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TOPIC: Definitive Oil & Gas Discussion

Definitive Oil & Gas Discussion 7 months 3 weeks ago #1

  • MichaelMedici
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Hi all,

I want to take the opportunity to start a thread covering all topics related Oil & Gas.

My hope is that, by providing a single centralized location for all forum members, we will more efficiently be able to share and find information regarding the current state of the O&G industry whether it be commodity, equity, fixed income, or currency related.

I truly believe Macrovoices is poised to become one of the premier sources for truthful financial information and a centralized topic location like this will provide a great amount of value to readers, especially as the audience continues to grow.

To start things off, I'd like to state my bearish view on this weeks (4/12,4/13) API and EIA inventory reports. Based on what Erik has said related to fog preventing tankers from delivering oil imports, and API projecting a build of only 1 MMBoe, combined with the recent run-up to $42 on the idea that a Doha production freeze on Sunday will mean anything (listeners of the "Coming Bottom in Oil" podcast know that it won't) I believe there is asymmetrical opportunity on the downside over the next two days for oil prices, as inventory projections can easily get blown out of the water and over the next week as the freeze does not occur.

I welcome any and all views, bearish & bullish, short, medium & long term and look forward to discussing the O&G industry in this turbulent, and opportunity filled time.

-MRM
Last Edit: 7 months 2 weeks ago by MichaelMedici.
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The Real O&G 7 months 3 weeks ago #2

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There are so many conflicting calls, and this one here is very gutsy!!!!

www.mineweb.com/articles-by-type/analysi...w-with-mike-rothman/

Oil has been up and up and I am scratching my head here.
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The Real O&G 7 months 3 weeks ago #4

  • NathanEgger
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@Tankumo - we're right there with you, my friend. I've been scratching my head so hard that I'm losing what is left of my hair. Looking forward to a return to fundamentals, sooner than later, otherwise your MacroVoices co-host may soon be rocking a clean bald head.
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The Real O&G 7 months 3 weeks ago #3

  • NathanEgger
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@MichaelMedici - first off, thanks for posting this thread, as I agree this topic will be central to discussions of the economy and all markets for some time to come, and because of that, it is one of our primary focuses here at MacroVoices.

Erik and I discuss the upside threats to crude prices both pre and post-Doha in our latest episode (#10 w/ Jim Rickards), but to summarize; while the crude oil fundamentals remain as bearish as ever, we've all consistently seen how effective the propaganda from OPEC and other oil producing sovereigns can be. It is difficult to fathom what sort of meaningful agreement could be made in Qatar (i.e. a cooperative cut, sans Iran), but we'll still trade cautiously around this meeting as the post-meeting press conference will almost certainly deliver some clever wording, designed to jawbone crude markets higher still. Short of something material changing on a fundamental basis, we agree with your view, but it remains to be seen just how long these oil ministers can keep the beach ball in the air.


-Nathan
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The Real O&G 7 months 2 weeks ago #5

  • ErikTownsend
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@MichaelMedici

Thanks so much for starting this thread, and for the kind words!!! Clearly we need a definitive O&G discussion thread, and I don't know why we didn't think of it first!

Just one thing - would you mind if we moderated the thread name to "Definitive Oil & Gas Discussion"? It's obvious from your post that you have considerable knowledge of the field, but some of our listeners are newbies who would not intuitively equate O&G to mean "Oil and Gas".

To the more substantive part of your post, we agree. I screwed up and covered part of my short on Wednesday, thinking we were going to get some last minute "hope rally" action from all the retails who keep telling themselves that "surely" the bottom must be in. Looks like the market is already wise to what we've been talking about for the last few weeks, i.e. that this freeze nonsense is finally over and economic reality starts to set in again.

Thanks again for starting this thread MRM!

Erik
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The Real O&G 7 months 2 weeks ago #6

  • MichaelMedici
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@ErikTownsend

Took care of that name change, and I'm glad you like the idea, happy to add value any way I can since you provide us with so much.

Given that I didn't get the initial large bearish reaction I was hoping for on correctly predicting the API and EIA reported builds I've been in and out of intraday short positions and trading cautiously. Seems like Nathan's point of more Saudi/Russian propaganda (not to mention CNBC's constant discussion of how oh-so-important this production freeze will be) has convinced traders to shrug off the bad news.

