Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.

[Spekulatius]

LNG is a fungible good, so if China buys from another source, it will drive up prices and the US LNG will flow somewhere else, The issue could be that some infrastructure needed or export (liquefaction , terminals ) does not get build if there are no LT contract ins palace that guarantee a profit for the operator.

[SharperDingaan]

Ianian anti-ship missiles are now actively being fired in the Strait of Hormuz ... 

yet there's still no risk premium on oil?

 

https://ca.reuters.com/article/topNews/idCAKBN1KV2FG-OCATP

" The official, however, did not suggest that such a missile test was unusual during naval exercises or that it was carried out unsafely, noting it occurred in what could be described as Iranian territorial waters in the Strait. “It’s pretty clear to us that they were trying to use that exercise to send a message to us that as we approach this period of the sanctions here, that they had some capabilities,” Votel told reporters at the Pentagon."

 

And the US is now being called out directly on its lying, bullying, and mobster mentality ....

and this is the 'diplomatic' channel.

 

https://ca.reuters.com/article/topNews/idCAKBN1KW04E-OCATP

“About the recent offer by Trump, our official position has been announced both by the president (Rouhani) and myself. The Americans lack honesty,” Zarif was quoted as saying by Tasnim. Asked whether a message from the United States was to be delivered to Iran by Omani officials, Zarif said: “There is no such message,” Tasnim reported.

 

https://ca.reuters.com/article/topNews/idCAKBN1KW036-OCATP

"China said this week it would put an additional 25 percent tariffs on $16 billion worth of U.S. imports in retaliation against levies on Chinese goods imposed by the United States. A separate piece in the People’s Daily quoted vice agriculture minister Han Jun saying that if a trade war broke out, many other countries were willing and “completely able to replace American agricultural products’ share of the Chinese market.”

 

“People of insight are soberly aware that so-called ‘America first’ is actually naked self-interest, a bullying that takes advantage of its own strength, challenges the multilateral unilaterally, and uses might to challenge the rules,” it read. Earlier this week, Chinese state media accused the United States of a “mobster mentality” as it moved to implement additional tariffs on Chinese goods. Beijing had all the necessary means to fight back, the reports said."

 

The US starts a mob war, against the entire world, yet oil (& strategic commodity prices) don't reflect the rising risk? Bullshit.

And how are 'war-time' mob 'bosses' traditionally 'retired' ??

 

All someone need do is start a run on the US Strategic Reserve, US agriculture, and US exports.

Play the volatility, & put lots of very unhappy people on the streets just in time for US mid-term elections....

 

SD

 

 

 

 

[nkp007]

What's been happening with oil has been really interesting. 6+ weeks of oil declines right in the middle of summer driving season?

 

Wonder if OPEC overproduced in anticipation of Iran sanctions rather than waiting for sanctions to pull oil off the market.

[jmp8822]

What's been happening with oil has been really interesting. 6+ weeks of oil declines right in the middle of summer driving season?

 

Wonder if OPEC overproduced in anticipation of Iran sanctions rather than waiting for sanctions to pull oil off the market.

 

China recently stopped reporting inventories.  It is hard to know if they are building inventory or draining inventory.  Considering the softness, they might be draining inventory, attempting to hide it by avoiding inventory level reporting, to not spook the market. The political versus market-based factors are intriguing in the oil market right now.  It's not a secret that Trump prefers low oil/gasoline prices heading into the elections in November.  If you were China, not exactly thrilled with Trump and the trade conflicts, perhaps you might attempt to drain inventory for 3 months, by lowering implied worldwide demand via lower oil prices, then goosing back all the barrels before elections in November, driving oil prices way up so no one could ignore it? Trump would be livid, and perhaps China would enjoy the carnage.  Just a theory - there are certainly big players involved with many differing incentives.

[sculpin]

FPA Capital Fund energy commentary...

 

https://fpa.com/docs/default-source/funds/fpa-capital-fund/literature/quarterly-commentaries/fcap-q2-letter_final.pdf?sfvrsn=4

 

More on Our Energy-Related Investments

 

Despite an improving oil price environment, many investors are still shunning the energy sector, which

represented just 6% of the S&P 500 Index at the end of the second quarter. Our energy equities as a whole

(and the entire sector, for that matter) are still widely disconnected from what the underlying spot and 24-

month futures prices would imply. For instance, our portfolio has just one Energy and Exploration (E&P)

company whose share price reflects an oil price of $55 per barrel or more (NBL).

