Donnerstag, 11. Juni 2009

Oil Price

Oil keeps edging higher. Brent reached 72 US$ earlier today. In other words: It has more than doubled from its low just a few months ago. Can't really offer any meaningful analysis, as I'm as mystified as everybody else. Only explanation I can think of is unusually high OPEC discipline (though recent press reports seem to indicate that more and more OPEC members are getting tempted).

Though I do think that a moderately higher oil price is good. If people have to pay more, at least they won't forget that oil is a scarce commodity. 5-10 years from now, we'll be thankful for every drop of oil that wasn't used today.


  1. Speculation, that's what it is. It has nothing to do with fundamentals.

  2. I personally still fail to understand how exactly "speculation" can move the spot price apart from build-up of storage (i.e. hoarding):

    The oil offered by the producers needs to be physically sold to somebody. If end-demand is not enough, there can only be a market clearance if enough people ("speculators" if that's what you want to call them) buy the oil to store it somewhere. But if they don't do that (or if there is no more storage capacity left), the producers can't sell the oil, so the price either plumemts, or the producers refrain from selling (which would mean lower supply).

    How else can "speculation" work for a spot-delivery price?

  3. Yet the increase in non-governmental stocks of oil appears to be rather small compared to overall production...

  4. Where do you get your stocks figures from? How do they compare to, say, 2006?

  5. Actually, I'm not tracking oil storage figures in any scientific way. Just picking up the odd snippet from press articles.

    Here's one from today:

    According to the article, oil stocks in developed countries covered 62.4 days of demand at the end of March, and were down to 62.0 days at the end of April.

    Doesn't sound like massive stockpiling by private investors, does it?

    (Not sure if those numbers include "floating storage" on tankers, but from what I've read previously, tanker storage only accounts for a fraction of total storage.)

  6. This guy blames Saudi Arabia's production cuts:

    He claims that Saudi Arabia alone has reduced its oil output by roughly 5 % of total world oil production, with further cuts made by other OPEC members.

  7. There is a high correlation with the stock market and the oil price.
    Or between the treaury and oil price.

  8. It might be China again, that bids up the oil price. In last autumn China cut buying oil. I also blame them for the run-up of oil prices to 150$ of last summer. I just think they started it again.

    But due to their weak economy they don't really need it and put it in storage. Given far to high dollar reserves, they just swap their reserves to physical investments - not only oil, but all commodities (see raise of bulker spot rates) and anything else they can get hold of (Anecdotical evidence shows that they also buy second-hand ships).

  9. China is a small oil customer,it have only 4 million barell/day import.
    And it is the same like the peak of last year,and since there the world consumption droped dramaticaly.

  10. @v.g.

    Why would they buy second-hand ships? Whatever for? If they don't know what to do with all their money, I have a Landesbank or two I'd like to sell them...

  11. @bomlat

    Is 4 m barrels/day really so little? If I recall correctly, China imports roughly half the oil it uses, so that would mean its total oil use is 8 m barrels/day, or 10 % of total world oil use.

    Plus, it's the marginal customer that causes prices to rise or fall. 1 % more or less demand can make a big difference to price, if supply is inflexible in the short run. If Saudi Arabia cuts supply by 4 million barrels / day, and China's demand first drops, but then comes back, whereas Saudi Arabia doesn't increase production again, that could make a lot of difference to the balance of supply and demand.

  12. Some guys are funny: According to this FTD article, a US senator has suggested passing a law to mandatorily suspend oil trading whenever the oil price rises too much:

  13. The US is the quoter of the world oil comsumption.
    The US consumption fall,China flat,and the oil consumption of many other country fall.
    So,there is no markt reason behind the higher price.

  14. That assumes supply is more or less steady. If supply is down sharply as well, the price can go just about anywhere.

  15. Yep,but we can experience an uppward trend on the stock market and on the oil price.
    The natural gas stagnating.
    It mean that we just see a bet by the investors.

  16. Still doesn't explain how the "bet" influences the spot oil price. As far as I understand it, that only works if the speculators accept physical delivery of the oil (or pay somebody else to accept the physical delivery for them), doesn't it?

  17. during the 150$ era they made many analysis about this topic.
    There is ways to roll over the contract to the next time period.
    And from this point of time the price is just the function of the amount of the new money.

  18. @Thomas

    I had a similar article back in 2008.

    Buying second hand ships might be a good deal. Prices are way down so if you bet on either recovering world economy or high inflation you might win al lot of money. All you need is time and place to store the ships. Operating them hardly make a dim (more likely loosing a few) at the moment.

  19. @v.g.

    I fully agree with your post on the oil price. There can of course be speculation regarding oil futures, and a high futures price can make it more attractive to put oil into storage, thereby affecting the spot price. But that only works via an increase in actual storage volumes.

    As for the ships: True, if the price is low enough, buying them can be a kind of option on a market upturn. I personally wouldn't bet on that either, but others can disagree. Anyway, I have no idea how cheaply those ships can be bought right now.

  20. Btw, a few days ago there was an article about various foreign correspondents being taken on an official tour to see China's strategic oil reserves (i.e. one of the storage facilities). Apparently, the officials kept emphasizing that the tanks are "totally full".

    If that's true, we can expect China's imports to drop off again in the near future. Then again, they might just be trying to mislead the market, to talk down the price.