Another aspect I considered is that, though the overall inventory report was bearish, Cushing did see a small draw, which some may have taken as a slightly more bullish sign, as I feel many are looking for reasons to be bullish. Any thoughts on this idea?

Also, we're finally seeing a sell off today that I was looking for with inventories, which I'm assuming stems from many people realizing this production freeze most likely won't happen.

One small point I noticed is that, technically, WTI hit a lower-lower in the $35 dollar range and then failed to close above its most recent lower-high of ~$42.50 which may indicate the continuation of the downtrend that started in Summer '14.
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The Real O&G 7 months 2 weeks ago #7

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Gentlemen, we have been discussing oil, what about natural gas, does natural gas go up and down with oil?

fuelfix.com/blog/2016/04/15/u-s-natural-...eaks-another-record/
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Definitive Oil & Gas Discussion 7 months 2 weeks ago #8

  • Swedishviking
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Okey so the opec and non-opec producers failed to reach a deal. This must mean a drop in the oil prices right ?
www.theglobeandmail.com/report-on-busine...ble/article29654469/
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Definitive Oil & Gas Discussion 7 months 2 weeks ago #9

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I saw that too earlier, like Erik said, deal is really not that easy.

finance.yahoo.com/news/draft-doha-agreem...utput-034824669.html
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Definitive Oil & Gas Discussion 7 months 2 weeks ago #10

  • Swedishviking
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So what would drive the prices higher? Hope? Hard to grasp the situation here......
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Definitive Oil & Gas Discussion 7 months 2 weeks ago #11

  • MichaelMedici
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www.wsj.com/articles/oil-worker-strike-c...ed0.5330252316780388

Losing 400,000 barrels a day might have some effect, especially as it seems many people are looking for a reason to be bullish.
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Definitive Oil & Gas Discussion 7 months 2 weeks ago #12

  • svenssona
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First of all, great initiative.

So what are your outlook in the following weeks? No deal in Doha, but as Michael mentioned we have a strike in Kuwait.

Best regards

Richard
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Definitive Oil & Gas Discussion 7 months 2 weeks ago #13

  • TraderMatt
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The price action on oil was very interesting after the Doha meeting failed. Traded up into the $42's the week prior, then after the meeting dropped into the $37's, only to then recover back into the $40's on the same day... a very long tail indeed.

Erik - i'd be keen to hear your opinion on this... I was totally with you thinking that a failed meeting could start a move down.Is there something i'm missing??
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Definitive Oil & Gas Discussion 7 months 2 weeks ago #16

  • ErikTownsend
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Short answer: The Kuwait strike could have been (and perhaps could still be) HUGE! As Art Berman and I discussed back in February, our whole thesis is about an oversupply of 1-2 mm bbl/day. If the Kuwait strike had continued to the degree of shutting in production, it would have been a total complete game changer. At this particular moment in time, all indications are that the strike is over and Kuwait is producing full-tilt. Until tomorrow when the next propaganda campaign starts.

Long answer: In this week's upcoming oil commentary. I'll have a lot more to say this week than usual, including some new thoughts on possible outcomes. We may have to cut the equity commentary to make time! Keep it tuned to macrovoices.com...

Best,
Erik
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Definitive Oil & Gas Discussion 7 months 2 weeks ago #18

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Thanks Erik - can't wait for the next update!
Seems like we might be in a situation where jawboning works until it doesn't... then watch out as the floor could fall out.
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Definitive Oil & Gas Discussion 7 months 2 weeks ago #14

  • MichaelMedici
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I think sentiment regarding the ~500 mboe/d cut from Kuwait (non-voluntary due to worker strikes, which means it will probably reverse more quickly) and power outages & other issues causing potential disruption in Venezuelan supply seem to have buoyed a market that has been searching for good news.

Would also love to here what @eriktownsend thinks.

Also, funny image captured from the WSJ this morning regarding stocks correlation to oil, thought I would share.
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Definitive Oil & Gas Discussion 7 months 2 weeks ago #15

  • TraderMatt
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haha - nice find on that image MRM. classic!
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Definitive Oil & Gas Discussion 7 months 1 week ago #21

  • MichaelMedici
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Been following Samir Madani as per the latest podcast. incredible source of information.

According to his research, Approx 14.7 MMBoe sitting on ships outside of Houston bay as I type. Currently raining in Houston, and obviously won't be included in this weeks Inventory numbers, but if those tankers all arrive at the same time, watch out.