 

We believe that there are two subjects of intense debate that have recently kept a lid on energy equity

prices.

 

First, even though inventory levels have fallen back below long-run averages, there is widespread concern

that OPEC7 and Russia will turn on the taps again and send spot and forward oil prices much lower. Here,

we would once again point out that higher oil prices have dramatically boosted the national incomes of both

countries. Assuming they have the requisite spare capacity (and it isn't clear that they do), why would they

flood the market and shoot themselves in the foot?

 

At the same time, the world needs more oil to avoid a disruptive price spike. Back in April of 2017,

Organization for Economic Cooperation and Development (OECD) crude inventories were around 3.05

billion barrels, and since then, that figure has been draining at an average rate of around 600,000 barrels

per day. That has put worldwide inventories below normal, which would imply a $70-$80 a barrel Brent

price based on historical data. OPEC, Russia, and other partner countries originally committed to take 1.8

million barrels per day off the market in November 2016, but output has fallen further than that. According

to May figures, oil production declines totaled 128% of the original pledge (162% from OPEC nations and

54% from other countries).8

 

This above-and-beyond performance was not a result of the cartel's generosity but rather from involuntary

declines. While we see material reductions in other relevant producing countries, the elephant in the room

is Venezuela, which has involuntarily cut nearly as many barrels as Saudi Arabia, and yet its oil production

continues to decrease at a very concerning rate. At the same time, the Trump administration's decision to

pull out of the Iran nuclear deal could conservatively take 200,000 barrels a day off the market (or potentially

multiples of this depending on how the sanctions are implemented).9 Meanwhile, global crude consumption

continues to surge, with the typically conservative International Energy Agency expecting demand growth

of another 1.4 million b/d in 2018.10

 

If you look at the math conservatively, we find that OPEC must increase production to offset these sources

of supply disruption, moderate climbing oil prices, and avoid a damaging price spike. Interestingly, we

believe the amended agreement from the June 23 OPEC meeting was designed to help the cartel control

an increasingly precarious deficit so they don't dramatically overshoot what we believe (based on consistent

OPEC commentary) is an inventory target that's still roughly 100-150 million barrels below where we stand

today. So, to recap, if you're Saudi Arabia or Russia (the world's top two suppliers of crude) and you're

aiming to achieve the goals discussed above, it becomes very risky to hold back production on the belief

that U.S. shale alone can offset a growing deficit.

 

This then leads to the second major concern and topic of debate, which revolves around the recent

amplification of logistical constraints in the Permian basin; namely, the ability to get gas and crude to market

in the face of short term pipeline limitations and limited alternative takeaway capacity (trucking, railway,

etc.).

 

This development was the primary reason for share price volatility for companies heavily exposed to the

basin during the quarter. Before diving into the specific weakness in our Permian-weighted holdings, it is

important to note that this is a temporary issue due to the timing of new pipelines coming online through

2019, and that regional price differentials

[tombgrt]

Worries are at least partly justified atm. EM weakness adds to the fears of slowing demand growth and market has shown ability to at least in the short term supply market enough. Hard to tell how much of additional supply is from destocking and playing games so you have to wonder how one can make a decent short term analysis. I'm not smart enough to do that and I doubt anyone is.

[tombgrt]

Another lesson: don't diversify on lesser ideas. Was basically saying GXE was the far better deal here and yet I managed to shift some profits in the dogs. Stupid!

 

PPR now only 1/8th of my GXE position because of price action in last few months but still sucks. Same for IPO and ZAR (which are even smaller positions). When is market going to shift sentiment around on these? Volume so low it only takes one buyer to set the price. ATU at least did well.

 

 

 

 

Or a better lesson: Don't get f*cking cocky!

