Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21
Covid and Democrat Blue Wave Beats Gold - 15th Jan 21
On Regime Change, Reputations, the Markets, and Gold and Silver - 15th Jan 21
US Coronavirus Pandemic Final Catastrophe 2021 - 15th Jan 21
The World’s Next Great Onshore Oil Discovery Could Be Here - 15th Jan 21
UK Coronavirus Final Pandemic Catastrophe 2021 - 14th Jan 21
Here's Why Blind Contrarianism Investing Failed in 2020 - 14th Jan 21
US Yield Curve Relentlessly Steepens, Whilst Gold Price Builds a Handle - 14th Jan 21
NEW UK MOT Extensions or has my Car Plate Been Cloned? - 14th Jan 21
How to Save Money While Decorating Your First House - 14th Jan 21
Car Number Plate Cloned Detective Work - PY16 JXV - 14th Jan 21
Big Oil Missed This, Now It Could Be Worth Billions - 14th Jan 21
Are you a Forex trader who needs a bank account? We have the solution! - 14th Jan 21
Finetero Review – Accurate and Efficient Stock Trading Services? - 14th Jan 21
Gold Price Big Picture Trend Forecast 2021 - 13th Jan 21
Are Covid Lockdowns Bullish or Bearish for Stocks? FTSE 100 in Focus - 13th Jan 21
CONgress "Insurrection" Is Just the Latest False Flag Event from the Globalists - 13th Jan 21
Reflation Trade Heating Up - 13th Jan 21
The Most Important Oil Find Of The Next Decade Could Be Here - 13th Jan 21
Work From Home £10,000 Office Tour – Workspace + Desk Setup 2021 Top Tips - 12th Jan 21
Collect a Bitcoin Dividend Without Owning the King of Cryptos - 12th Jan 21
The BAN Hotlist trade setups show incredible success at the start of 2021, learn how you can too! - 12th Jan 21
Stocks, Bitcoin, Gold – How Much Are They Worth? - 12th Jan 21
SPX Short-term Top Imminent - 12th Jan 21
Is This The Most Exciting Oil Play Of 2021? - 12th Jan 21
Why 2021 Will Be the Year Self-Driving Cars Go Mainstream - 11th Jan 21
Gold Began 2021 With a Bang, Only to Plunge - 11th Jan 21
How to Test Your GPU Temperatures - Running Too Hot - GTX 1650 - Overclockers UK - 11th Jan 21
Life Lesson - The Early Bird Catches the Worm - 11th Jan 21
Precious Metals rally early in 2021 - 11th Jan 21
The Most Exciting Oil Stock For 2021 - 11th Jan 21
Financial Market Forecasts 2021: Navigation in Uncharted Waters - 10th Jan 21
An Urgent Message to All Conservatives, Right-Wingers and Patriots - 10th Jan 21
Despite Signs to the Contrary, Gold Price at or Near Top - 10th Jan 21 -
Ultimate Guide On The 6 Basic Types Of Index Funds - 10th Jan 21
Getting Vaccinated at TESCO - Covid-19 Vaccinations at UK Supermarket Pharmacies and Chemists - 10th Jan 21
Cheers for the 2021 Stock Market and These "Great Expectations" - 9th Jan 21
How to Plan Your Child With Better Education - 9th Jan 21
How To Find The Best Casino - 9th Jan 21
Gold Is Still a Bargain Buy - 8th Jan 20
Gold Price Set to Soar as Hyperinflation Looms - 8th Jan 21
Have Big Dreams? Here's How to Pay for Them - 8th Jan 21
Will the Fed Support Gold Prices in 2021? - 8th Jan 21
Stocks trading strategies for beginners - 8th Jan 21
Who is Buying and Selling Stocks in 2021 - 8th Jan 21
Clap for NHS Heroes 2021 as Incompetent Government Loses Control of Virus Again! - 8th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

The Two Real Reasons Crude Oil Prices Are Currently Slipping

Commodities / Crude Oil Sep 26, 2015 - 04:36 PM GMT

By: ...

Commodities

Dr. Kent Moors writes: The Energy Information Administration just released its latest report on oil. And although I’m no conspiracy theorist, what’s going on in oil pricing has all the earmarks of a setup.

Each week, the report tells us what the crude oil and oil product markets looked like as of the previous Friday. It is usually the yardstick by which analysts appraise everything from oil supply through refinery utilization to the markets for processed products such as gasoline, diesel fuel, and low sulfur content heating oil.


This week’s report showed criteria that would normally signal upward pressure on prices: a drawdown in oil supply, tighter refinery usage, and a widening spread between crude oil and oil product prices.

