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Who brought down the price of Oil

Hydra

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Introduction On FEB. 2015 we reported:Crude oil avalanche is imminent after the OPEC meeting... Can anyone ameliorate the Crude Oil Market, The $30 per Barrel is imminent, and the market is now at the mercy of how the highest level of crude oil inventories on record can be de-stocked this year without causing another crude Oil Avalanche similar to 2014. It is too late now, it has happened. Can we salvage something? The answer is below

Just by looking at the USA level of stocks, and Oil afloat in VLCC, (there are more than 10 anchored VLCC

in Kharg Island). The picture today is different from Sept 2014 the price fall and stock movement. Then the market went into contango, as traders expected quick rebound and with zero rate of interest they found $60-$55 per barrel good investment specially while extra empty storage facilities were available ( the lowest on record in term of days of forward consumption,) encouraged by OPEC ministers saying “the situation is temporary”….. Etc.… Now, all those factors do not exist. No one expects a price rebound until 2017(Read our article waiting for godet ...Frackers and drillers are giving up any hope of quick revival….. However, their crude is buried but not dead … and they could come back again when prices reach $60, if they do not sell out by then

Quantitative Easing In ( QE)

yellen yellen In reaction to the 2007 financial crisis The U.S. Federal Reserve engaged in the biggest emergency economic stimulus in history by buying immense piles of bonds, month after month, in an extraordinary effort to restart a recession-deadened economy. The fed purchased assets with long maturities to lower long-term interest rates. And by purchasing mortgage-backed securities, and accepted securities not meeting the criteria, to entice financial institutions to lend money, adding more than $3.5 trillion to the Fed’s balance sheet – “an amount roughly equal to the size of the German economy The bond-buying program, called quantitative easing or QE had been controversial since its start in 2009, as had the Fed’s decision in 2013 to gradually reduce the economic boost, a plan that became known as the taper,. But even after the taper’s end the Fed continued to pump support into the economy by holding its interest rates near zero. Very little of the money created through QE boosted the real economy. It was incredibly ineffective.

A far more effective way to boost the economy would have been for the Fed to lower energy cost in the economy and leave the consumers with more money to spend on other goods. Reducing the cost to the manufacturers is better than pumping more liquidity and cheap money,

A far more effective way to boost the economy would have been for the Fed to lower energy cost in the economy and leave the consumers with more money to spend on other goods. Reducing the cost to the manufacturers is better than pumping more liquidity and cheap money,

A change was in the air,Mrs. J.Yellen, macroeconomist believing in the theory of improved expectations and transparency took over from Ben Bemannke the Fed Chairman. And as soon as she took over in March 2013 almost the same day USA Administration announced SPR drawdown.

h1>The Futures Market

HydraThe newly created money by QE went directly into the financial markets, boosting bond and stock markets to their highest level in history, especially energy.

Screen trading on the New York Mercantile Exchange (CME) Futures Market became hyper-active with Cushing as the delivery point. ICE , launched a successful and strong cash-settled WTI futures contract in Europe which created the two price concepts, Brent "paper barrel" on ICE and WTI physical barrels on the NYMEX CME. Up to now it is the tell of the two oil titans battling to win futures market supremacy

ICE Brent became the world’s largest crude oil futures contract in terms of volume and its market share has almost doubled since 2008 becoming the basis for 70% of global oil trade. The growth of NYMEX Physical settlement ( wet barrel ) was also massive but the delivery point at Cushing could not handle the growing volume leading to increase of “ WTI-Brent spread” making WTI Irrelevant benchmark, compared to Brent cash-settled , with undefined seaborne delivery point . .

