Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Brent Crude Oil Price Faces Headwinds in 2014

Commodities / Crude Oil Jan 17, 2014 - 10:53 AM GMT

By: EconMatters

Commodities

EIA Petroleum Report

In reviewing the EIA weekly petroleum report, the oil imports figure came in at 6.889 (Million Barrels per Day) for the week ending 01/10/14. This number compared to a year ago 8.030 (Million Barrels per Day) puts a nice cap on the downtrend which really started gaining steam in 2010 onward.


Compare this imports number with the U.S. Production number of 8.159 (Million Barrels per Day) and it is clear that oil is being managed quite effectively to keep supplies and prices in check. A year ago U.S. Production was 7.041 (Million Barrels per Day), and so the goal is to try and offset imports to the increases in U.S. Production by importing less oil.

Managing Oil Supply

This is inventory and supply management 101, but unlike solar panels where supplies from China flooded the market, and prices plummeted sending many manufacturers out of business, oil and Brent especially has remained relatively high. In fact Brent is actually considerably higher than 2010 when the US was importing much more of the commodity.

Sure one could say that China is utilizing all the spare oil that used to come to the United States, but one look at Australia`s export numbers versus the boom in China for commodities when they were building new cities seemingly every month, seem to tell a different story.

Dramatic Paradigm Shift

These are not small numbers we are talking about here, the differences in U.S. Production and Imports since 2010 to the current numbers is just an incredibly big delta. For example, in 2010 U.S. Production was around 5,500 (Million Barrels per Day) and Imports were around 9,500 (Million Barrels per Day) on average. When one starts running the numbers for the entire year, for three years successively, the dramatic commodity paradigm shift is huge, and the overall number is quite large.

Price Independent of Fundamentals

Moreover, to think that price actually went against this trend in the largest oil consuming market in the world is even more astonishing when you think about it. Sure QE liquidity has in some sense inflated many of these commodities like Gold, Silver, and Copper along with every other asset known to humankind that is traded in financial markets.

But the major disconnect between the collapse in Iron-Ore prices with the slowdown in China and the rising with Brent Oil prices over the same time period with Global production outpacing demand on a weekly, monthly and annual basis is just an interesting feat in and of itself.

Sure the Middle East has flared up several times, almost every January to April time period for the last three years the Middle East flares up for a short time period. However, no real supply disruptions have materially occurred, and after several weeks of demonstrations, things routinely go back to normal. In the overall big picture these Geo-Political events are mere blips on the radar screen in the oil market.

Middle East Production Changes

Interestingly now that Iran, Iraq and Libya are all set to pump more oil in 2014 is this finally going to be the nail in the coffin for the Brent contract, so that it trades the bulk of the year on par, or even at a discount to WTI? Not if the US Refining Industry has any say in the matter, this WTI-Brent Spread is crucial for their business model, and they have a vested interest in defending the spread at all costs.

You don`t think this spread exists solely due to natural supply dynamics of the underlying products do you? There are vested interests and stakeholders at play here; the spread is encouraged because it meets the needs of many stakeholders on both sides of the pond so to speak.

Where is Supply Really Going?

It is obvious that a lot of this oil is just staying in the ground; some of it is probably being stored in China on a resource play as they build up their reserves.

But at some point reserves fill up, and these Middle East countries need more and more revenue to meet their expanding budget commitments. Therefore, holding back production to artificially manage global prices by limiting supply works for a while but eventually these same producers are going to need to start producing more to meet the expanding revenue requirements, especially if price is unable to compensate substantially for much lower production volumes.

Consequently, when this happens the world could experience its first real meaningful break in oil prices in the last 10 years (apart from the financial crisis temporary drop) even with a slightly improving global economy.

Final Thoughts

The three contributing factors would be the dynamics of the North American Oil Production market, the ending of QE Stimulus, and the eventual increased production from the Middle East (both in terms of New Oil coming onto the market & the increases in existing supply to meet revenue objectives which is currently being purposefully withheld from the market).

It may take towards 2015 for this to all play out, and with more fuel efficient vehicles in the developed world, and China already struggling with pollution overload ( the last thing they can handle is more cars on the road), it makes intuitive sense that at some point the fundamentals are going to dictate a lower oil price.

Furthermore, one would think that Brent comes under increased pressure in 2014; and accordingly it would seem that any rally in Brent should offer up a nice entry point on establishing a short position in the commodity.

By EconMatters

http://www.econmatters.com/

The theory of quantum mechanics and Einstein’s theory of relativity (E=mc2) have taught us that matter (yin) and energy (yang) are inter-related and interdependent. This interconnectness of all things is the essense of the concept “yin-yang”, and Einstein’s fundamental equation: matter equals energy. The same theories may be applied to equities and commodity markets.

All things within the markets and macro-economy undergo constant change and transformation, and everything is interconnected. That’s why here at Economic Forecasts & Opinions, we focus on identifying the fundamental theories of cause and effect in the markets to help you achieve a great continuum of portfolio yin-yang equilibrium.

That's why, with a team of analysts, we at EconMatters focus on identifying the fundamental theories of cause and effect in the financial markets that matters to your portfolio.

© 2014 Copyright EconMatters - 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 advisors.

EconMatters Archive

© 2005-2019 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