Now, this last criterion may be the most important for assessing pricing across the board. It involves the relationship between crude raw material pricing and supply on the one hand and similar considerations for gasoline and heating oil on the other (heating oil serves as a surrogate for diesel in these calculations since both distillates come from the same refinery cut).

Simply put, prices should not decline when the spread is rising.

So why are oil prices heading downward?

Distortion currently occurring in the market.

Here are the culprits behind this price manipulation… as well as how we can profit from these artificial moves…

A Drawdown Should Push Prices Up

In the past few weeks, the drawdown on supply has been greater than anticipated, in some cases by a significant margin. That spread is improving, which usually contributes to an overall rise in price for the underlying raw material.

Yet the pundits continue to grasp at straws in their attempt to explain the resistance to a rise in crude oil and oil product prices.

This time around the “spin” involves claiming a decline in gasoline demand has offset the upward pressure of an expanding drawdown on the storage side. For the past two weeks this has been shaping up as a pronounced cycle.

For one thing, the overall drawdown has been multiples of what the American Petroleum Institute had recently forecast. This week, it was no less than six times the industry estimate.

For another, the drawdown at Cushing, Oklahoma, is even more important than the figure as a whole. Cushing is where the West Texas Intermediate (WTI) daily pricing peg is set for crude futures contracts trading in New York using the WTI benchmark. Consecutive weeks of reductions here have had a direct impact on the spread.

Not only are the concerns about gasoline demand missing the point, but they are themselves quite misleading when taken alone. Gasoline demand usually decreases this time of year, since refineries are already well into the cycle of switching from primary output in high-octane gasoline to heating fuel. A deeper warm trend in the fall, for example, almost always results in a spike in gas prices as usage extends longer than expected into what is supposed to be the cooler season.

Also, we have just experienced a tick up in gasoline usage in August and through Labor Day beyond what had been expected. This is at best a non-issue for this time of year.

So what gives?

Here’s Why Prices Are Depressed…

There are two matters of import at play here, both reflecting indirect paper moves having little to do with the actual underlying dynamics of the market:

  1. another round of shorts by those who know no other way to make money from commodities; and
  2. a widening usage of derivatives based on what are called “crack spreads.”

Regarding the first, the recent OPEC “opinion” that we will not see $100 a barrel oil until about 2040 has to be read with more than a grain of salt.

As we have revealed here in Oil & Energy Investor, major OPEC sovereign wealth funds have been shorting oil. It remains in their best interest to keep prices low to defend market share. In pursing this objective, they are shorting their own product. Therefore, statements about reduced prices in the future merely support another objective entirely – one that has little to do with improving their revenues for the sales of oil!

As to the second, derivatives, some explanation is necessary. Crack spreads allow an investor to play the difference between both WTI and Brent (the London-set benchmark) and the market price of gasoline and heating fuel. Of course, the investments here are very big. This is not an approach any retail investor could make.  But it is a recourse of hedge funds and their ilk that are intent on turbo-charging short plays.

The combination of the two strategies are producing the latest myopic way to generate profits… as long as its adherents can persuade investors that depressed prices are ongoing.

Now to be realistic, we have a number of factors contributing to that persuasion – from an Iranian accord, through OPEC increased production, to a constriction in the U.S. shale-tight oil patch.

And then there is the other culprit: Goldman Sachs. The investment firm is continually talking down the price of oil and now suggests that $20 a barrel is possible. This analysis is far from objective, given that Goldman is the largest shorter of oil in the market.

A decline that profits the short crack-spread players becomes an easier sale.

…And How We Can Profit

Given these dynamics that are distorting the market, we are likely to approach $70 a barrel only next year, with a further move to $80 sometime beyond that (a view, by the way, on which OPEC concurs). Even without the shorts and crack-spread derivatives we would still be coming in much lower than the triple digits of some 15 months ago.

But it is incorrect to assume that these machinations are merely reflecting, rather than dictating, what the market is telling us. There are plenty of other participants ready to continue external ways of distorting pricing.

By how much?

I have been beta testing an index of wet barrel (actual oil consignments) comparisons to paper barrels (futures contracts and derivatives) in an attempt to find out. Initial reads are telegraphing a widening effective impact. As of the end of August and the first full month of running the yardstick, it was coming in at $8 a barrel in New York and closer to $9 in London.

By the close of trade last Friday (September 18) it has both accelerated and converged, coming in at about $12 for both benchmarks.

Now, even pegging the actual price at $57, rather than $45, in New York still indicates a weak oil market. Nonetheless, as I fine-tune this tool, it will be telling us something else of greater importance to our purposes.

This approach should tell us when the curve is moving up before it appears in the market. And that will prove very useful in picking stock moves moving forward.

Source http://oilandenergyinvestor.com/2015/09/the-two-real-reasons-oil-prices-are-currently-slipping/

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