Oil: so much that they're turning it away?

Discussion in 'Commodity Futures' started by mtzianos, Dec 9, 2005.

  1. I wonder if someone more versed into the (physical) oil trading industry could help me interpret the following comment from an article in Bloomberg yesterday:


    So, are they turning oil away?

    It doesn't seem far fetched, considering that the DOE-reported 320mb oil stocks of last week is close the max (ceiling), judging from the 6-yr chart of crude stockpiles...
  2. Does anyone understand the discrepancy between the physical oil market drowning in oil and yet futures price making new multi-week highs?

    With stockpiles at multi-year highs and storage facilities so full that LOOP is refusing further deliveries (and this is for light sweet crude oil, so that even the "sour crude, hard to refine in our antiquated distilleries" con line doesn't apply this time).

    With OPEC yesterday stating that the extra pumping capacity of 2Mbpd they've put online since October hasn't been used by the market, as "the market is well supplied".

    Where's the catch?

    I'm not talking about longer term contracts 10yr away, I'm talking right here and now.

    I can see the market is driven via spec capital in the futures pit at NYMEX (in nat.gas by dentists and lawyers small specs, if we believe the COT data). But why doesn't some market player take those extra 2Mbpd crude supplies from OPEC or those which LOOP is turning away and sell them via futures and make a profit?

    Doesn't arbitrage work in oil market? What am I missing?
  3. Is loop fully functioning All their storage up. etc. Maybe its an internal problem. Just saying.
  4. part of the premium on the market is the so called "terror" premium" since 60% of US oil is imported......from our buddies in the mid east

    shut off the flow and we're faced with a month or so before refineries begin to run low on certain types of crude that they are set up to run......

    in spite of what you hear, Saudi crude is most heavy crude, the light crude that demands a premium mostly comes from west Africa.....

    there are heavier grades of crude that trade for far less than WTI

    the barrel of crude is also arb'd against natural gas which just hit a record contract high......

    DOE numbers and EIA numbers are worth as much as you pay for them, IMHO

  5. 1/ terror premium
    I really think this one is a media invention (media thinks up "explanations" for price action)

    Even during wartime (1991, 2003) in the oil-producing nations, oil would shoot up temporarily and then quickly subside, as supply-demand kicks in.

    Even then, one would think the "terror premium" should be especially low nowadays, with the current massive US military presence in the region.

    Why wasn't there a persistent "terror premium" in all previous years?

    2/ oil-nat.gas arb
    This certainly seems to be a factor between the FINANCIAL contracts

    3/ worthless EIA reports
    AFAIK commercial stockpiles (those ~320Mb) data is provided by the oil companies themselves, according to what inventory they have in their storage facilities. I thought only data like CPI and unemployment are worth as much as we pay for them, now you say there are more bogus gov data ? :D

    OPEC said yesterday 12-Dec-05:
    http://www.opec.org/opecna/Press Releases/2005/pr232005.htm

    Q: Could it be that the physical delivery of WTI light sweet crude oil is so narrowly defined (physical characteristics) that it's almost impossible to arb the futures against the physical contract? I once read that WTI is only 5% of the world oil market.

    Yet IPE Brent is used to price a much larger % of world oil market and it's still at sky-high prices (and its spread with WTI crude has narrowed from $3 to $1.8 during the last 3 weeks).

    Anyone who deals with the physical market?
  6. for every 5 barrels of WTI, you get 2 barrels of gasoline and a barrel or so of Heating oil (jet fuel), the rest is heavy fuel oil and asphalt

    any demand side pressure in one of the refined products will revalue the feedstock no matter what the excess supply that sits on tankers, in the pipes etc.....

    btw, the local tree hugger that demands 15 different fuel blends doesn't help the situation.....

    the price still too high?

    go short crude and try to sleep at nite....
  7. RhinoGG

    RhinoGG Guest

    Watch the movie Syriana...details the shenannigans of big oil.
  8. GS reaffirms 'superspike' theory today.
  9. 5to12


    to speak of light vs heavy as though there are not dozens of single grades, still more blends and without taking refinery upgrades - greater throughput (distinct from capacity) - is meaningless.

    failure to take industry history into account also creates problems, since other than during its first few decades, the oil industry has followed a trajectory from national monopolies to competing international monopolies to production sharing agreements between these (Redline Agreement, etc). Managed production and from that managed pricing.
    The formation and rise of OPEC - a cartel - created short run problems for integrated oilcos but these nations and firms had and have more common interest than not.
    OPEC was effectively broken by internal conflicts, overproduction, and a new generation of non-OPEC producers. In effect, OPEC died in the mid 1980s - slightly after the creation of the futures contracts (London IPE), followed a few years later, 1983, by the NY Merc's contracts.

    This was not immediately disruptive but created the groundwork which, with the advent of global electronic trading platforms such as the ICE (which acquired the IPE in '81), the rapid expansion of commodity funds and pools, the flow from pension funds seeking greater returns, etc., resulted in an at least apparent change in the mode of price formation, with greater weight on the speculative side. (Recall that more trading takes place through obscure OTC transactions; that the relatively transparent Merc is only one element).

    Simple, straightforwards answer: none of the marker crudes (WTI, Brent, Dubai/) price on a strictly fundamental basis other than longer term.
    The CL price is driven by speculative activities and can/does diverge greatly from what supply/demand/cost of production would dictate.

    There is absolutely no shortage of crude in the world today; OECD stocks have been building for months while demand has slowed; China demand, unlike the steep 2003-04 rise, has been flat for the first three quarters of this year.

    NY Merc trading is trade in paper barrels, less than a percent take delivery. I expect CLM6 should exhibit a nice pull back as weather plays fade and as it becomes still more evident that the global econ isn't growing so well as presently portrayed.
  10. 5-12.....that statement is a classic
    #10     Dec 13, 2005