Chevron posted extremely disappointing earnings today which included disclosure of a 1% slump in production. Exxon Mobile posted an earnings beat, but they also reported production cuts of a little over 1.5%. Both reported lower project spending going forward.
The market is trying to react to the oil price slump…mostly. There are assholes, sure, like Total, which brought another 10% of production online to try and cover their awful quarter. Or Occidental Petroleum (fuckers). But where there are not immediate production cuts, there are major project terminations coming along every day. People are abandoning plays left and right, trying to find their own sweet spots.
What needs to happen, in order for us to get prices back above $60 a barrel, is sort of two fold. The first thing we need to see is production to meet demand, which could happen in short order if the individual players can get their fucking acts together. OPEC coming in to save themselves from this little mess they started would be nice.
But I have this lurking suspicion that that might not be enough. We also have the threat of production coming back online strong at every possible uptick in the price of crude. And to put an end to that, we really need to see some of the most horrible names in the business fold like tacos at a fiesta.
Of course the best names to fold are ones you and I have never heard about. Private plays with private financing owned by private cocksuckers whose pending bankruptcy filings I couldn’t care less about.
In the past quarter, the difference between production and consumption has already narrowed to ~2% if the EIA is up to date. It was ~4% back in the beginning of the year. It must be remembered, demand for oil is not decreasing. We simply have a sputtering period of too much of it, as projects come online faster than needed.
I pray that as the overproduction narrows the market will simply reward us with higher price per barrel. But I do have this horrible lurking sensation that what the market really wants to see is blood.
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I am one who sees blood. Production held stay this month and it seems that there are cheap imports to make up any prod cuts. Wouldn’t a refiner look to buy elsewhere if WTI is over 50?
Assuming the spread breaks down, but I don’t see why that would happen. It has already narrowed considerably. If the global imbalance narrows, then I would imagine the relative difference between different oils would generally hold in any increasing price scenario.
Full disclosure: I’m a market maker/trader of physical refined products (gasoline, diesel, heating oil, jet fuel, etc.) and ‘basis’ derivatives. So, hopefully my comments don’t come off as too harsh. Here’s the reality: outside of the physical oil trading vernacular, the current situation is oversimplified to extreme levels. But in the means of leaving a short comment… here’s the reality of it all. We’re in the middle of major paradigm shift. That is, OPEC no longer has the same control over market prices that they historically have…
“OPEC coming in to save themselves from this little mess they started would be nice”.
…not gonna happen. Historically, everyone watches/waits for OPEC to announce cuts in production as the price of WTI/Brent falls. But that’s done with. Period. Production cuts would simply mean the the USofA simply ramps up domestic drilling/crude extraction. If OPEC cuts production, they’d only lose market share. People need to get used to the fact that technological advances have made crude cheaper, and that cheap prices (less than 65 dollar/bbl) are here to stay.
As a result, the issue we face now is that refined products inventories are now at record highs. Your major players are long the physical commodity against more forward heating oil or gas futures. E.g., you buy 500k barrels of diesel, now, store them in a tank/terminal, and simultaneously short the March diesel future, and collect, say, 10 cts per gallon over the next 5 months or so by delivering merc barrels at expiry. If there weren’t contango in the diesel futures curve… refiners would be getting destroyed on the stuff. Conveniently, we’ve come close to running out of ullage right at the time that demand for heating oil picks up, so the can has probably been kicked down the road a couple months. It’ll be very interesting this year to see how the market reacts when millions of barrels of diesel flood the market in march/april, as major shops deliver against the merc, and convert their tanks back to gas storage, in time for summer/seasonal gasoline strength.
Here in Colorado companies are still drilling new wells. I headed up north to play a golf course I haven’t played in a few years and saw three drilling rigs operating.
Why are you dreaming for days or higher oil prices so much? Stuck in crappy stocks? Drive a Prius?