Best of the Week
Most Popular
1.The Greatest Stock Market Crash Of Your Life Is Just Ahead… – Warns Harry Dent - GoldCore
2.Budget 2016: Borrowing, Lifetime ISA, House Prices, Economy, Syria, Brexit and Stocks - Nadeem_Walayat
3.Gold Price Intermediate Top - Clive_Maund
4.Brussels Terror Attacks, Death of the European Union, BrExit Wake up Call - Nadeem_Walayat
5.Stock Market Maybe This Time is Different? - Tony_Caldaro
6.UK House Asking Prices Break Above £300k! Housing Market Paralysis - Nadeem_Walayat
7.A Big Reason Why Silver Price Is Set To Soar - Hubert_Moolman
8.The Financial Crisis Has Just Begun; Is The American Dream Is Over? - Chris_Vermeulen
9.Gold Stocks Spring Rally - Zeal_LLC
10.GLX, GLDX, Baby Gold Bull Market Stillborn? - Rambus_Chartology
Last 7 days
A Few Facts About Gold That Nay-Sayers Conveniently Ignore - 5th May 16
Save the Environment and Your Retirement: Sell Tesla - 4th May 16
Silver Bullion Has Key New Player – China Replaces JP Morgan - 4th May 16
Gold Stock Picks Up Over 400%, What's Next ? - 4th May 16
U.S. Treasury Secretary Jack Lew: Puerto Rico Needs Urgent Action - 4th May 16
Technical Trading Mastery for Traders & Investors - 4th May 16
Derivatives Crisis Of Banks…Worldwide - 3rd May 16
Bank of North Dakota Soars Despite Oil Bust: A Blueprint for California? - 3rd May 16
Stock Market Technical Analysis - 3rd May 16
Central Banks Need a Higher Gold Price : Hello GATA - 3rd May 16
A Currency War Battle That Europe and Japan Can’t Afford To Lose - 3rd May 16
When the Truth is Found to be Lies, Confidence in Currency Dies - 2nd May 16
How Brexit Could Help All of Europe - 2nd May 16
US House Prices Outpacing Official Inflation Rate, Household Income - 2nd May 16
USD Still Declining... - 2nd May 16
Gold & Silver Rally Huge as Central Bankers & Analysts Flub - 2nd May 16
Stock Market Bounce Day - 2nd May 16
Stock Market Uncertainty Following Two-Month Long Rally - Will It Continue? - 2nd May 16
Stock Market Correction Underway "Upside Objective Reached" - 2nd May 16
USD, Yen and an ‘Inflation Trade’ Update - 2nd May 16
Gold Commitments of Traders and More - 1st May 16
The Magic of Gold Ratio Charts - 1st May 16
Consensus Forming: China Heading Back Into Financial Crisis - 30th Apr 16
The Next Technical Price Targets for Gold & Silver - 30th Apr 16
Stock Market Downtrend Should be Underway - 30th Apr 16
Gold And Silver – A Clarion Alarm Call For All Paper Assets - 30th Apr 16
US Economic Statistics LIES, LIES AND OMG, MORE LIES - 30th Apr 16
Stock Market Strong Elliott Wave Relationship is Developing - 29th Apr 16
Fed's Kaplan: Brexit to Factor in US June Interest Rate Decision - 29th Apr 16
Silver Miners Strong in Grim Q4 - 29th Apr 16
Is Silver a better bet than Gold in the Near Future? - 29th Apr 16
How to Use the CoT Report in Gold Investing? - 29th Apr 16
Sri Lanka is Intriguing: Areas to Consider for Value Investing - 29th Apr 16
Gold “Chart of The Decade” – Maths Suggest $10,000 Per Ounce Says Rickards - 29th Apr 16
Are We or Are We Not in a New Gold Bull Market? - 29th Apr 16
Silver: The “Five Year Plan” and the Great Leap Forward - 28th Apr 16
Michael Hudson: The Wall Street Economy Has Taken Over The Economy and Is Draining It! - 28th Apr 16
AUD/USD - Trend Reversal or Just a Bigger Pullback? - 28th Apr 16
A Gold Revaluation Could Transform Your Financial Status - Overnight - 28th Apr 16
Monetary Policies Misunderstood - 28th Apr 16
Gold Bullion vs Gold Miners - 28th Apr 16
OECD Suggests BrExit Would Cut Net Migration by 1.2 Million by 2030 - 28th Apr 16
MP Naz Shah Punished for Tweets Made During Israel's Genocide of Gaza Palestinian People - 28th Apr 16
Global Recession in 2016 and Beyond - The Obvious Evidence - 27th Apr 16
Why Gold Bugs Need to Stop Listening to The Fear Mongers and Start Thinking for a Change - 27th Apr 16
BlackRock’s Fink: Fed to Raise Interest Rates by Quarter Point ‘at Best’ - 27th Apr 16
Gold More Productive Than Cash?! - 27th Apr 16
Donald Trump Will Fire Janet Yellen and Be Trapped - 27th Apr 16
Money Saving Gardening by Propagating Roses From Cuttings - Propagating Rose Plants Over 2.5 Years - 27th Apr 16
Facebook Censors Pro Trump and Negative Hillary News - 27th Apr 16
This is the Era of the Democrats and Your Taxes are Going Up - 27th Apr 16
Long Awaited Gold Price Breakout - 26th Apr 16
Crude Oil Price Double Top or Further Rally? - 26th Apr 16
Madness in the Crimex Gold and Silver Trading Pits - 26th Apr 16
Britain's Prospects: GBP and BREXIT - MAP Wave Analysis - 26th Apr 16
CRB, Gold, Oil, Cotton, Coffee - 7 Must See Commodities Charts - 26th Apr 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Catching a Falling Financial Knife

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

© 2005-2016 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

Catching a Falling Financial Knife