Reasons to short: 1 - Supply: a) Is this a great country or what?? This EIA site has a graph where you can run some analysis tools, among which is a seasonality analysis where supplies for this year are compared to previous years. It shows that this year's supply is greater than any five years previous if you run the five year analysis. The figures themselves show we haven't had this much oil available since 1990. b) Is this a great country or what?? Part two: USGS releases new estimates for the Bakken formation out west: doubles its estimate for recoverable oil, and triples its estimate for recoverable natural gas. 2 - Price: The ratio of the oil price to the natural gas price prior to Jan 2009 was 7.36. Post this date the average is 18.04. This is down to the nat gas price coming down due to fracking. Nat gas is now a lot more popular as a fuel for electricity generation as a result, and its largely displaced oil. What this means is that this crazed price discrepancy is contributing to the above glut of supply. BTW, the heat ratio - BTUs per barrel of oil vs BTUs in mcfs of nat gas, is 5.75 (used fuel oil for this comparison), so the 7.36 pre 2009 ratio is pretty rational, since oil has more uses than gas, so it should trade at some sort of premium to the heat content. But the ratio currently in force seems nutty. It's certainly a record. I've never speculated in oil, so what I want to know is: what am I missing? Is this as monstrous a short as it appears?
But the here and now needs to take into account the Middle East. We may not need oil from that perilous region ten years from now but right now we continue to need it. That's why there is a constant risk premuim built into the game. If that premuim disapates we could see $75 crude pretty quick.
Yeah but have things gotten more dangerous in the past few years? Middle East has always been there as a risk.
there was an article from forbes that discusses the slow down of production from existing wells and how much new production we need to replace this. When i have a sec i'll posts a link. could just be propaganda. When it comes to fundamental news about this industry one must be very leery.
Yes. Syria has changed the equation quite dramatically. The refugee problem -- particularly in Jordan -- has layered in a whole new level of instability. It is bad enough that Syria itself is likely to mirror Lebanon soon with a multi-faction long term civil war but if Jordan falls as well there will be real chaos. I think the Middle East is truly a powder keg in the short term -- maybe even in coming weeks.