Energy Prospectus

Even with today's podcast, with all due respect, you really haven't addressed why, in your opinion, we have entered this oil bear market. Just a couple of weeks ago you and most analysts predicted higher prices going into 2019. That looks like it is off the table. How did everyone miss this drop?

According to another analyst I read Russia and Saudi are making up for the Iranian shortfall.

Oil never goes up or down in a straight lines. Nothing has really changed in the global oil market. A new "glut" did not appear. September & October is a "soft" period for oil demand each year. Demand for home heating oil is picking up and so is refinery utilization. When refiners start drawing more crude oil from inventory the oil price should move higher.
> The few countries that got temporary waivers to continue buying Iranian oil only have six months to find other supply.
> Venezuela is still on steady decline
> Libya, Nigeria, etc are all still "powder kegs" where supply can get disrupted at any moment.

The reason energy equities have so little interest by investors in my opinion is that the oil market seems so easily manipulated and you can’t count on understanding the macro fundamentals. This recent collapse in oil prices appears to be clearly manipulated and I will be surprised to see stock buyers come flocking back when it ultimately reverses.

I don't know if it is intentionally "manipulated", but it is a fact that a very high percentage of the trades of the NYMEX oil futures contracts are made by computers. Hedge funds invest in oil futures for multiple reason. One is a hedge against inflation and another is a hedge against the U.S. dollar.
I certainly don't know for sure, but I believe the hedge funds set very tight stop loss orders on their positions. This can lead to a cascading oil price that seems way out of whack with the oil market fundamentals. I think the recent slide in the price of oil is way overdone.
OPEC had a meeting earlier today and I think they will put out some words that will stabilize the oil price.
An increase in demand is also coming as Mother Nature brings in the first waves of cold weather to areas that burn a lot of oil for space heating.

IEA's monthly Oil Market Report comes out next week. I'm sure they will have some comments about the Iran Sanctions and Venezuela.

From Reuters at noon ET on Sunday, November 11
ABU DHABI (Reuters) - Saudi Arabia plans to reduce oil supply to world markets by 0.5 million barrels per day in December, its energy minister said on Sunday, as the OPEC power faces uncertain prospects in its attempts to persuade other producers to agree a coordinated output cut.

Khalid al-Falih told reporters that Saudi Aramco’s customer crude oil nominations would fall by 500,000 bpd in December versus November due to seasonal lower demand. The cut represents a reduction in global oil supply of about 0.5 percent.

Read more: https://www.investing.com/news/commodit ... es-1683287

I think it is very interesting that only a few weeks ago oil was WTI was trading above heading higher supported by:
A strong econonomy
Impending Iranian sanctions
Imploding Venezuela oil production
Permian increase in DUCs due to lack of takeaway
And many other factors appearing bullish for oil prices

Kashoggi is murdered and the world including US places the Saudi kingdom under the microscope

Pompeo goes to pay a visit

Oil prices fall rapidly and except for Turkey keeping the Saudi atrocity in focus the US seems to move on

The mid term elections pass

Saudis go back to pushing for a cut in production to support prices which will likely push prices higher again.

Hard to get an objective analysis of oil market dynamics with so much politics and lack of true transparency.

I think a lot of folks are tired of buying oil stocks and seeing 10-20% dips in prices that are seemingly unfounded.

Chuck,

I agree with what you say...nobody trusts the oil market and therefore nobody is buying the shares (which sucks)...

I live in London and ~15 years ago smoking was banned in pubs and restaurants across the country...once done, all the pubs had to clean their walls as the rotting nicotine smell was no longer masked by fresh cigarette smoke. After this happened everyone was like, WTF...how did we EVER live like that and, as unpopular as it was there is no way that anyone would overturn that rule now (it is now an annoyance when you smell the smoke on the street outside while the smokers all huddle in a pack).

In this day and age it feels like Diesel (particularly) & gasoline are the new cigarette issue here in the uk. I think everyone is starting to find the stink of diesel exhaust from the London buses intolerable...and consequently are waiting for the legislation that bans the modern day cigarette issue from their environment...

To add, there is undoubted political interference...Erdogan says that the US have the recording of Khashoggi being dismembered and having his head removed, your guy (mnuchin?) says there was no tape...it stinks to high heaven of: we have you by the balls now MBS, produce more oil, use your reserves, we don't care...get the Price DOWN! When the inverse of the POO maps directly to the popularity of the President...you can see why. Particularly with your current Presiding Alpha.

Add to this the fact that in the '70's the futures trading of oil was 3 X the underlying market, when it now is 32 times and you can see how dislocated the fundamentals can be to the market. This gives guys (who look at fundamentals) like Dan a much harder job because extended dislocations have the firepower they need to self-perpetuate.

Then, combine the fact that the countries that produce oil (apart from the USA of course(!)) are generally hated and you can see why oil continues to have a bad name.

Never mind the average car (Tesla included?) uses 60 barrels of oil to make the plastics in it.

SO, to attempt to answer the question raised on this thread...the POO is dislocated from the fundamentals by an unhealthy margin owing to a warped financial system that only looks at US data, the underlying product is killing our environment and sentiment is moving on (regardless of fundamentals) like cigarette smoking in London, there is some shenanigans around the manipulative elements at play pushing the price lower, the market has been MASSIVELY LONG and seemingly still is, the countries that produce oil are unsavory with unsavory practices and oil's days are numbered. This is why I think the price runs in the face of fundamentals at the moment...there is LITERALLY no premium being priced in for such a tight market.

Currently the market has just enough supply to meet demand (used to be that Saudi had millions of immediately available spare supply)...as has been said here before: one outage, one (proper) whiff that the under investment is a serious thing and the price has to drive higher, driven by unsavory fundamentals...and even then the mkt will (quite rightly) be saying that we NOW must move away from an over priced oil onto a new system (gas for plastics?) that might just make financial sense with WTI jammed well north of $100.