[sculpin]

 

Market View

Ninepoint Energy Fund Market View

August 14 2018

 

Explaining the Unexplainable

 

An uncomfortably high level of volatility has unfortunately become a part of investing in the energy sector in recent years. Energy more than other sectors seems to be subjected to worries/sell offs surrounding trade wars, emerging market wobbles (Turkey), and supply increases (OPEC, US). In bear markets the market ignores unalterable truths like pending Iranian export reductions, continued strong demand growth, 2019-2023+ production declines in a collective ~ 50% of oil producing countries, and a pending pipeline shortage out of the epicenter of US oil shale growth (the Permian Basin).

 

Today is a great example of the disconnect between oil fundamentals and oil equities. Oil fell $0.28/bbl on the day due to I believe Turkish headlines over the weekend (we struggled to find anything else to account for the move that saw oil fall as much as $1.67 at the 1pm lows). So oil was down 0.5% and multiple stocks (and holdings) fell 4%-5%. Stocks barely moved up with oil rallying 15% YTD in CAD$ terms and yet fall by 4%-5% when oil falls 0.5%. August volumes are not helping as it literally feels like there are only a handful of energy market participants (including us!) active in looking for opportunities. The past month has been especially brutal with holdings like MEG Energy falling by 30% (largest investor quits the Board and people wrongly assume that he is going to be liquidating his position…actually turns out that he is going activist but who cares?), Wildhorse Development falling by 18% (they may need to truck small volumes that adds $2/bbl to their expenses which worst case reduces NAV by 5%), and Athabasca Oil falling by 18% (no update on midstream monetization in their Q2 reporting…market too impatient to wait another 1 month). With negative momentum quant selling has not helped either.

 

The oil market right now is suffering from:

 

A mismatch in timing between OPEC+Russia production increase (up about 800,000Bbl/d over the past 3 months) versus the pending reduction in Iranian oil exports due to US sanctions (700,000-1,700,000Bbl/d potential range).

 

Worries about demand destruction due to trade wars (thanks Trump) and emerging market weakness (ie. Turkey) even though outside of weather related impacts there is zero evidence of this occurring

We believe that oil remains in a bull market. The most important aspect to this is continued declines in oil inventories and the exhaustion of OPEC spare capacity. As Kuwait, Qatar, Saudi Arabia, the UAE, and Russia have increased production levels over the past several months this has resulted in OPEC+Russia spare capacity falling from ~ 1.5MM Bbl/d to our estimated 0.4MM Bbl/d. This is the lowest level in modern history.

 

image: http://www.ninepoint.com/media/615937/efmv1.png?width=219&height=307

 

 

Source: Ninepoint Partners

 

image: http://www.ninepoint.com/media/615938/efmv2.png?width=491&height=299

 

 

Source: Ninepoint Partners

 

image: http://www.ninepoint.com/media/615939/efmv3.png?width=744&height=390

 

 

 

Source: Ninepoint Partners

 

image: http://www.ninepoint.com/media/615940/efmv4.png?width=558&height=346

 

 

Source: IEA, Ninepoint Partners

 

At the same time, Venezuela continues to implode (fell 70,000bbl/d last month, and 7 of the past 9 months), missiles fly from Yemen/Iran into Saudi Arabia on a continuous basis, and the US Permian Basin is about to hit the wall with respect to pipeline capacity (to be fixed ~ end of 2019). In short, as demand continues to grow and OPEC has exhausted its spare capacity and Iran is about to involuntarily take 0.7-1.7MM Bbl/d off the market and US production growth is constrained for the next year the oil market will soon become incredibly tight. We believe that this will support higher prices with oil likely to trade ~ $100/bbl at some point in 2019.

 

Given that energy equities are trading at less than half of their historical multiples at current oil pricing (~3.6X EV/CF, >15% free cash flow yields) we continue to see highly attractive upside. As the equity market largely ignores this, at least we have seen both an increase in corporate buybacks (TCW buying back > 10% of their shares outstanding) as well as hostile takeovers and shareholder activism (ESI & TDG / MEG). With the largest disconnect in history between oil stocks and the price of oil, we calculate that our Fund has a comically high potential upside of 51%/97%/141%/183% at $70/$80/$90/$100 oil. Note that just for the stocks to trade at a still discount to historical multiples AT THE CURRENT OIL PRICE we see over 50% upside.

