price is falling by USD 20 every three years...

1 Jan 2019 - USD 75
1 Jan 2022 - USD 55
1 Jan 2025 - USD 35

Where did you get these figures? The figures you quote are much higher than the one earlier posted when ETP was first introduced to the forum. I saved the figures but not the links. What was published at the time was

Here is the output for the Maximum Affordability function for WTI by year:

2016...$65.94
2017....54.18
2018....46.16
2019....26.88

It was also qualified that the figures were for 31st December each year, and represented a year (or 50 weeks, I can't remember which) average price. That means the average price for the whole of 2019 can not be higher that $26.88, which in light of how prices have been this year is an impossible goal.

The figures you posted seem to indicate either
a) you are making them up.
..... or......
b) the ETP - MAP function has totally been reworked giving a much higher MAP result that the original ETP-MAP function.

If the figures are the latest estimate from ETP-MAP please could you post a link and preferably one that explains the difference from their previous price estimate. - Thanks