Best of the Week
Most Popular
1.Putin’s World: Why Russia’s Showdown with the West Will Worsen - John_Mauldin
2. Stocks Bull Market Grinds Bears into Dust, Is Santa Rally Sustainable? - Nadeem_Walayat
3. Gold and Silver 2015 Trend Forecasts, Prices to Go BOOM - Austin_Galt
4.Gold Price Golden Bottom? - Toby_Connor
5.Gold Price and Miners Soar on Huge Volume - P_Radomski_CFA
6.Stock Market and the Jaws of Life or Death? - Rambus_Chartology
7.Gold Price 2015 - EWI
8.Manipulated Stock Market Short Squeezes to Another All Time High - The China Syndrome - Nadeem_Walayat
9.Gold, Silver, Crude and S&P Ending Wedge Patterns - DeviantInvestor
10.Is the Gold And Silver Golden Rule Broken? - Michael_Noonan
Last 5 days
How Inflation Changes Retirement Benefit Choices - 17th Dec 14
The Real Reason It's Tough to Beat the Stock Market - 17th Dec 14
Russian Currency Crisis and Debt Defaults Could Create Contagion in West - 17th Dec 14
How to Profit From Russia's Stock Market Crash - 17th Dec 14
Russia Crisis - If You Put Your Money in the Bank Will You Get it Back? - 17th Dec 14
Crude Oil Price Crash, U.S. Employment and Economic Growth - 17th Dec 14
Opposing Forces At Play In Gold and Silver Precious Metals Complex - 17th Dec 14
Wall Street Will Always Find An Excuse For Not Raising U.S. Interest Rates - 17th Dec 14
Torture, Terror And Elite Schizophrenia In The UK - 16th Dec 14
Eurozone Conflict Will Bring a Major Stocks Buying Opportunity - 16th Dec 14
Viewing Russia From the Inside - 16th Dec 14
Gold and Silver Stocks Bottom - Are We There Yet? - 16th Dec 14
The Financial Industry Pigmen Win Again - 16th Dec 14
Crude Oil Price Epic Blowout - 16th Dec 14
Asian Stocks Markets: Sand In The Gears Of The Bull Market - 16th Dec 14
U.S. Dollar Trend Forecast 2015 - Video - 16th Dec 14
Silver Price Bottom? - 15th Dec 14
Gold Price Base Building Bullish Pattern - 15th Dec 14
Stock Market Probable Pop-n-Crash Today - 15th Dec 14
Stock Market Time for a Bounce - 15th Dec 14
Stock Market Euphoria: The Mother of All Ponzi Schemes - 15th Dec 14
Gold - The Weight of Time as Trend - 15th Dec 14
U.S. Dollar Collapse? USD Index Trend Forecast 2015 - 14th Dec 14
The Rushing Stocks Bear Market and How to Prepare - 14th Dec 14
Gold and Silver Dreaming of a White Christmas - 14th Dec 14
Cyprus-style Bank Bail-ins to Take Deposits and Pensions - The Global Bankers' Coup - 13th Dec 14
How To Renounce Your US Citizenship And Become Stateless - 13th Dec 14
Stock Market Downtrend Underway - 13th Dec 14
Gold And Silver - Wall Street, aka United States, Pulls Off Another Destructive Coup - 13th Dec 14
U.S. Congress Has Guaranteed the Secular Stocks Bear Market is Not Over - 13th Dec 14
Gold and Silver Starting to Show Bullish Signs - 13th Dec 14
Arab Spring II is Coming Fast - The Unintended Consequences of Lower Oil Prices - 13th Dec 14
Commodities - Is Inflation Oversold? - 12th Dec 14
Stock Market SPX Top Valuations - 12th Dec 14
Scary Stocks Investors Should Shun in 2015 - 12th Dec 14
New York Times on Benefits of Gold in Currency Wars - 12th Dec 14
Will Crude Oil Kill The Zombies? - 12th Dec 14
Largest Financial Bubble in History - 10 years of 'Why Sell Now?' - 12th Dec 14
How the Rising U.S. Dollar Could Trigger the Next Global Financial Crisis - 12th Dec 14
Central Banks and Government Policies Control the Markets Myth - 12th Dec 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Dramatic Stock Market Selloff

The Crude Oil Price Crash Of 2013

Commodities / Crude Oil Apr 26, 2013 - 11:04 AM GMT

By: Andrew_McKillop

Commodities

GOLD, OIL AND THE "SURPRISINGLY STRONG" DOLLAR
To this heavyweight trio for deciding investor sentiment in the commodities space, we can add sovereign debt, interest rates and currency valuations, in a cocktail mix that reads badly for oil above $85 per barrel - for Brent.

