Best of the Week
Most Popular
1. Will Gold Price Breakout? 3 Things to Watch… - Jordan_Roy_Byrne
2.China Invades Saudi Oil Realm: PetroDollar Kill - Jim_Willie_CB
3.Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - Nadeem_Walayat
4.The Stock Market Trend is Your Friend ’til the Very End - Rambus_Chartology
5.This Isn’t Your Grandfather’s (1960s) Inflation Scare - F_F_Wiley
6.GDX Gold Mining Stocks Fundamentals - Zeal_LLC
7.US Housing Real Estate Market and Banking Pressures Are Building - Chris_Vermeulen
8.Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - Buildadv
9.Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - Nadeem_Walayat
10.Warning Economic Implosion on the Horizon - Chris_Vermeulen
Last 7 days
Stock Market Predictive Modeling Is Calling For A Continued Rally - 22nd Apr 18
SWEATCOIN - Get PAID to WALK! Incentive to Burn Fat and Lose Weight - Review - 22nd Apr 18
Sheffield Local Elections 2018 Forecast Results - 22nd Apr 18
How Long Does it take for a 10%+ Stock Market Correction to Make New Highs - 21st Apr 18
Sheffield Ruling Labour Party Could Lose 10 Council Seats at May Local Elections - 21st Apr 18
Crude Oil Price Trend Forecast - Saudi Arabia $80 ARAMCO Stock IPO Target - 21st Apr 18
Gold Price Nearing Bull Market Breakout, Stocks to Follow - 20th Apr 18
What’s Bitcoin Really Worth? - 20th Apr 18
Stock Market May "Let Go" - 20th Apr 18
Overwhelming Evidence Against Near Stock Market Grand Supercycle Top - 20th Apr 18
Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - 20th Apr 18
The Incredible Silver Trade – What You Need to Know - 20th Apr 18
Is War "Hell" for the Stock Market? - 19th Apr 18
Palladium Bullion Surges 17% In 9 Days On Russian Supply Concerns - 19th Apr 18
Breadth Study Suggests that Stock Market Bottom is Already In - 19th Apr 18
Allegory Regarding Investment Decisions Made On Basis Of Government’s Income Statement, Balance Sheet - 19th Apr 18
Gold – A Unique Repeat of the 2007 and How to Profit - 19th Apr 18
Abbeydale Park Rise Cherry Tree's in Blossom - Sheffield Street Tree Protests - 19th Apr 18
The Stock Market “Turn of the Month Effect” Exists in 11 of 11 Countries - 18th Apr 18
Winter is Coming - Coming Storms Will Bring Out the Best and Worst in Humanity - 18th Apr 18
What Does it Take to Create Living Wage Jobs? - 18th Apr 18
Gold and Silver Buy Signals - 18th Apr 18
WINTER IS COMING - The Ongoing Fourth Turning Crisis Part2 - 18th Apr 18
A Stock Market Rally on Low Volume is NOT Bearish - 17th Apr 18
Three Gold Charts, One Big Gold Stocks Opportunity - 17th Apr 18
Crude Oil Price As Bullish as it Seems? - 17th Apr 18
A Good Time to Buy Facebook? - 17th Apr 18
THE Financial Crisis Acronym of 2008 is Sounding Another Alarm - 16th Apr 18
Bombs, Missiles and War – What to Expect Next from the Stock Market - 16th Apr 18
Global Debt Bubble Hits New All Time High – One Quadrillion Reasons To Buy Gold - 16th Apr 18
Will Bitcoin Ever Recover? - 16th Apr 18
Stock Market Futures Bounce, But Stopped at Trendline - 16th Apr 18
How To Profit As Oil Prices Explode - 16th Apr 18
Junior Mining Stocks are Close to Breaking Downtrend - 16th Apr 18
Look Inside a Caravan at UK Holiday Park for Summer 2018 - Hoseasons Cayton Bay Sea Side - 16th Apr 18
Stock Market More Weakness? How Much? - 15th Apr 18
Time for the Gold Bulls to Show their Mettle - 15th Apr 18
Trading Markets Amid Sound of Wars - 15th Apr 18
Sugar Commodity Buying Levels Analysis - 14th Apr 18
The Oil Trade May Be Coming Alive - 14th Apr 18

Market Oracle FREE Newsletter

Trading Lessons

Crude Oil’s Big Move Comes Down to One Thing

Commodities / Crude Oil May 06, 2015 - 10:16 AM GMT

By: ...

Commodities

MoneyMorning.com Dr. Kent Moors writes: Look at this headline from the Houston Business Journal last week: “U.S. Rig Count Free Falls in Texas, Oil Prices ‘Unsustainable.'”

Or this one from Bloomberg Business, which reported Sunday: “The Shale Boom Has Already Gone Bust.”


I hope you’ve learned to tune those guys out by now…

When it comes to the price of oil, there’s a pervasive market reality that these analysts seem to have forgotten.

Until this morning, that is.

As I write this, West Texas Intermediate (WTI), the New York crude oil futures benchmark, has surged more than 3% today to stand at just a shade below $61 a barrel. Meanwhile, Dated Brent, the other (and more widely used) London benchmark, is up 2.5% at more than $68.

