Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
South Korea Coronavirus WARNING - R0 4.6 Outbreak Infection Rate! - 29th Feb 20
Stock Market Trend and Elliott Wave Analysis - Video - 29th Feb 20
The Greatest Economic Depression Just Began. This Is No Drill - 29th Feb 20
Stock Market Coronavirus Deviation from Overall Outlook for 2020 - Video - 28th Feb 20
Stock Market SPX to Rise back to 3350 - 28th Feb 20
Stock Performance in the Rising Coronavirus Fever - 28th Feb 20
Stock Market SPY Breaks Below Fibonacci Bearish Trigger Level - 28th Feb 20
Will CoronaVirus Pandemic Trigger Stocks Bear Market 2020? - 28th Feb 20
Dow Long-term Trend Analysis - Coronavirus Triggering a Stocks Bear Market? - 27th Feb 20
Trump or Sanders? Both will pile up the Debt - 27th Feb 20
Oil Price Is Now More Volatile Than Bitcoin - 27th Feb 20
A Digital “Fedcoin” May Be Coming… And It Would Be Terrifying - 27th Feb 20
India's Nifty 50 Stocks: Does the Bad Jobs Outlook Spell Trouble for Stocks? - 27th Feb 20
How Crypto Currencies Are Helping Players Go Private - 27th Feb 20 -
Gold and Silver The Die Is Cast - 27th Feb 20
US Economy Permanently Addicted to Zero Interest Rates - 27th Feb 20
Has the Stock Market Waterfall Event Started Or A Buying Opportunity? - 27th Feb 20
Advantages of Enrolling in a Retirement Plan - 27th Feb 20 - LS
South Korea Coronavirus Outbreak Data Analysis Warning Rate of Infection is Exponential! - 26th Feb 20
Gold Price Long-term Trend Analysis Forecast 2020 - 26th Feb 20
Fake Markets Are on Collision Course with Reality - 26th Feb 20
Microsoft is Crushing the S&P 500, Secret Trait Of Stocks That Soar 1,000%+ - 26th Feb 20
Europe's Best Ski Resorts For The Ultimate Adventure - 26th Feb 20
Samsung Galaxy S20+ vs Galaxy S10+ Which One to Buy? - 26th Feb 20
Gold Is Taking on $1,700 amid Rising Coronavirus Fears - 26th Feb 20
Is This What Falling Through the Floor Looks Like in Stocks? - 26th Feb 20
Gold Minsky Moment Coming - 26th Feb 20
Why Every Student Should Study Economics - 26th Feb 20
Stock Market Correction Over? - 26th Feb 20
US Bond Market Yield Curve Patterns – What To Expect In 2020 - 25th Feb 20
Has Stock Market Waterfall Event Started Or A Buying Opportunity? - 25th Feb 20
Coronavirus IN Sheffield! Royal Hallamshire Hospital treating 2 infected Patients, UK - 25th Feb 20
Dow Short-term Trend Analysis - Coronavirus Trigger a Stocks Bear Market? - 24th Feb 20
Sustained Silver Rally Coming? - 24th Feb 20
Should Investors Worry about Repo Market and Buy Gold? - 24th Feb 20
Are FANG Technology Stocks Setting Up For A Market Crash? - 24th Feb 20
Gold Above $1,600 Amid FOMC Minutes and Coronavirus Impact - 24th Feb 20
CoronaVirus Pandemic Day 76 Trend Forecast Update - Infected 540k, Minus China 1715, Deaths 4920 - 23rd Feb 20 -
Ways to Find Startup Capital - 23rd Feb 20
Stock Market Deviation from Overall Outlook for 2020 - 22nd Feb 20
The Shanghai Composite and Coronavirus: A Revealing Perspective - 22nd Feb 20
Baltic Dry, Copper, Oil, Tech and China Continue Call for Stock Market Crash Soon - 22nd Feb 20
Gold Warning – This is Not a Buying Opportunity - 22nd Feb 20
Is The Technology Sector FANG Stocks Setting Up For A Market Crash? - 22nd Feb 20
Coronavirus China Infection Statistics Analysis, Probability Forecasts 1/2 Million Infected - 21st Feb 20
Is Crude Oil Firmly on the Upswing Now? - 20th Feb 20
What Can Stop the Stocks Bull – Or At Least, Make It Pause? - 20th Feb 20
Trump and Economic News That Drive Gold, Not Just Coronavirus - 20th Feb 20
Coronavirus COVID19 UK Infection Prevention, Boosting Immune Systems, Birmingham, Sheffield - 20th Feb 20
Silver’s Valuable Insights Into the Upcoming PMs Rally - 20th Feb 20
Coronavirus Coming Storm Act Now to Protect Yourselves and Family to Survive COVID-19 Pandemic - 19th Feb 20
Future Silver Prices Will Shock People, and They’ll Kick Themselves for Not Buying Under $20… - 19th Feb 20
What Alexis Kennedy Learned from Launching Cultist Simulator - 19th Feb 20
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From Overclockers.co.uk - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20

Market Oracle FREE Newsletter

Coronavirus-bear-market-2020-analysis

This Massive “Crunch” Means Higher Crude Oil Prices

Commodities / Crude Oil Feb 25, 2015 - 10:09 AM GMT

By: Money_Morning

Commodities

Dr. Kent Moors writes: As oil prices inch forward, there’s an inevitable consequence of lower prices building that will help them climb even higher.

