Oil / Gas price. Supply and demand.

[dmpi]

Quote:

Originally Posted by Sam OK, so far so good.* Please go on.

The oil companies are net seller of oil futures. They want to sell all the future at top dollar for X year out. So during this phase they want the price of oil to go up. After they sold out all the futures (to some hedge fund) for mega bucks, they get concerned about the demand for oil. If the price is way too high, people might even find alternate sources of energy. Now they want the price to fall. So they time the release news to help their bottom line.
Here's my prediction: You will see record profits for oil companies for 3-4 more quarters. You will also see one or two giant hedge fund bite the dust because they bet wrong on oil.

[larry]

This environment for high oil prices is unsustainable IMO. I've been in the oil biz for 25 years and have seen some booms and busts (remember the old bumper sticker: "Please don't tell my mom that I work in the oil patch, she thinks I'm a piano player in a whore house" That reputation has changed a bit.) Hell, we could make money at $23 oil, you certainly weren't getting rich but it paid the bills.

[haha]

Quote:

Originally Posted by larry Hell, we could make money at $23 oil, you certainly weren't getting rich but it paid the bills.*

I sure don't want to disagree with someone in the ahl bidness, but when I hear something like this I wonder if it is so easy to make money at $23, why aren't more rigs running at $60-$70? Last week, during the prime season for drilling, there were 1728 rigs running in N. America, including Canada and offshore. In ‘81 and ‘82 there were weeks on end over 4400, and some over 4500.

If you can make money at $23, you ought to be able to displace Bill Gates at $65. Why the puny rig count?

Ha

[wabmester]

Quote:

Originally Posted by HaHa I sure don't want to disagree with someone in the ahl bidness, but when I hear something like this I wonder if it is so easy to make money at $23, why aren't more rigs running at $60-$70? Last week, during the prime season for drilling, there were 1728 rigs running in N. America, including Canada and offshore. In ‘81 and ‘82 there were weeks on end over 4400, and some over 4500. If you can make money at $23, you ought to be able to displace Bill Gates at $65. Why the puny rig count?

Good point, but I don't think there's much debate that the US fields have peaked, is there?

So a better question is why don't the Saudis, who do have excess capacity, crank out all the oil they can at $70/bbl?* *They say their buyers aren't asking for more oil:

Saudi cut shows record oil defies market logic

Now, how can prices get that high if it's not truly demand driven?

Remeber Enron?

Here's the senate subcommittee findings that Leonidas posted a while back:

The Role of Market Speculation in Rising Oil and Gas Prices: A Need to Put the Cop Back on the Beat

[mathjak107]

Rigs are a big problem,there is a huge shortage.My buddy is ceo of dune energy.They have oil producing properties but had to wait months for rigs.They just got 1 rig finally 2 weeks ago.
* We have about 2 million barrels a day spare capacity if all is up and running world wide right now..With india and china adding millions of cars a year that will be gone in a few years.

[larry]

Rigs aren't the only problem, it's floor hands for those rigs that are in short supply. One needs a basic understanding of the Spanish language when dealing with rig hands.

With oil in the $50-$70 range the price of oil services took a jump and supplies are not cheap anymore. So while revenues are up, net income (while still great) can take a hit if one has a major workover or foots the entire drilling bill.

Who knows what tomorrow brings but I'm not in the business anymore being FIRE'd for a while.

[Leonidas]

I found this report that was prepared for a group of states’ attorneys general in regard to the natural gas market.* Look at the graphic near the very beginning to get a real quick look at some of the drivers in the energy market.*

http://democrats.senate.gov/dpc/hear.../supplydoc.pdf

Last night I had about thirty tabs open on the browser to some interesting things I was reading, but this morning the computer was locked up so I’ll have to re-find them through the history before I can lay it all out.* But, off the top of my head here is what I found:

In the US we are becoming more efficient in how we use oil while our demand continues to increase.* Worldwide demand is increasing at the same time, especially in places like China and India.* Production has increased, but not at the same rate as demand.* There is still sufficient supply to meet demand, but the amount of overproduction in capacity that exceeds demand has shrunk.* Mathjak says 2 million bbsl per day, but what I saw said it was closer to 1 million BPD.* So the market is pretty tight and whenever there is a disruption somewhere it can mean supply is not meeting demand in certain areas – and prices go up.

