I'm ready for the oil bubble to burst
From Mike:
*OPEC's meeting is underway and at the center of debate is a Saudi-led proposal to formally raise the current output ceiling of 25.8 mm b/d by somewhere between 0.5 and 1.0 mm b/d
*With the cartel already producing more than 900,000 b/d above the current ceiling, it might seem pretty simple to just formalize existing quota cheating - all but one member are, in fact, above allocation.
*As we wrote yesterday, we think the bigger story behind the scenes here is the concern about high oil prices doing further damage to the global oil balance.
*Some countries (Iran, Nigeria and Venezuela) opposing a ceiling hike have been more than happy to watch Saudi Arabia cut back production by over a million b/d this past year as increased non-OPEC supply and weaker than expected world demand growth eroded the "call on OPEC crude."
*Based on our oil balance work, it seems the Saudis will be under further pressure next year to make room for non-OPEC capacity and the gains in non-OPEC. This seems eerily similar to what we saw in the mid '80s which led to the '85-'86 price crash.
Just imagine for a minute that you are Saudi. You are the low cost producer in the world, prices are near record-highs and yet you've had to voluntarily cut back production to allow other countries to sell their higher cost crude oil. How would you feel? Why would you allow that? Why not say, "Fuck you Venezuela and fuck you Iran and fuck Nigeria!! We are the most efficient producer in the world with the biggest reserves and we should be selling more crude, not you." This whole OPEC structure is mightly flawed on several levels. All of the countries are cheating and producing more than their quotas while Saudi gets the shaft. This has to be enraging the Saudi Kingdom and creating severe tension within OPEC. Yet, Saudi knows that the price of oil is being held up on nothing more than misconceptions about supply (it's not really tight and the world is not running out of oil), thus they have to be careful what they say. They don't really want the world to know that they are only producing from 25 of 75 huge oil fields. I would love to see the system and price totally collapse.
*OPEC's meeting is underway and at the center of debate is a Saudi-led proposal to formally raise the current output ceiling of 25.8 mm b/d by somewhere between 0.5 and 1.0 mm b/d
*With the cartel already producing more than 900,000 b/d above the current ceiling, it might seem pretty simple to just formalize existing quota cheating - all but one member are, in fact, above allocation.
*As we wrote yesterday, we think the bigger story behind the scenes here is the concern about high oil prices doing further damage to the global oil balance.
*Some countries (Iran, Nigeria and Venezuela) opposing a ceiling hike have been more than happy to watch Saudi Arabia cut back production by over a million b/d this past year as increased non-OPEC supply and weaker than expected world demand growth eroded the "call on OPEC crude."
*Based on our oil balance work, it seems the Saudis will be under further pressure next year to make room for non-OPEC capacity and the gains in non-OPEC. This seems eerily similar to what we saw in the mid '80s which led to the '85-'86 price crash.
Just imagine for a minute that you are Saudi. You are the low cost producer in the world, prices are near record-highs and yet you've had to voluntarily cut back production to allow other countries to sell their higher cost crude oil. How would you feel? Why would you allow that? Why not say, "Fuck you Venezuela and fuck you Iran and fuck Nigeria!! We are the most efficient producer in the world with the biggest reserves and we should be selling more crude, not you." This whole OPEC structure is mightly flawed on several levels. All of the countries are cheating and producing more than their quotas while Saudi gets the shaft. This has to be enraging the Saudi Kingdom and creating severe tension within OPEC. Yet, Saudi knows that the price of oil is being held up on nothing more than misconceptions about supply (it's not really tight and the world is not running out of oil), thus they have to be careful what they say. They don't really want the world to know that they are only producing from 25 of 75 huge oil fields. I would love to see the system and price totally collapse.
posted by Never-Limp at 8:26 AM
2 Comments:
I'm with you, and geting killed today.... now with this "Saudi Call"? i'm baffled as to how its not on the way down
if it keeps getting driven up all summer for "hurricane season soon" and then pops everytime a cloud froms, shouldn't it start to deflate when nothing materializes?
also from watching CNBC feels like everyone in the world is already long
i'm pressing my bets on the chances of another fail tomorrow of the all time high, a suprise build in crude and the start of a long decline
I actually like the refiners a bit here, gas stocks are legitimately low and the crack spreads would seem to have no where to go but up at this point.
Yep, just about everybody is long and overweight energy. Heck, it's seen as a safe haven by some. This bubble has persisted for a couple years now and there is no way of knowing exactly how long it will last. Something will change this euphoric sentiment, but I'm not sure what the catalyst will be.
Post a Comment
<< Home