It’s called the “reserve crunch.”

Faced with significantly lower oil prices, the replenishment of oil reserves is beginning to take a massive hit.


In fact, Royal Dutch Shell (NYSE: RDS-A) recently reported that it had replaced just 25% of its 2014 production. That’s just 300 million barrels of new reserves to replace 1.2 billion barrels of production.

Now you know why I call it a “crunch.” It’s yet another sign of shrinking future production.

Shell isn’t the only one. Other operators large and small have begun to issue similar statements.

Now in today’s environment of surpluses, it’s hardly surprising that forward-looking production may take a hit. After all, there’s very little reason to continue producing excessive amounts of crude if it’s merely going to depress the price.

But this is the kind of crunch that promises to have a big impact on both crude oil prices and stock valuations…

Oil Prices: The Impact of Falling Reserves

Of course, the impact of the crunch on oil prices is obvious and easy to understand. Any uptick in demand will result in a disproportionate rise in prices for oil futures contracts – especially as rates of replenishment fall.

As for its impact on stock valuations, it’s actually the “booked reserves” – oil in the ground and readily extractable – that influences what investors will pay for a stock.

Companies do not drill for new oil simply to add to the product flow for the refining of oil products. They also drill to add to their booked reserves, boosting their share price in the process.

Typically, the more reserves a company has, the more it can command in the stock market. Conversely, falling reserves usually depresses the price.

Now you might think that in times of excess supply, the reserves on a company’s books may be less of an advantage. But that’s just not the case this time.

Here’s why: Demand is not dropping. That’s especially true during this time of year.

Once again, it’s useful to remember that today’s low prices were caused by too much supply, not too little demand. It’s the demand side of this equation that will keep oil prices from falling much further.

In fact, this is the period when we begin to see a run up of prices in advance of the primary driving season.

For instance, take a look what is happening with gasoline prices.

While West Texas Intermediate (WTI) has climbed nearly 11% over the past month, futures prices for RBOB (“Reformated Blendstock for Oxygenate Blending,” the gasoline futures contract traded on the NYMEX) have raced ahead by more than 25%.

And just this morning, the continuing conflict in Libya has closed Sarir, the nation’s largest oil field. That follows earlier interruptions of the primary pipelines, along with other port and production facilities.

As a result, Brent has spiked again in London, given the more direct influence MENA (Middle East North Africa) events have on the European market. As of noon today, WTI is up 1% and Brent is up 1.2%. Meanwhile, Brent has doubled the increase of WTI for the month, climbing 24% versus the 11% increase in WTI.

Higher Oil Prices Ahead

Against this volatile backdrop, the overall condition of global reserves places an even greater pressure on oil prices. It’s true, WTI can rely on more secure U.S. reserves. But on the other hand, Brent is very sensitive to the availability of worldwide reserves.

Remember, Brent is used as the benchmark for far more actual oil consignments internationally than WTI. The increasing lack of reserves outside the U.S., therefore, is likely to result in the expansion of the Brent-WTI spread.

This pricing difference has favored Brent for all trading sessions except three since the middle of August 2010. The reserve crunch means that spread will now be increasing again.

Several years ago, declining reserves would have been ammunition for the “Peak Oil” crowd that was always quick to point out the signs that we were running out of crude.

Today, falling reserve figures have morphed into something quite different. Yes, oil is a finite resource. But the advent of huge (and increasing) reserves of extractable unconventional oil (shale, tight, oil sands, ultra-heavy) found in regions across the globe has significantly muted the “sky is falling” approach to crude.

This has become an issue of new price ranges. But not one where $200 a barrel is in the offering. The reserve replenishment situation will be rebalanced along with supply and demand.

But with one caveat…

As the reserve crunch worsens, it will introduce another factor that will help to put a floor under oil prices. It will take the market longer to address the falling reserve balance, especially going into a period of heavier use.

That combined with continuing geopolitical uncertainty (now a market staple, not an outlier or exception to the rule) produces one overriding conclusion.

Despite ample options on the supply side, oil prices are stabilizing and will continue to move up.

Source :http://oilandenergyinvestor.com/2015/02/massive-crunch-means-higher-oil-prices/

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.

Money Morning 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

6 Critical Money Making Rules