In early 2009, in the depths of the financial crisis and with oil trading in the 30’s, I did a segment on CNBC with Erin Burnett and the late Mark Haines. (Oh, how I wish I could find that clip now……)
In that spot, I told them of the opportunity for massive, ‘free’ money to be had from the monster oil carry trade that was then at nearly at $15 dollars a barrel. Of course, I hadn’t invented anything new – Koch Oil and Conoco-Phillips, with their easy access to credit and storage were already cleaning up on the unique arbitrage. However, I was first I believe nearly a decade ago to bring the connection between storage and oil prices to the attention of oil observers.
Now, I feel like I created a Frankenstein.
READ THIS and get a sense of how insanely overwrought oil analysts are today getting with even minor moves in spreads – in today’s crazy world, even a 40 cent move in spreads is an indication of ‘lost confidence’ in the draining of storage and rebalancing of oil later this year.
SHEESH.
2009 was (hopefully) a unique year in all markets, including oil – as was 2016 at the depths of oil’s bust cycle. But even as oil flirted then below $30 twice before recovering, contangos in 2016 only approached $7 dollars, not the insanely deep $15 we saw during the financial crisis. Today, in contrast, spreads are about a buck either way. Move along, not much to see here.
CERAWeek, which closed thankfully last Friday, resembled a psychiatric group meeting, with OPEC begging US frackers for help in keeping production down – after squeezing them all half to death for the previous three years. That disconnect was followed by a parade of CEO’s, most notably Scott Sheffield of Pioneer Natural Resources and Harold Hamm of Continental wringing their hands in terror of destroying this mini-recovery in oil prices with overproduction – in light of the tremendous gains in the last two years in efficiencies. But did any of them even suggest that THEY would be the ones not to increase production this year by 8%, 12%, 15%?
No – looking at each other as in a group meeting, waiting for the next guy to speak, they all silently said – “YOU FIRST”.
Meanwhile, the numbers don’t lie – READ THIS if you’re not yet convinced that rebalancing is still coming, despite the neuroses of the oil community.
Lots of longs in the oil market have come out rather quickly in the last 3 or 4 sessions. Oil’s at $48. Instead of over-reading small moves in the spreads or the – maybe – 500K b/d US frackers could add to global supply – or even anxiously wondering about OPEC’s next move in May – why don’t you come to my next webinar on March 27th at 4PM, where I’ll try to make simple sense of it all. Reserve Your Spot Now.
And maybe, just maybe, I’ll find and play that great clip from 2009 too.
Have a great weekend,
Dan
