Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Has Next UK Financial Crisis Just Started? Bank Accounts Being Frozen - 21st July 19
Silver to Continue Lagging Gold, Will Struggle to Overcome $17 - 21st July 19
What’s With all the Weird Weather?  - 21st July 19
Halifax Stopping Customers Withdrawing Funds Online - UK Brexit Banking Crisis Starting? - 21st July 19
US House Prices Trend Forecast 2019 to 2021 - 20th July 19
MICROSOFT Cortana, Azure AI Platform Machine Intelligence Stock Investing Video - 20th July 19
Africa Rising – Population Explosion, Geopolitical and Economic Consquences - 20th July 19
Gold Mining Stocks Q2’19 Results Analysis - 20th July 19
This Is Your Last Chance to Dump Netflix Stock - 19th July 19
Gold and US Stock Mid Term Election and Decade Cycles - 19th July 19
Precious Metals Big Picture, as Silver Gets on its Horse - 19th July 19
This Technology Everyone Laughed Off Is Quietly Changing the World - 19th July 19
Green Tech Stocks To Watch - 19th July 19
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

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

6 Critical Money Making Rules