 

In our next full monthly report due out in early September we will be updating our inventory forecasts as well as going into detail about why the exhaustion of OPEC spare capacity is highly significant and will become the topic du jour in 2019. For now, we would reiterate that once we get through this timing mismatch (OPEC production increase relative to Iran sanctions biting) we see oil inventory trends continuing to support higher prices.

 

You are not alone in your frustration.

Reach out with any questions / concerns.

 

Eric Nuttall

Senior Portfolio Manager

Ninepoint Energy Fund / Ninepoint Energy Opportunities Trust

 

[SharperDingaan]

It's useful to seperate oil-price from the marginal 'quant' and 'value' funds.

Quant funds are by-and-large 'momentum' funds trading volatility. While oil prices offer material potential volatility, it is not actually delivering it and there's no trend to the story line. Hence both Quant and Value funds are forced to sell down, and a 0.5% fall in oil-price becomes a 3-4% fall in share price.

 

The quants need more volatility.

The value funds are essentially 'shorting' through sales today at a higher price and repurchases tomorrow at a lower price. Short positions that aren't visible because they are selling down from existing holdings ;)

 

SD

[Joe689]

So in your opinion, when does this vicious cycle end?  We need a spike in oil?  Feel like that already happened when we got above wti 70... what will it take 80?

[SharperDingaan]

Burning tankers/loading facilities/pipelines in either the ME or the US.

When it no longer becomes possible to 'ignore'

 

SD

 

[Joe689]

Second EIA storage crude built in two weeks while in peak demand.  Very confusing.    Apparently sky high oil imports.  This market is not tight apparently.

[jmp8822]

Second EIA storage crude built in two weeks while in peak demand.  Very confusing.    Apparently sky high oil imports.  This market is not tight apparently.

 

It has been interesting - makes you wonder if demand is really falling worldwide or if the Saudis are forcing the imports this direction.  Also, could be Iran trying to liquidate everything possible before sanctions.  Based on the last 12 months of data, I highly doubt supply has risen enough to offset projected demand, so it seems either demand has actually pulled-back worldwide or it could be a U.S. based head-fake that is being pulled for political reasons. Trump did allegedly ask the Saudis to goose U.S. deliveries - whether that was real production growth or draining their inventory has yet to be determined.

[Cardboard]

Imports have jumped 1 million barrels/day over last week and above the regular 8 million barrels/day while export have declined around 300,000 barrels/day from what was shipped lately. If imports/exports had been steady, we would have had a draw as expected by analysts.

 

The Saudis actually saw a decline in production in July and that was reported via the OPEC report on Monday.

 

There is no increase in U.S. production, nor Canadian, nor Venezuela capable to justify such boost in inventory.

 

The only way for that to happen is for a few extra VLCC's to offload. The algos then run wild on the unexpected build and massive profits are made by those on the right side of futures.

 

If you had access to a lot of cash, you could rent VLCC's and play that game a lot. I am certain it is profitable. And we know that some VLCC's are actually rented to play arbitrage: contango/backwardation vs futures.

 

Who is investigating or watching over such potential practice? NOBODY!!!

 

Cardboard

[SharperDingaan]

China's big arrow.

"China and the U.S. seem to be going tit-for-tat with each other, but as Dan Flynn of the PRICE Futures Group explains, China has a disadvantage: "The Chinese are running out of U.S. imports to put a tariff on." The one big arrow left in their quiver, of course, is oil. The U.S. exports more than 300,000 barrels a day to China — about $1 billion US worth a month. http://www.cbc.ca/news/business/china-opec-oil-tariffs-1.4713944

 

The gist is that China puts a 25% tariff on US oil, & buys direct from Iran instead. Everybody gets to shaft Trump, & the US suffers a 300,000 boe/d reduction in oil exports. Protest and China simply pulls back from the US bond window, forcing up US interest rates.

 

SD

 

And that arrow is now being used  https://ca.reuters.com/article/businessNews/idCAKBN1KO27S-OCABS

 

"China included LNG for the first time in its list of proposed tariffs on Friday, the same day that its biggest U.S. crude oil buyer, Sinopec, suspended U.S. crude oil imports due to the dispute, according to three sources familiar with the situation."