When prices start going up the major consumers of oil start to stockpile and lock in prices for future use.* That is increased demand and in a tight market the prices go up further.

But the real driver of these nutty prices we’ve seen in the last few years is the result of some major deregulation in the markets.* *At the moment both CFTC and FERC have very little oversight authority over huge segments of oil trading.* Just before Clinton came into office, CFTC head Wendy Gramm cut some of that agency’s fangs, and as Clinton was going out of office he signed a law that included even more deregulation.* Enron allegedly provided the push to get all of this deregulation in place and we know what that company did in natural gas trading.*

It looks like something similar is happening now in the oil markets.* There’s very little oversight of traders and what they trade.* Plus, some US traders are going through a backdoor to the US markets by trading on the US markets using the London based ICE as an intermediary.* Their trades are simply invisible to US oversight.*

Hedge funds and some very big money players have moved into the markets and it has become very speculative.* With the invisible nature of so many trades, there are apparently a lot of traders who were jacking up the price on every potential hiccup in production.* Speculation drove up futures prices and the big consumers bought more oil to hedge against the rising prices.* Speculators saw the OTC and spot markets eating up all the oil they could buy at $70, so $75 a bbl became the next target.* Hell, why not $100 a bbl?* It was a feeding frenzy.

Now, it looks like some sanity has been restored and the speculators are trying to not be the last idiot holding oil.* The world didn’t run out of oil overnight, Iran is still pumping and selling their crude, the global warming monster seemed to have forgotten to destroy our GOM production and pipeline infrastructure, BP’s pipeline problems weren’t as bad as first forecast, demand is not increasing as fast as previously forecast, etc., etc.

The spring is unwinding and some pundits are saying we’ll see sub $2.00 gasoline soon.* What I don’t know about this would fill volumes (I’m not an oilman, I just play one on the internet), but I agree with dmpi that I think some of the hedge funds are going to get taken to the woodshed before this is all over.* I did predict earlier this week that we would see $2 here in SE Texas.* Yesterday the cheapest prices were about $2.12, today I am seeing it at $2.08.*

Now it’s the opposite of a feeding frenzy, it’s a route and they’re all running away as fast as they can. It's possible that this could reverse again in the near future and prices go back up, but I think we have some more room for prices to drop before that happens.*

Moderator edit: URL typo.

[haha]

Quote:

Originally Posted by wab Good point, but I don't think there's much debate that the US fields have peaked, is there? So a better question is why don't the Saudis, who do have excess capacity, crank out all the oil they can at $70/bbl?* *They say their buyers aren't asking for more oil: [

Well, your question is a different question, though I would not say it was necessarily a better question. There are plenty independents still seeking oil with land drilling in the US; and there are many more seeking NG. I don't believe anyone has suggested that U S NG production has peaked. Most of US land drilling is gas.

Here is an interesting factoid that sure makes you wonder about price and drilling: US offshore(which is mostly GOM) peaked in 2001 around 175 rigs, and trended down steadily from there until about Jan 2006, and there has been a small rise since then to 95 rigs. Now this is in a period when the oil and gas prices have been going nuts on the upside, and the GOM is where US oil can be found, and where fast producing gas wells can be found. Yet almost everyday some driller reports rigs leaving the GOM.

To move to the international picture, logic suggests that there is something wrong with the Saudi story that their customers don't want more oil. After all, it was selling at $70, and the world’s largest and most liquid commodity spot market stood ready and willing to adjust supply and demand through price. If you don't believe that, you have given up on capitalism.

So I think the Saudis were lying to cover the fact that whatever their reserves might be, their safe and sustainable production was about tapped out, at least with whatever reservoir management they can do and pay for today.

There may be some very interesting politics between the Saudi reservoir engineers and their royal masters. The engineers may want to run the field right, while the Princes may want more money in Switzerland or the Caymans.

Speculation is certainly present, on the up and on the down. But this is no Hunt brothers silver caper.

I’ve been an o&g investor for over 20 years. I’ve only lost money on one trade-a management LBO during the 80s.

I would not want any new positions at today’s prices, but at the same time, I would not want to be short except as a nimble and well connected trader which I am not.

IMO, this will be rocky, and like someone said, hedge fund bankruptcies could be very disruptive. When someone is long oil and gets into trouble, the government says f-you. Much safer to get messed up long bonds.

Still, I look for the next 5 to 10 years to be one great time to make serious money in energy. Like every time you try to go beyond T-bills, there are risks.