Additionally, Saudi is completing a new project which should bring online 200 Mboe/d in May, and Kuwait production is back up to 3 MMboe/d and will be bringing production up an additional 100 Mboe/d (total of 3.1MMboe/d). Iran is also increasing its production at a faster than expected rate.

This is combined with most major shorts covering in the recent rally, and that odd stretch of China futures buying seen on zerohedge (not sure how reliable that is).

Anyways, I don't see how this ends well for oil prices, I'm still bearish in the medium term.
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Definitive Oil & Gas Discussion 7 months 1 week ago #22

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Thanks Michael.

I came across this article, looks like the Saudis don't want higher oil prices, not now at least.

www.yahoo.com/finance/news/real-reason-s...illed-000000289.html
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Definitive Oil & Gas Discussion 7 months 3 days ago #29

  • ErikTownsend
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Thanks @MichaelMedici! We agree Samir Madani basically rocks.

It's fascinating to understand how others perceive us. Look, I'm going to make an admission: When I discovered Sam's work, at first I was a little bit hesitant to acknowledge it on the podcast. After all, I'm supposed to act like the "professional" HF manager, and it might "look wrong" to my investors if I were following the work of an "amateur" like Sam. I admit that I hesitated to openly acknowledge how impressed I am by Sam's work publicly, "for the sake of appearances".

Nathan was the one to set me straight. Say what you mean and mean what you say, else be judged by the smart people on the Internet as a phony. Your choice, said Nathan. So I'm "coming out of the closet" on this one. @Samir_Madani (twitter handle) rocks. I value his fundamental analysis above my own skill, and I make no apology for believing in a guy whose research is top notch, regardless of whether he happens to have "pedigreed" background in finance or not.

Yes, I just said publicly that I "believe in amateurs" and I make investment decisions with other people's money based on the opinions of a guy that many would like to dismiss as an "amateur" because he doesn't work for a big bank. My investors all read this forum and they can redeem right now if they don't like it. But frankly I'm just awestruck that guys like Sam even exist. May 12 will be the show where we break this story. I have nothing further to say until then!

Best,
Erik
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Definitive Oil & Gas Discussion 7 months 1 week ago #23

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In the last podcast Erik talked about something he might be missing that could cause oil to rise on bad news. In his April 23, 2016 newsletter Doug Noland mentions something that could be this very factor. The chinese have been piling into commodities.

‘We’ve seen a lot of people opening accounts for commodities futures recently.’ The frenzy echoes the activity that fueled China’s stock market last year..."

report.tspsmart.com/2016/04/23/doug-noland-more-on-china/

"The extreme measures China adopted to counter its stock market crash and unfolding crisis have now incited precarious speculative Bubbles in commodities and housing."
"So the world has of late been contemplating booming China: ongoing loose financial conditions with 2016 Credit growth in the neighborhood of $3.0 TN – providing extraordinary fuel for a rather destabilizing speculative blow-off."
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Definitive Oil & Gas Discussion 7 months 3 days ago #30

  • ErikTownsend
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Welcome to our forums, @xear818!

Having lived in Hong Kong, I can attest a huge respect for the impact on markets of "Ms. Watanabe". That's actually a reference to the hypothetical JAPANESE housewife trading stocks, but it's not important. A lot of the HK market was about "hot stocks" that retail investors were trading when I lived there full-time. To a far greater extent than in U.S. markets, it was clear that the people who won the game were the ones who understood the retail culture and knew how to predict their moves. I was culturally lost in space, so I just stayed up really late at night and traded U.S. markets. But the people who had their finger on the pulse of Asisan retail investors had a MUCH bigger edge over their Western equivalents.

Best,
Erik
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Definitive Oil & Gas Discussion 7 months 1 week ago #24

  • MichaelMedici
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www.zerohedge.com/news/2016-04-23/meanwhile-china-insanity - There's the chart for the Chinese future's buying boom in April.

In addition, Hedge Funds have their largest net long position in crude in 2016. Doesn't seem like a lot of buyers left.

You also have production news like this: www.zerohedge.com/news/2016-04-25/reason...lost-chinese-market-

Iran also increasing faster than expected. Kuwait bumping prod. up to 3.15.

New report from Genscape indicated 1.5 Mmboe build at Cushing.

