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28 November 2014

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b

Measured in the international Brent crude price oil has been coming down from its peak and is in the same range than 2 1/2 years ago. It is about 30% below its summer 2008 peak.

Measured in the U.S. centric WTI crude price oil has been going up a bit.

This is a technical issue with WTI. It is a price that is fixed in Cushing, Oklahoma and Cushing had infrastructure problems. More oil could be delivered to Cushing than could be transported from Cushing to refineries. That had lowered the price there. Since new pipelines came up now and Cushing finds back to normal inventory levels WTI is increasing from its artificial low and the spread between WTI and Brent, which was once zero, then went to $23, is now coming back to zero.

http://www.eia.gov/todayinenergy/detail.cfm?id=11891

From a global (Brent) point of view oil has been somewhat constant for the last 2 1/2 years.

The oil coming up from Iraq is just replacement for what sanctions killed off from Iran. Global consumption is also again increasing.

Rd.

The excuse is 'turmoil' in Egypt. Guess all those massive oil refineries in Egypt must have shut down!!!!!!!

I travel often and just as the prices hit the low $3, hwys were full of vacationing cars.. good opportunity for the investors to hi five..

and now, Algeria is on the map for turmoil coming up shortly. Guess Algeria's strong man is ill and certain US troops are on their way to N Africa.

and then you wonder the administration and congress exhort so much effort in sanctioning Iran's oil export in order to shut down their economy. then they turn around and promote policies to De-stabilize other countries which causes increase in oil prices. So Iranians can sell less of their oil for more money, keep more of their oil in the ground for future investment.

Do they really have a policy?

George

Matt Taibbi, in his book Griftopia, gets into some of the reasons for this. Rather than me trying to regurgitate his explanation I would urge you to read his book if you haven't already.

Bill H

Uncertainty. Syria, Iran, Afghanistan, Nigeria, Somalia and Egypt are all possible points of ignition that could disrupt ME oil. Not entirely logical, but markets are not rational.

Cost of transportation from source to processing to market has skyrocketed. Cost to process has increased.

Profiteering on commodity trading accounts for part, but IMHO is not a major factor.

r whitman

I pretty much agree with your analysis of the
WTI pricing, however there is a lot of oil available on gulf coast spot market at a discount. Overseas there is a lot of "hot oil" in tankers from Iran available with substantial discounts.

Jay

Does Goldman Sachs really need oil storage facilities? Warehouses for stockpiles of aluminum? Every market is rigged, from Libor to Gold, from Oil to equities. Everything has been turned into a commodity or financialized into something that can be traded publicly or privately, as well as hedged or insured, from pork belly futures to the house you live in. See here.

http://www.washingtonsblog.com/2013/07/giant-banks-take-over-real-economy-as-well-as-financial-system-enabling-manipulation-on-a-vast-scale.html

Some nitty gritty about probably just one of the many oil market manipulations here.

http://money.cnn.com/2013/05/17/news/economy/oil-price-libor/index.html

Also, too, note that everyone with a paycheck directly or indirectly linked to the energy industry said that it was impossible *impossible!* to manipulate the price of oil. Now there's evidence of manipulation, they say it's inconsequential. When it presumably becomes evident that oil market manipulation probably added 40 - 60 percent to the cost of oil, they'll probably say it's all too complicated to explain, "mistakes were made," "it may have been unethical, but it was all completely legal," blah blah blah. Just like the "I'll be gone, you'll be gone" mortgage derivatives explicitly designed to explode at the first turn of a gentle breeze.

There is no aspect of the market that is not manipulated. There is no evidence of regulation of any consequence. And the Justice Department charged with investigating and prosecuting wrongdoing by influential political contributors will not even act on money laundering for drug cartels or terrorism organizations. See here.

http://takingnote.blogs.nytimes.com/2013/03/07/banks-above-the-law/

My speculation is that they're orchestrating the precipitation of another market blowout a la 2008 when oil got up around $150/bbl. It worked last time, what reason would they have to not try it again?

jonst

I don't know about the rest of the nation, but in less than 3 years, it is reported, that close to 25% of Maine residents have switched from oil to natural gas. Lets say something similar is happening all around the nation. I keep asking myself, how long is it going to be before the price of oil drops? Unless, that is, the fix is in.

turcopolier

jonst

That's what I am trying to understand. Is the "fix" in? pl

The beaver

It is not about refineries in Egypt but tankers passing through the Suez Canal.

turcopolier

Beaver

Is crude not passing through the canal? pl

William R. Cumming

Production is up but demand is down. So guess not a "free market"!

Buzz Meeks

I am trying to think of what is not fixed. Have not been able to come up with anything.