 

“The U.S. gas industry will be much harder hit by this as China imports only a small volume whereas U.S. suppliers see China as a major future market,” said Lin Boqiang, professor on energy studies at Xiamen University in China. "With LNG demand expected to skyrocket over the next 12 to 18 months, there are still some two dozen firms seeking to build new LNG export terminals in the United States and tariffs may limit their ability to secure sufficient buyers to finance their proposed projects."

 

"Meanwhile, according to Kpler, crude exports to China dropped to an estimated 226,000 barrels per day (bpd) in July, after reaching a record 445,000 bpd in March. Sinopec, through its Unipec trading arm, is the largest buyer of U.S. crude. China would likely hike purchases from Saudi Arabia, Russia, the United Arab Emirates and Iraq if the tariffs slowed U.S. flows, said Neil Atkinson, head of the oil industry and markets division at the International Energy Agency. There will be “others who will be offering barrels to China, so it could find itself able to replace lost volumes from the U.S.,” Atkinson said."

 

...

 

Supposedly the US sells the 226K bpd to Saudi Arabia, Russia, the United Arab Emirates and Iraq - who just sells it on to China.

OR, China just's FU's the chump and buys it direct from Iran - who needs friends against the US instigated unrest.

Your enemy is my enemy, etc.

 

SD

 

https://ca.reuters.com/article/businessNews/idCAKCN1L50RZ-OCABS

 

"To safeguard their supplies, state oil trader Zhuhai Zhenrong Corp and Sinopec Group, Asia’s biggest refiner, have activated a clause in its long-term supply agreements with National Iranian Oil Corp (NIOC) that allows them to use NITC-operated tankers, according to four sources with direct knowledge of the matter." "The price for the oil under the long-term deals has been changed to a delivered ex-ship basis from the previous free-on-board terms, meaning that Iran will cover all the costs and risks of delivering the crude as well as handling the insurance, the sources said.". "In July, all 17 tankers chartered to carry oil from Iran to China are operated by NITC, according to shipping data on Thomson Reuters Eikon. In June, eight of 19 vessels chartered were Chinese operated. Last month, those tankers loaded about 23.8 million barrels of crude oil and condensate destined for China, or about 767,000 barrels per day (bpd)"

 

Sinopec stopped importing 300,000 bpd from the US last month, they're taking it from Iran instead.

Doubling tanker capacity from 8 to 17 implies an import of around 1,600,000 boe/day, and in tankers that have the loading capacity to go well beyond that. Most would suggest that much of that additional import is just going to be China reselling to others to get around US sanctions.

 

Once the tankers are delivering, all Iran need do is constrict their flow to raise the global crude price.

And this is called 'winning' in the US ?

 

SD

 

 

 

[sculpin]

Cale Smith on Oil....

 

Dear Tarpon Investors,

 

Since the beginning of the year through the end of July, the Tarpon Folio is down 4.3%. August is also off to a rocky start. For reasons explained more below, however, I expect our portfolio's performance to soon begin to self-correct.

 

It has been a frustrating summer.

 

The world's largest oil producing country imposed sanctions on the third- and fifth-largest oil producers. It then started a trade war with the seventh-largest producer. The world's second largest oil producer began an all-out economic embargo on the fourth-largest producer. And the world's sixth-largest oil producer is Iraq...the Charlie Sheen of oil market stability.

 

Lately, Tarpon has felt like the avocado of portfolios. While we wait and wait for it to mature enough to be enjoyable, it sneakily morphs into a disappointing mess.

 

Our returns have been driven by people playing a different game than we are. And there has been more noise than usual to sort through lately, so staying patient can be difficult if you're not seeing the whole board.

 

 

What's Up With Oil Lately?

 

In late May, the U.S. announced it would reinstate sanctions on Iran - an unequivocally bullish development for oil which will officially begin in November. That news was soon followed by U.S. pressure on Saudi Arabia to increase oil exports - to replace lost barrels from Iran and keep a lid on global oil prices. Then, as U.S. - China rhetoric about tariffs heated up, China unexpectedly reduced the amount of crude it imported and began to "de-stock," or chew through its own existing oil inventories, rather than import new barrels.

 

All of which put a pause on the historically massive drawdowns in global oil inventories the market had been witnessing the previous eighteen months.

 

China is important to U.S. oil, and U.S. oil is important to China.