Been following Samir Madani on twitter, his research suggests 14MMboe sitting waiting to enter the Houston bay... curious why it hasn't been delivered given the good weather in H town today. Thoughts are that takeaway capacity from the ports can't handle that much at one time and are also struggling to find a place to pipe/ship it. Typically sent to W.Texas and Cushing. May be running short on storage.

Doesn't seem like a good combination. Supply-Demand story from "coming bottom in oil" still has its legs.
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Definitive Oil & Gas Discussion 7 months 1 week ago #25

  • tankumo
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This coming week report of oil inventory will be crucial. If we have big increase then we will see meaningful correction. As of now 2230 PST oil is down over $2, if that means anything.
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Definitive Oil & Gas Discussion 7 months 4 days ago #26

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MichaelMedici wrote:
Been following Samir Madani on twitter, his research suggests 14MMboe sitting waiting to enter the Houston bay... curious why it hasn't been delivered given the good weather in H town today. Thoughts are that takeaway capacity from the ports can't handle that much at one time and are also struggling to find a place to pipe/ship it. Typically sent to W.Texas and Cushing. May be running short on storage.

Could it be that storage is driving the "Weather"? That is, could key people in Houston be telling the ship operators to keep the ships offshore so that we don't get an inventory build, and to blame it on the weather? Given today's GPS technology, there is no reason that fog should keep ships from coming in to unload oil. It sounds more like a made-up excuse. The reason of course do this is to keep prices propped up, and to delay further future shipments for as long as possible. They would know that if the tanks run out of space, and there is no where to put the oil, prices would have to crash.

Which, no matter whether it's a true weather event or an excuse weather event, it seems to me that oil must be backing up at the origination ports as well... what's storage looking like on the other side?
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Definitive Oil & Gas Discussion 7 months 3 days ago #27

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Re: "weather"...

highly doubtful, being in H town the weather has been very fickle, and it gets worse just off the coast.

I actually considered the same idea, that possibly the tankers were not entering the port because they literally did not have buyers for the cargo and asked Samir about it (see image below). Apparently, "storage maintenance" is the story, but I really wouldn't doubt some effort to manipulate prices and prevent a huge build.

Re: backing up at the origination post.. not sure if that's the case. My mental model is Saudi exporting tons of crude not because they ran out of storage but because they want prices to go back down. Erik touches on this in the latest podcast. Goes something like Saudi sends a bunch of tankers knowing Iran is doing the same and other sources like Kuwait and one of the smaller producers (Angola i think?) are coming back on line, the huge build number hits, and Salman takes a page from the Fed book of "open mouth operations" and claims to be increasing prod. by 1 MMboe/d and just absolutely obliterates crude and US Shale producers in one final price plunge.

One of the big issues i see with this rise in prices is that its allowing producers to lock in hedges at a reasonable (above breakeven for some) price. This is basically like giving medicine to a terminally ill person, just dragging out their lives even longer and keeping prices lower for longer. Slow and painful death (yes, a few more may survive) instead of sifting of the wheat from the chaf quickly and allowing a re balancing of supply and demand to occur.
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Definitive Oil & Gas Discussion 7 months 3 days ago #28

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This looks bearish for crude: 4/25/2016 Looming gasoline glut threatens crude's rebound
www.reuters.com/article/us-global-oil-gasoline-idUSKCN0XM0ZZ
This shows rebound in Cushing without the ships:
marketrealist.com/2016/05/cushing-crude-...since-december-2015/
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S&P500 - Macro market discussion 7 months 2 weeks ago #17

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Erik, what do you think of the strike in Kuwait? I hope the strike is not too long.

There are always opposite views, but I also think the market should be in correction mode soon, but his guy thinks different.

www.safehaven.com/article/41132/why-stocks-should-grind-higher
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S&P500 - Macro market discussion 7 months 1 week ago #19

  • NathanEgger
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@tankumo - I moved your post to this forum as it seems a more appropriate place for it than the "S&P Macro market discussion" thread, and you will find Erik's response above.

Cheers.
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S&P500 - Macro market discussion 7 months 1 week ago #20

  • tankumo
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Nathan, I might wait for a pullback, this guy sounds so gloomy.

safehaven.com/article/41209/silver-commi...ving-early-this-year
Last Edit: 7 months 1 week ago by tankumo.
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