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
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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.


© 2005-2019 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