HydraWe Observe that The large increase in domestic crude oil production in the US from 2011 till 2013 began to overran the Cushing ability to move out the contracted crude on NYMEX to where it should go on the Gulf coast (USGC), leading to a massive build-up of 55 million barrels of crude inventories in Cushing in June 2013.

cheap money policy) going to investment in Fracking and energy stocks became the most lucrative investment , This result in historical increases in crude and gas production , since the Hup unable to pump the crude out fast the price increased and the gap (Brent-WTI) the two crude benchmarks, reached $27 in June 2013. That is the biggest gap in history of the two oil contracts, leading to price escalation in a market swashed with crude, but camouflaged by the Middle Easthydra and disinformation from the media

HydraHuge efforts went into improving the infrastructure in Cushing to pump out more trapped crude through reversing flow of many pipelines (Seaway) and new pipelines. Crude began to move out faster than coming in, Stock level in Cushing went down to 30 mb on sept 2013 (see table) . This was taken by the traders, as an increase in demand and prices rose more…while it was due the moderation of the infrastructure in Cushing. In fact , that was the worst signal the futures market have ever received from Cushing, .As if that was not enough , the SPR Began to send another wrong Signall


SPR

HydraHydra The USA State Department, took the market by surprise. On March 14, 2014, during the crisis in Ukraine, and the annexation of Crimea by the Russians.

The White House decided to release 5 million barrels of crude from SPR (Strategic Petroleum Reserve), to a market already flooded with crude to be released on May 10 2014 .The reason for the release was given "Due to the recent dramatic increase in domestic crude oil production, and significant changes in the system have occurred. The White House said the release was not linked to tensions with Russia

That was the mind blowing decision, ,and all were caught by surprise because any withdrawal from SPR , no matter how small, is confined to Emergency , but carrying out SPR test with commercial stock near Panic Level, it amounted to advertising the seriousness of the situation, and surely gave the wrong market signal. An earlier warning by Henry Kissinger: If "You Can’t hear the Drums of War You Must Be Deaf" caused panic stocking building, and who wouldn’t panic

HydraHydraRememeber ,In the past, SPR releases have occurred three times . First, in 1991, Operation Desert Storm,The second Hurricane Katrina,The third on June 23, 2011 libya crisis , during the unrest in Libya.). But to announce the relaes two months in advance, to amarket, already flooded by internal and external crude , was either wrong decision or the right one to do what it did

This release sent a wrong message to the market, it was taken to mean starting from March 2014 , as "Emergency, full your tanks, and there is a "threat to supply interruption from Russia". As a result, the Futures Market went bullish, prices increased, the USA Crude inventories reached maximum

That was the situation in May and June 2014,all was bullish and USA production of crude was increasing ,until, suddenly, the gate of hell was opened on the Oil Industry in June and July 2014, when the market discovered that ,the prospect of supply interruption was false alarm( see the Time line) , the drums of war went quite again, The , avalanched started, traders and oil companies began to move their crude oil out of the giant tanks faster than at any time in recent memory. selling at any price, export of petroleum products increased sharply to reach 38404 mb/d, import of crude was reduced leaving the international market with surplus: and Brent WTI spread reaching the minimum for the year, see graph, refiners returned to %84 utilization and With weak demand camouflaged by events in the middle east, which we reported at that time (Read below Hydra).

Data was released by EIA on March 23 2015 .

That was the situation in May and June 2014,all was bullish and USA production of crude was increasing ,until, suddenly, the gate of hell was opened on the Oil Industry in June and July 2014, when the market discovered that ,the prospect of supply interruption was false alarm( see the Time line) , the drums of war went quite again, The, avalanched started, traders and oil companies began to move their crude oil out of the giant tanks faster than at any time in recent memory. selling at any price, export of petroleum products increased sharply to reach 38404 mb/d , import of crude was reduced leaving the international market with surplus: and Brent WTI spread reaching the minimum for the year, see graph , refiners returned to %84 utilization and With weak demand camouflaged by events in the middle east, which we reported at that time ( Read below Hydra). As you , saw, the ineventory up was built on the back ground of , the spr drawdown, and false signal from Cushing. But what remains mysterious is who was the whistle blower on stock drawdown in July 2014 .Prices began caving in. While who knew ( what was going ,went "short" and made billions , as for those who listened to the drums of war were physically deaf anyway..... The lesson is: Emergency Reserve is for emergency, and the timing of the release, if it was for "testing" then it was badly timed and proved to be the reason for the crisis,

The Fed Chairwoman, relaseing the the rate hick, said:" The Prices of energy was too high in 2013 , and we had few shots at it, but we did not expect the prices to fall this low.....

Part two