 

In 2017, U.S. crude exports to China jumped tenfold from a year earlier, reaching an average of 224,000 bopd. During the first six months of 2018, U.S. crude exports to China increased further, to an average of 377k bopd - making the U.S. China's top supplier of crude - until the last two months, when U.S. oil shipments into the country fell significantly (down to 189k bopd in July, and set to fall again in August, as per ClipperData). And in the first half of 2018, China accounted for 20% of all U.S. crude exports.

 

So China has relatively quickly become a significant market for U.S. crude, and when it suddenly stopped buying U.S. oil, our oil traders got twitchy.

 

That cessation of U.S. imports by China had two causes. First, Beijing recently increased taxes on the country’s small, independent refineries in an attempt to fix the industry’s chronic overcapacity. China is home to many small independent (“teapot”) refiners that run at only ~50% capacity. That is terribly inefficient and crimps the margins of the country’s larger, state-owned refiners. So that tax issue started to cause some angst among small refiners in March. Then, a few months later, several large Chinese refiners stopped buying U.S. crude outright – specifically to avoid getting jammed by an unexpected price increase if oil tariffs were announced while ordered crude was in transit between countries.

 

As an aside, I also find it interesting that several private oil data-tracking services recently reported that China has ceased sharing its oil inventory data. That, at least to me, raises the possibility that China may be using headlines about tariffs to shrewdly advancing its own energy security interests. Beijing was, in retrospect, uniquely positioned to exert downward pricing pressure on crude this summer. But, well, that’s another speculative discussion better suited for the podcast.

Regardless, all signs point to this summer dip in oil prices being temporary.

 

Signs This Dip Should Soon Be Over

 

First, U.S. crude not sent to China has been finding a welcome new home in India - rising from a paltry 17,000 barrels a day this April to 261,000 bopd in June and likely reaching 319,000 bopd in August (Reuters Oil Research). The opportunity for U.S. crude in India will further expand later this year when Iranian sanctions take effect.

 

That U.S. crude can easily be sent to India means, among other things, that China is the more vulnerable party when it comes to U.S. tariff negotiations. Forbes has reported that it was specifically the large Chinese refiners that lobbied the Chinese Ministry of Commerce to remove U.S. crude from its sanctions list last Monday.

 

Second, as reported last Friday, China is sending a delegation to D.C. this coming week to begin low-level trade talks. While we shouldn’t expect anything material out of these talks, it is nonetheless another signal by Beijing that should alleviate Chinese refiners’ recent fears of importing U.S. oil.

 

Third, in the third and fourth quarters of 2018, three Chinese companies will be bringing online new refining capacity of up to 900,000 bopd (in Hengli and Zhoushan, each with 400k bopd, and Huabei at 100k, as per Reuters). Assuming that even communists love NPV-positive projects, they’re going to have to start feeding those refiners imported oil soon to begin recovering those investments.

 

All of which speaks to the broader reason why I believe China imports will pick up and reinvigorate global oil prices relatively soon:

 

Rational self-interest.

 

Specifically, China needs to import a looooot of oil, due to the massive and increasing demand from its developing middle-class economy – while China's own domestic oil production declines. Oil imports are simply too important not to resume soon, or else China’s economic growth will suffer. And once Chinese imports do bounce back, declines in global oil inventory levels will resume…which should satisfy even the twitchiest speculator counting crude barrels in Cushing, Oklahoma every Wednesday morning.

 

So what we've been seeing in the oil market this summer has been, in a word, noise. It has been the sloshing around of global oil inventories between opaque countries, like Saudi Arabia and China, and transparent markets, like the U.S. Though it certainly hasn't been obvious.

 

Interestingly, Saudi has also recently stepped back into the picture as well - signaling a 100,000 bopd reduction to their own oil exports in August, and underscoring their expectations for substantial declines in global oil inventories in Q3.

And if in fact this summer dip in oil prices is nearing its end, that would start show up in three leading indicators:

 

1. Chinese refiners will start processing more oil.

Check that box. Specifically, research firm SCI99 reported last week that operating rates at independent Chinese refineries jumped by 5% over the prior week – a big jump, reaching the highest average utilization levels since June of 2015. Game on.

 

2. Floating storage will drop - as the June surge of Saudi exports is absorbed by the market.

Check this box, too. One data provider showed floating storage drop from 50 million barrels to 36 million in just three days this past week.