Both are at new highs in 2015 – new highs since the first week in December 2014, in fact.

If you’ve only been reading the mainstream energy headlines, you might be surprised by this move (and your portfolio might be suffering). If you’ve been tuning in here instead, you’re in good shape.

Here’s what just happened…

The one thing raising the price of oil: geopolitics. This is all about the geopolitical once again dictating the view of oil traders.

In fact, the surge today is a result of two factors that have nothing to do with U.S. production:

  1. Libya
  2. Saudi pricing

That’s why we’ve been tracking both here in Oil & Energy Investor for months.

Let’s go over the latest developments in detail.

Geopolitical Oil Price Factor #1: Libya

First, the Libyan factor results from the ongoing civil unrest there. Protesters, mostly looking for employment, managed to close down the last major oil exporting port, called Zueitina. It accounts for about 15% of the nation’s normal daily volume, or about 70,000 barrels a day.

Some estimates put overall Libyan production at no more than 400,000 barrels a day, less than a quarter of what had been the norm before the fighting.

The ongoing civil war, combined with a continuing (and intensifying) contest over control of the central government in Tripoli, has reduced Libyan oil exports to a fraction of what they were prior to the unrest.

The protesters have been blocking shipments on the pipeline to Zueitina, rather than at the port facility itself. Most knowledgeable observers believe the situation will end soon, as a similar protest of workers did last month at the port of Hariga and earlier at Brega.

As was the case with other unrest closing ports, Zueitina is currently filling tanker orders from available stockpiles on site. Of course, that becomes a diminishing alternative the longer the labor action lasts.

And that belies the deeper problem emphasizing how disheveled the Libyan oil infrastructure has become. Even with all ports in operation, the country can expect exports of less than 200,000 barrels a day. Much of this is the result of closures upstream, especially at the huge El Feel (or “Elephant’) field a few weeks ago.

Rising Libyan exports for a period late last year added to the downward trajectory of global oil prices. That curve is now moving in the other direction.

On the other hand, the second geopolitical factor this morning is something of an altogether different sort.

Geopolitical Oil Price Factor #2: Saudi Pricing

Saudi Arabia has raised prices for exports going to the U.S. and Europe.

The rationale given was the increase in demand noted in both regions, but the reasoning is quite at odds with the present strategy that had been coming out of Riyadh. Back last November (on Thanksgiving as it happened), the Saudis had prompted all of OPEC to hold production constant rather than cutting pumping to rise prices.

At the time, the cartel argued that cuts to maintain pricing had to come from other producers – especially the U.S. and Russia. Moscow initially obliged as its oil prospects waned in the face of a collapsing worldwide price. More recently, a greater than 30% rise in prices since the beginning of February has resulted in a resurgence.

In the case of American production, the result has been different. Despite significant cuts in forward capital expenditure commitments and the dive in the number of operating rigs in the field (shortly to surpass the huge cuts of 2008-2009), volume is increasing.

Yet, American oil still cannot directly affect global prices for one simple reason.

Aside from oil condensate (actually liquid natural gas that can be transported along with oil), heavy California oil (allowed for export at heavy discount because a sufficient domestic market is lacking), and certain minimally processed shipments (usually steam distilled), broad categories of crude oil still cannot be exported. Congress must change laws dating from the oil embargo of the early 1970s before the move out of U.S. production in large volume can occur.

[Note for Energy Advantage Members: I gave you the latest on the U.S. exports push – and the attendant profit opportunities – in the May issue. Log in here for another look.]

The battle between the Saudis and the American shale patch, therefore, is still ongoing.

And that makes the last two Saudi moves all the more interesting. OPEC’s largest producer and exporter reported last month it has increased daily lifting to 10 million barrels a day. The cartel a week later then reported that overall OPEC membership production had risen some 800,000 barrels a day.

As I noted at the time, the Saudi move to increase production was a double-edged sword. On the one hand, it was a transparent attempt to explain away the county’s inability to control OPEC members’ production in excess of monthly quotas. On the other, it was a ore hardball approach to attempt lowering prices to discipline those recalcitrant OPEC nations flooding the world with oil anyway.

That, at least, was roughly consistent with the initial policy from last November, What happened this morning is not.

By raising prices to the “developed world,” the Saudis are putting upward pressure on prices. They have done the same by lowering, and then rising, prices to Asia in the recent past.

This time there is no increase in production. But the result will have an even greater impact. It provides greater producing leverage for U.S. and Russian companies to maintain extraction levels, thereby mitigating against the larger strategy of forcing these competitors to cut.

Whether the rise in American and European demand justifies the move is debatable. But raising the price for imports is not going to make U.S. producers cut anything.

One conclusion is already clear. The days of the Saudis and OPEC controlling the global oil market by their own policy adjustments is over. The traditional “call on OPEC” has been replaced by the “call on shale” in setting price levels.

Stay tuned.

Source :http://oilandenergyinvestor.com/2015/05/oils-big-move-today-comes-down-to-one-thing/

Money Morning/The Money Map Report

©2015 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.


© 2005-2018 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

6 Critical Money Making Rules