Exactly like gold, market manipulation to generate a Fool's Bounce and drag in latecomer investors to shred and shear, is heavily evident in the oil market. Now traditional, the short term bounces in commodity prices driven by the Eurozone merry-go-round of ECB rate easing, and the linked but totally irrational strengthening of the euro, are able to be promoted as "realistic" or "fact based".


Taking only the "surprising strength of the dollar" - looking at its competitors the euro and yen this isnt a surprise, to sane persons -  if the USD continues to strengthen, "traditional" confidence in natural resource commodity asset price growth is set to drain and bleed away on an almost daily basis. To be sure, symbolic triggers are needed but all is ready in the domain of supply/demand fundamentals.

The main source of what we can call "conventional macroeconomic uncertainty" is the Eurozone and other EU economies, but this downplays the rational and rising uncertainty on China's "growth miracle", and its oil appetite. High levels of uncertainty concerning the US economy, and its abiloity to increase oil demand are traditional since 2007-2008. Japan's "monetary experiment" for restoring inflation, and massively raising the domestic price of oil can only be another downside pressure for global oil demand - and prices.

WILDLY BEARISH OIL NEWS
April reports from the EIA and TWIP have included what can only be called wildly bearish news. Crude supplies are at their highest level for 28 years and refinery runs at a 6-year high for this time of year. Add in the worldwide pressure, not only from central banks but also North Korea that bolster the dollar, and talking about Brent at $125 becomes fond memory of a fast-receding past. Whatever Mario Draghi of the ECB may be saying about the Eurozone economy and the near-zero rate policy of the ECB the continuing deep recession in Europe can only further depress oil demand. In 2013 the region entered its 7th straight year of declining oil demand.

The USA's accelerating growth of domestic oil production, and anemic domestic oil demand, will continue to reduce net import needs. A strengthening dollar will chip away at Obama's fond hopes of increased US exports of industrial goods and services - further depressing any potential for expanded oil demand in the US.

Once upon a time, down Memory Lane, cold weather could give a fillip to US heating oil demand and lever growth of crude prices in its wake, but natural gas usurped that role long ago. The highly exceptional long-life winter conditions ruling the northern hemisphere, especially strong in Europe but also strong in the US, have helped gas prices in several markets, but cold winter conditions have also depressed gasoline demand, while global gas production prospects, including production from stranded gas resources, and large shale gas resource potentials outside the US, make it clear that gas shortage, anywhere, can only and will only be temporary.

In Europe, its high-cost renewable energy action plans (REAPs) mandating a switch away from carbon fuels for power generating, and its now flailing and dying carbon credits market, have resulted in coal-fired generation winning out. Whether this is "clean" coal or otherwise, is not important. The knock-on to gas demand in Europe has been powerful, with declines in most EU27 countries reaching double-digit percentages in the past 12 months. Coal stays cheap, with prices still as low as $8 per barrel equivalent before shipping costs.

For US power producers, like European generators, this is a no-brainer shown by US coal-fired generation up 21 percent YOY, but policy action against coal is now strong in the US. Natural gas in the US is still struggling to beat a price level of better than $25 per barrel equivalent, triggering fast-growing moves by railroad and truck operators and builders to roll out natural gas-fuelled locos and road vehicles. This again will trim US oil demand. World shipping, still using about 2 billion barrels-a-year of oil, is also making the gas shift.

GEOPOLITICS TO THE RESCUE?
The wildcard hope and favorite of oil boomers, due to nothing in the supply/demand arena offering them succour, is a major geopolitical event. However, the North Korean nuclear issue has come and gone, and attempts to breathing media attention back into the Iran nuclear issue (via Iran's "al Qaeda" cells helping US-made terrorists with pressure cookers filled with buckshot) has proved lackluster. The boomers could hope for a reheat of traditional Israel-Palestine spats, with the return of Spring, and the Syiran civil war is always good for speculation it could somehow overflow to Lebanon, Saudi Arabia, UAE and Kuwait.

 More important and a real fundamental change, global oil production is poised to move out and away from the Mid East on a steadily accelerating basis. To the increasing number of onshore and offshore oil E&P projects moving forward to commercial supply status in west and central Africa, east African projects and prospects are adding their weight. In many cases including gas resources, often large, sometimes vast, the Dark Continent is now revealing its potential promise for a global shift of oil-and-gas emphasis that will chip away at Middle East domination. This will exercise a major downward impact on the always-variable but usually large "geopolitical risk premium" on oil.

Global oil, today, provides around 32 percent of world energy compared with 53 percent at the time of the first oil shock in 1973. This longterm fundamental trend is unlikely to change in direction. To be sure, both Russia and Saudi Arabia will growl as oil prices edge their way down - but they lived with oil at $15-a-barrel in the 1990s.

By Andrew McKillop

Contact: xtran9@gmail.com

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2013 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisor.

Andrew McKillop Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014