 

3. The spread between Brent and WTI oil prices will increase.

We can’t check this box quite yet, but it appears imminent, and there are a ton of eyes watching it. On a chart, that spread looks like it could be bottoming out at the moment…or it could just be bouncing around. Best to give it a little more time to tell for sure.

 

At this point in the oil cycle, though, that spread is really a proxy for U.S. exports. And given that Saudi is throttling back on exports, while China will be throttling up imports, we can at least have reasonable confidence that this spread, at worst, shouldn’t get much tighter, which would be bearish for oil. Let’s stay patient and see what happens. Because once that Brent-WTI spread does start to increase again, the market is going to suddenly gain a lot of confidence that this summer dip is behind us - and then start to panic about $150 oil.

 

Kidding. Or. Am. I?

 

The Bullish Big Picture

 

It’s obviously a challenge to guesstimate exactly when this latest decline in oil prices will inflect. But we don’t need to be exact, either – as long as we stay patient.

 

Oil remains in a bull market. The world now uses almost one billion barrels of oil every ten days. And the far bigger problem for oil, extreme underinvestment, continues to lurk in the shadows - and likely got incrementally worse the last few months. Fears of trade wars, actual sanctions and heightened volatility only continue to push out much-needed investment in the industry.

In the meantime, global demand for crude is growing at 3% year over year, OPEC+ has the lowest level of spare capacity in modern history, production from Venezuela is cratering, Libyan supplies are dwindling, 1 million barrels a day of supply will soon be lost from from Iran, and global oil inventories are at their lowest levels in years.

 

Plus, the major driver of oil supply growth in the world - the Permian basin in the U.S. - will soon see its growth slowed by pipeline capacity - as the U.S. Energy Administration cites record U.S. depletion rates of 6 million barrels of oil a day. And then Iran's proxies in Yemen continue to lob missiles over all sorts of critical oil facilities in Saudi Arabia.

All of which seems, I don't know, kind of important, amiright?

Yet, here we are – witnessing the largest disconnect in history between oil company valuations and the price of oil.

 

Great googily moogily. Where's the Tylenol?

 

I, too, grow tired of the volatility. But it is a mistake to confuse our recent returns with our potential for absolute gain. And it would be a tragedy to waste this opportunity. We have it in hand, and we cannot lose it - unless we either give up, or walk away.

 

So, please hang in there with me a little bit longer.

 

[Cardboard]

"Doubling tanker capacity from 8 to 17 implies an import of around 1,600,000 boe/day, and in tankers that have the loading capacity to go well beyond that."

 

You may want to re-read what you posted.

 

There is zero doubling of shipment capacity. Only a change in how vessels are insured.

 

But, obviously you are so anti-Trump that you can't even see reality or read properly.

 

Cardboard

[SharperDingaan]

Agreed that the traffic from Iran to China is roughly 17-19 tankers/month.

In July there were 17 tankers delivering, and all of them were NITC. In June there were 19 deliveries, 11 of which were NITC and 8 were Chinese.

 

The size of the tankers is increasing.

In June 19.8M barrels loaded over 19 vessels; average size was 1.04 M/boe per vessel (19.8/19). In July 23.8M barrels loaded over 17 vessels; average size was 1.40 M/boe per vessel (23.8/17). Do the math; 4-5 of the July tankers had to be VLCC's doing 2M bbl/delevery, whereas there was only 0-1 delivering in June.

 

So what?

NITC just displaced the 8 Chinese tankers on the Iran to China run, they didn't vanish.

We also know that the average size of these displaced tankers is around 1M boe & that the 4 NITC VLCC's essentially replaced them in July.

Todays announcement implies that those Chinese tankers are filling with Iranian oil - that others are buying

 

https://ca.reuters.com/article/businessNews/idCAKCN1L6048-OCABS

"While most of Europe’s energy firms are likely to fall in line with Washington, China has indicated that it will continue to buy Iranian oil"

 

There is nothing wrong with our ability to read

Its just hard to lie to me honey

 

SD

 

 

 

 

 

 

 

 

 

[Cardboard]

You are effectively arguing that all Iranian oil will continue flowing while Saudi Arabia, Gulf partners and Russia are increasing production to offset an imaginary loss of Iranian oil.