I think most of the people rushing to get into print with bearish stories are the same ones who have been bearish from $25.

Ha

[wabmester]

Quote:

Originally Posted by HaHa Speculation is certainly present, on the up and on the down. But this is no Hunt brothers silver caper.

Eh, I suspect there will be a good book written about this period in history.* *Maybe it'll even have cool codenames like DeathStar and FatBoy.*

I can't wait to see what comes out of the BP market manipulation case.* *Conspiracies are much more interesting than supply and demand.

[wabmester]

Quote:

Originally Posted by dmpi Here's my prediction: You will see record profits for oil companies for 3-4 more quarters. You will also see one or two giant hedge fund bite the dust because they bet wrong on oil.

Wow, good call! Although it was NG, rather than oil, these guys just got a $4 billion margin call:

Amaranth Says Funds Lost 50% on Gas Trades This Month

[larry]

I was just searching for this thread to post same, good call. Saw some #'s for them, looks like they have about $21 billion leveraged?

[Leonidas]

Crude prices up slightly this morning - hovering around $64. Some are saying that much bigger drops in price are possible, especially if this winter is milder than normal:

Quote:

With fear of supply disruptions ebbing, oil prices began sliding. There's already anecdotal evidence of oil companies chartering tankers to store excess oil. "If we continue to build inventories, and if we have a warm winter like we had last winter, you could see a large fall in the price of oil," said Gary Pokoik, who manages Hedge Ventures Energy in Los Angeles, an energy hedge fund. Should oil traders fear that this downward price spiral will get worse and run for the exits by selling off their futures contracts, it's not unthinkable that oil prices could return to $15 or less a barrel, at least temporarily, Verleger said. That could mean gasoline prices as low as $1.15 per gallon.

http://www.dfw.com/mld/dfw/15554435.htm

I saw an article earlier today that OPEC is already concerned about dropping prices and talking like they may have a meeting to discuss cutting production.

[TromboneAl]

Anyone have a plot of crude oil prices over time with average pump price on the same graph?

[Leonidas]

Quote:

Originally Posted by TromboneAl Anyone have a plot of crude oil prices over time with average pump price on the same graph?

Here's one from gasbuddy.com

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Originally Posted by Leonidas Crude prices up slightly this morning - hovering around $64. Some are saying that much bigger drops in price are possible, especially if this winter is milder than normal.

It may be coming earlier than I thought. Crude took another smacking today - down $1.55 $2.10.

[TromboneAl]

Perfect, thanks.

[Gone4Good]

Quote:

Originally Posted by Leonidas I saw an article earlier today that OPEC is already concerned about dropping prices and talking like they may have a meeting to discuss cutting production.

They're just jaw-boning the market. Ain't no way anyone in OPEC is going to cut production at $60, or $50, or . . .

[haha]

Quote:

Originally Posted by 3 Yrs to Go They're just jaw-boning the market.* Ain't no way anyone in OPEC is going to cut production at $60, or $50, or . . .

Don't forget that they have information that we don’t have. They know what their production capacity is.

Ha

[Leonidas]

Quote:

Originally Posted by 3 Yrs to Go They're just jaw-boning the market. Ain't no way anyone in OPEC is going to cut production at $60, or $50, or . . .

I'm not sure. They do have a history, at much lower price levels, of lowering or raising production in order to try and control the price.

[img width=750 height=562]http://www.wtrg.com/oil_graphs/crudeoilprice97_03.gif[/img]

[Gone4Good]

Quote:

Originally Posted by Leonidas I'm not sure.* They do have a history, at much lower price levels, of lowering or raising production in order to try and control the price.*

OPEC does have a long history of announcing cuts to control the price of oil.

And each and every member has an equally long history of cheating on those promised cuts.

[Sam]

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Originally Posted by wab Supply has kept up with demand.*

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Originally Posted by Sam I did read about demand exceeding supply more than one times, but did not save the info for future reference.

http://www.seacoastonline.com/news/0...5_peakoil.html
I just stumbled onto this article, which mentions about supply not keeping up with demand.

Excerpt (5th paragraph): The belief that the Earth is running dry of oil is just one of many factors supporting crude prices. Oil supplies -- constrained by underinvestment in recent decades when crude prices were lower -- have grown more slowly than demand, leading to a thin margin of spare pumping capacity and higher prices.