The oil market is rigged and controlled by politicians. Therefore the price needs to stay where the industry makes money and the users can afford the product and not complain about costs and have the politicians vote them out. When prices were at 29 (I got kind of lucky), I bought a bunch of oil companies, I still hold them (whish I bought some refiners though) Anyway the purpose of the 30 price... shake out the under capitalized little companies, take em out of business. Now that that is complete, the larger companies are happy and can keep oil prices on the higher side... make money. How you trade it? I trade crude all the time, intraday intraweek etc. Don't fade the SHARP moves, hop on board the pull backs during sharp moves... very simple
This commentary is absurd. Most oil companies want lower prices, not higher. They want to maximize revenues : P X Q = total revenues. As P goes ^, total revenues goes down. Politicians, if they could control oil, would price oil at $5 a barrel, not $75. But they can't control it. The fact is, supplies are very tight, demand is strong and we simply do not have the infrastructure to move wet barrels out of the Permian to the Gulf. If you want to make some nice money, get yourself a truck with 200 barrel capacity and drive oil from Midland, TX into the Gulf. You will make about 4k per trip on the arb. Have your kids do it for summer work.
I guess when Crude goes to 125, my oil stocks will go down at least 40%. Or, when Crude goes to 35 again, my Oil stocks should go up substantially? You P X Q message is much more complex than you describe. There are Ideal market prices, and that ideal market price for the producer fluctuates. It's not as simple as "Producers want low prices" Crude was up this week, as were my Oil stocks. I feel bad for the companies that went out of business at 29 but that is a market, if only they had enough cash to survive. I was buying some of the ones that almost went out of business but did not... and when crude oil rose... they went up 10 fold...not down 10 fold.
The rally is dubious. It would have to shoot up next week to stick imo. But it all depends on that you mean by stick. I could see a drop to 69. This is not a place to add to your position.
When you say "oil stocks" there are many sub sectors. There are refiners, producers, oil service names, tankers, etc. In general, producers are correlated with "production", not with prices. The reason your "oil stocks" went up 10 fold is because production went up substantially, not prices. You want to go further into the weeds? Fine. Oil prices in the Permian are trading at a $20 discount to the gulf. That means in the Permian basin where most of your "oil stocks" are probably producing, are NOT seeing higher oil prices. WTI in Midland, TX is in the mid 50's. That oil is stranded meaning it can't be sold because it can't be moved. Those producers are NOT making money because they can't move their product. So no, it's not as simple as you make it out to be. So the profitability of your producers, or as you call them, your "oil stocks", depends on which basin they are pulling oil out of the ground from, how much they are extracting and is there infrastructure to get that product to the market. There are several big basins, like the Permian, the Bakken, the Eagle Ford, etc. They all have different return margins and no, they do not move with WTI prices in Cushing, OK where the oil futures are benchmarked. That futures price, or what you would simply call, the "oil price" as if there is one universal price, is simply the price of one particular grade of oil at one particular location. Cushing is meaningless right now because that oil can't get to the Gulf.
https://oilprice.com/Energy/Oil-Prices/Explaining-The-Double-Digit-WTI-Discount.html Explaining The Double Digit WTI Discount By Nick Cunningham - May 31, 2018, 6:00 PM CDT Global oil benchmarks are suddenly heading in different directions, upending what have consistently been close linkages between prices in various parts of the world. To be sure, oil prices have declined everywhere over the past week on news that OPEC and Russia might agree to lift production levels. But regional differences are wreaking havoc on the oil market, dragging down some benchmark contracts more than others. Western Canada Select (WCS), for instance, consistently trades at a discount to WTI, but the spread has widened recently. On May 23, WCS traded $17 per barrel lower than WTI, which is, to be sure, a very large discount. However, WCS has plunged this week, and by May 31 the Canadian heavy oil benchmark was trading at $41 per barrel, or $25 below WTI. Pipelines are full and the bottleneck in Alberta is weighing on the Canadian benchmark. This has pushed Prime Minister Justin Trudeau to extreme lengths to get the Trans Mountain pipeline expansion built. But, the ceiling on midstream capacity is expected to persist, perhaps for several more years. Pipeline problems are not unique to Canada. The Permian basin has continued to grow oil production, but the region’s pipeline network is not adding capacity fast enough. The most recent data suggests that the pipelines from West Texas to the Gulf Coast are full and Permian producers are scrambling to find takeaway capacity by rail or even by truck, which, needless to say, is expensive and inefficient, forcing producers to accept steep discounts for their oil. Related: Oil Prices Rebound As Crude Inventories Shrink For the last few weeks, Midland WTI has traded at a double-digit discount relative to WTI in Houston or Cushing. No new pipeline capacity is imminent, and in fact, the shortfall could grow over the next year. While the Midland discount is around $10 per barrel now, futures for November 2018 has Midland trading at a $17-per-barrel discount, a reflection of the fact that the pipeline bottleneck will only grow worse over the course of this year. WTI, for its part, is trading at a multi-year low relative to Brent. As of May 31, WTI was down below $67 per barrel during midday trading, dropping to an $11-per-barrel discount relative to Brent. Again the blowout in the spread is the result of surging shale production at a time when supply is restricted elsewhere in the world. Brent, meanwhile, has lost ground relative to the Dubai benchmark. This is the result of tighter supplies in the Middle East, which has pushed up prices. Not only is OPEC keeping supply off of the market, reducing flows, but the scrapping of the Iran nuclear deal has also raised fears of supply outages from the Middle East. The discount for Dubai relative to Brent has shrunk to less than $3 per barrel, the lowest spread in months. “The three benchmarks -- Brent, WTI and Dubai -- have been fluctuating based on a combination of domestic factors, as well as wider geopolitical risks,” Den Syahril, an analyst at industry consultant FGE, told Bloomberg. “WTI is currently reflecting inland economics, as the U.S. struggles to bring oil to its coast. Brent and Dubai, on the other hand, are pricing in geopolitical tensions around U.S.-Iran sanctions, as well as uncertainties around the upcoming decision between OPEC and its allies.” Related: The Biggest Challenge For U.S. Oil Exports Obviously, American crude priced at more than $10 per barrel below oil found elsewhere in the world makes it highly attractive to buyers. That should result in an explosion in U.S. crude oil exports in the coming weeks. Export levels have already been trending up for the past year, but the price differential is now at its highest level in more than three years, likely sparking a stampede of purchases from Asian buyers, for example. Bloomberg reports that refiners in South Korea, India, Thailand, China and Japan are scrambling to buy up as much U.S. shale oil as possible from where they can get it, including from the Eagle Ford, the Bakken and the Permian. Interestingly, Chinese buyers are cut purchases from Saudi Arabia for the second consecutive month, swapping them out with more American cargoes. Why buy oil from the Middle East for $10-per-barrel more than from the U.S.? It is often said that the oil market is global, that oil is a “fungible” commodity, meaning that prices are largely the same everywhere. There are always regional discrepancies, but as a general rule, oil is globally priced. However, infrastructure bottlenecks, geopolitical fears, supply increases and outages are cropping up in various parts of the world, leading to an unusual divergence in the top benchmarks. With many of those factors not set to immediately go away, the price differentials may not dissipate anytime soon. By Nick Cunningham of Oilprice.com
It’s due to no inventory in Houston right now. I’m not sure I’m going to roll these contracts when it’s nearing expi