 

If you believe your crap, then you are a retard to hold energy.

 

Cardboard

[Cardboard]

Stupid leftist media!

 

https://boereport.com/2018/08/20/daily-distortions-brainless-media-coverage-of-the-oil-and-gas-industry-is-ripe-for-consequence/

 

Cardboard

[John Hjorth]

Please get a a firm grip on your own neck, Cardboard,

 

Somehow, it's getting embarrassing here. Please work with your syndrome about your entitlement about being rude towards other CoBF members - especially the experienced ones, who always are willing to share their thoughts here on CoBF.

 

It would dress you well.

 

As an alternative, you could ask Sanjeev to change your board handle to the name on your birth certificate. For my part, it actually works pretty great [mishaps happen, however, from time to time, when you're wired as a bully like me [and you]].

[SharperDingaan]

You are effectively arguing that all Iranian oil will continue flowing while Saudi Arabia, Gulf partners and Russia are increasing production to offset an imaginary loss of Iranian oil.

 

If you believe your crap, then you are a retard to hold energy.

 

Cardboard

 

We simply posted evidence that US sanctions on Iranian oil exports are unlikely to be effective.

SA/Gulf partners/Russia also don't have the capacity to make-up for VZ, Nigeria, etc, AND embargoed Iranian oil.

So if the US truly wants cheap oil - it's going to have to let Iran produce.

Which isn't the US propaganda line.

 

Too bad.

 

SD

 

 

[sculpin]

Good interview with Helima Croft...

 

https://www.bnnbloomberg.ca/video/u-s-to-release-oil-from-emergency-stockpile-before-iran-sanctions~1467122

 

[SharperDingaan]

Pressure is ratcheting up ..

https://ca.reuters.com/article/topNews/idCAKCN1L70A1-OCATP

 

“Let me be clear, the reimposition of the sanctions, we think, is already having a significant effect on Iran’s economy and on, really, popular opinion inside Iran,”. “Just to be clear, regime change in Iran is not American policy. But what we want is massive change in the regime’s behavior,” Bolton said.

 

At the news conference, Bolton said: “We are going to do other things to put pressure on Iran as well, beyond economic sanctions.” “We expect that Europeans will see, as businesses all over Europe are seeing, that the choice between doing business with Iran or doing business with the United States is very clear to them,”."So we will see what plays out in November. But the president (Trump) has made it very clear - his words - he wants maximum pressure on Iran, maximum pressure, and that is what is going on.”

 

In other words ...

 

Trump wants Khamenei gone, the sanctions are to trigger an internal revolt, and the US apparently plans to do something drastic in November that allies may well not agree with. Most recognize that November is also when the US midterms are decided; hence it would appear that if the republicans retain the senate - there will be US action in the gulf.

Risk premium.

 

Conversely if senate control is lost, Mr Bolton & company are out of a job, and risk premia decline.

Nice place for a straddle

 

SD

 

 

 

 

[SafetyinNumbers]

Pressure is ratcheting up ..

https://ca.reuters.com/article/topNews/idCAKCN1L70A1-OCATP

 

“Let me be clear, the reimposition of the sanctions, we think, is already having a significant effect on Iran’s economy and on, really, popular opinion inside Iran,”. “Just to be clear, regime change in Iran is not American policy. But what we want is massive change in the regime’s behavior,” Bolton said.

 

At the news conference, Bolton said: “We are going to do other things to put pressure on Iran as well, beyond economic sanctions.” “We expect that Europeans will see, as businesses all over Europe are seeing, that the choice between doing business with Iran or doing business with the United States is very clear to them,”."So we will see what plays out in November. But the president (Trump) has made it very clear - his words - he wants maximum pressure on Iran, maximum pressure, and that is what is going on.”

 

In other words ...

 

Trump wants Khamenei gone, the sanctions are to trigger an internal revolt, and the US apparently plans to do something drastic in November that allies may well not agree with. Most recognize that November is also when the US midterms are decided; hence it would appear that if the republicans retain the senate - there will be US action in the gulf.

Risk premium.

 

SD

 

November is when the sanctions kick in. That’s what he is referring to, not some other action.