The beaver

Colonel,
This is the the pseudo-excuse of FEAR INC and the speculative money makers to camouflage the mkt manipulation. We know there is no way the Suez Canal will be closed to the tankers but that's what those "paid journos" from CNBC or business section of the daily newspapers are spitting left and right.
FYI: According to an oil analyst, four mb pass through the canal everyday.

norbert Salamon

do not forget the oil pipeline with over million barrels per day parallel to thee canal

VietnamVet

Colonel,

First, there is no regulation of the financial and commodity markets. They all have a get out of jail card from the White House i.e. Jon Corzine. Anything goes.

Second, the large cheap sources of petroleum are drying up. When my ex-wife and I drove through North Dakota to see her relatives on the way to my new government job in DC in 1974, there were already city celebrations of the discovery of oil there. Current prices allow profitable extraction and shipment out by railroad tank cars. North Dakota is now booming when earlier the State was being depopulated. As soon as the oil is exhausted the State will return to empty prairies and farming where the land isn’t polluted.

America is turning into a second Nigeria. A Quebec town was blown up by a North Dakota oil train that ran away because the crude is being shipped to refineries as cheaply as possible. A one person train crew left a running 73 oil tank car train unattended on the main track. This is a disaster waiting to happen. The railroad president has accused him of not setting the hand brakes. But, the corporation was so cheap; it did not require a second crew member to assure the tie-up and blocking was done correctly or to park the train on a siding with a derail that would have prevented any runaway.

In North America and Europe corporations have seized control of the governments at the expense and lives of its citizens. Canada approved of one man train crew for the railroad.

Bobo

The WTI/Brent Crude relationship, Egypt unrest effect on Suez, the world is economically growing as the bottom is behind us. Long Term we will see $2.50 per gallon of gasoline before we see $5.00 per gallon (my view).
Oh, them folks all changing over to Natural Gas will be screaming in five years when the US price equals the worlld price, a 3X increase, after our government turns us into a net exporter of Natural Gas.

William R. Cumming

VietnamVet! Perhaps over 50 dead already in Canadian crash!

LeeG

"So high"? Because world demand is so high and world supply is no longer growing. US production comes as a consequence of high prices, our production doesn't contribute to the market where supply and demand meet. US and Iraqi production are not the world, balance those two with other countries on the downslope of production. The IEA report jerking off to increased future Iraqi production is based on ridiculous assumptions about investment in Iraqi oil infrastructure and a functioning society.

If you see oil descend to $85 the bubble in Bakken will pop sooner and discontent in Saudi Arabia will rise as their massive social programs require $100/barrel oil, they can cut easier than they can raise production.

Look at what the net world exports of oil have done over the last 5yrs, the place where importers get oil, it's gone down even though total world production has gone up. There is less oil to buy.

LeeG

This is a fun resource

http://mazamascience.com/OilExport/

LeeG

This is a nice graph of energy sources in the US since 1776. If you believe oil is a finite resource and the billions of people now living on the planet will be increasing the consumption of oil isn't it reasonable to assume it'll be more expensive in 2050 when supply is in clear decline than in 1950 when supply was increasing?

http://www.eia.gov/todayinenergy/images/2013.07.03/history.png

Will Reks

http://www.bloomberg.com/news/2013-07-10/opec-sees-u-s-shale-boom-eroding-demand-for-2014-crude.html

I can't really get my head around the economics of the oil trade either. Remember "drill, baby, drill"? I wonder how many realized domestic oil production is not independent of international market pricing.

The game is rigged.

Amir

Are the energy prices up or is the value of the $ down?

fairhavenhorn

You're seeing the difference between the world and the US. The US has become a much smaller player in the oil market. Worldwide, Q1 2013 oil consumption was 90 million vs 89 million in Q1 2012. With only small changes in demand there's no reason to expect significant changes in price. US production increase was about 1 million b/d, which just matches the world increase in demand.

There will be temporary pricing mismatches where transportation limits influence prices. This especially affects the hard to ship natural gas, but also has affected the US vs World oil pricing in some locations.

The major oil consumer is now China, responsible for about 1/3 of world demand. Chinese consumption numbers are shrouded in secrecy, which makes it hard to make accurate estimates of their short term consumption changes. Price volatility and confusion will probably increase because the Chinese use their misleading numbers to influence pricing to their advantage.

LeeG

Does it matter?

LeeG

The interpretation that demand for OPEC oil is down because of increased US fracked production is silly. Demand destruction for OECD countries came from high prices. China/India share of OPEC production has increased.

The EROI on fracked oil is barely enough to maintain our civilization.

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