Contango is back

[ogarbitrage]

It's hard to go wrong with MP.

Thanks for posting the news/rumor, I want to encourage others to do the same. Let's make this thread a repository of today's current events in the energy markets.

 

[iflyjetzzz]

Here are a couple of interesting reads that I found this last weekend:

http://www.inforum.com/news/3646977-oil-price-drop-expected-hurt-fringe-areas-bakken-most
Note this paragraph:
For already active wells to slow down or stop production, oil would have to drop all the way to $15 a barrel at the wellhead, North Dakota Department of Mineral Resources spokeswoman Alison Ritter said, Ritter noted 156 of the 172 rigs operating as of Tuesday are already in the four core oil counties – Williams, Mountrail, McKenzie and Dunn – with low break-even points, which is likely to continue to be the case. The break-even points range from $29 to $41 in the four core counties, with Dunn County at the lowest. The DMR develops its break-even prices based on economic data from operators each month.

From what I'm reading, Ms Ritter is indicating that the marginal cost of oil production is around $15/bbl in the Bakken. If that's the case, we could have an oil glut for quite a while. I'm going to continue to watch the numbers, but if the status quo remains, I'm not expecting a rebound in oil prices until seasonal demand picks up around Memorial Day (end of May for those not familiar with the US holiday). An extended cold spell in the northern hemisphere causing a spike in energy usage is the only thing I see in the near future that could increase demand.


Another interesting read from this morning:
http://www.reuters.com/article/2015/01/05/us-oil-hedging-analysis-idUSKBN0KE0BX20150105


Edit: I agree with ogarbitage that it's good to post all information/rumors, etc. It's also good to question what you read and present a different perspective. I've watched/fought organizational groupthink in the past and found it to be a very hard mindset to break in some people, myself included.

 

[ogarbitrage]

Great info, thanks for posting. I've read some perspectives that suggest that drop in price, while it will certainly kill some high cost producers in that region, will help lower the cost of production due to the increasing number of idle rigs that need work. The strong that do survive this glut will come out with very entrenched positions.

 

[xandman]

Have you looked for a different brokerage? I sold 50 out of the money naked calls on USO (was going to go with a bear call spread, but don't see a need to buy protective calls yet) for a total of $21.07 in commissions. There are brokerages out there that offer low commissions on options; you have to shop around a bit. There are tradeoffs though.

Which country do you live in and what's your account size? USO options are very liquid; a better way to play an oil is through futures but only if you have enough capital to withstand the trade temporarily moving against you if your timing's off.

I'm short a few futures contracts of June WTI (CLM5), which I prefer because it's tradable 24 hrs a day, 5 days a week.

It's a matter of being cheap. I shares above $100 to minimize per unit cost as a % of share value. I am with IBKR. I was gearing to write an Iron Condor on CL. The spike today makes me glad i didn't. The panic is getting worse it seems. But how much more?

http://www.barchart.com/chart.php?sym=$OVX&t=BAR&size=M&v=0&g=1&p=MO&d=X&qb=1&style=technical&template=

If anybody has a free source of oil options skew index much like the COE $SKEW. It would be greatly appreciated.

 

[iflyjetzzz]

It's a matter of being cheap. I shares above $100 to minimize per unit cost as a % of share value. I am with IBKR. I was gearing to write an Iron Condor on CL. The spike today makes me glad i didn't. The panic is getting worse it seems. But how much more?

OTM bear call spread on any ETF long oil. The trend is lower. Much lower.

 

[xandman]

Makes the most sense. The daily charts barely show any signs of a comeback.

 

[ogarbitrage]

I think Brent is going to be trading below WTI by the end of Q115.

 

[ogarbitrage]

Med Crude-Urals slips in Baltic, Saudi cuts OSPs to Europe

Russia's main export crude Urals slipped in Baltic on Monday as physical markets continued to feel pressure from excess supplies, as Saudi Arabia also cut its official selling prices (OSPs) to the region.

Saudi Arabia's OSPs for February were slashed for European customers by $1.50 a barrel to the Brent Weighted Average (BWAVE) minus $4.65, the lowest differential to the region since 2009, though OPEC's largest exporter raised them slightly for Asian refineries.

Physical grades have come under pressure as major producers compete for market share. West African differentials have fallen to the lowest in 5-1/2 years, with some traders saying Saudi OSP cuts to Europe may be aimed at keeping out barrels from Nigeria and Angola. North Sea barrels have also been slow to clear.

A revised loading programme for CPC Blend in January showed a slight drop in the number of cargoes available, with total exports now seen at 3.663 million tonnes, down from the provisional programme of 3.772 million tonnes.

Lower sulphur grades may take some support from concerns over supplies from Libya, though no bids or offers were seen for Azeri Light on Monday.

In January, Iraq will load 7.9 million barrels or 255,000 barrels per day of Kirkuk crude from the Turkish port of Ceyhan, according to a loading schedule.

Supplies of Kirkuk have been interrupted for months but are now on the rise under a new arrangement between Iraq and the semi-autonomous region of Kurdistan, which is poised to put additional pressure on rival sour grades such as Urals.

 

[iflyjetzzz]

I think Brent is going to be trading below WTI by the end of Q115.

Interesting; I could see that due to the economic slowdown in Europe.
I was watching CNBC this afternoon and some talking head (can't remember who) suggested that the bottom was near due to the WTI/Brent spread decreasing. He never mentioned contango.

Any guess on how close to backwardation oil has to get before it starts bottoming?

 

[iflyjetzzz]

Jim Iuorio (CME trader), on CNBC yesterday, was talking about buying oil between $47-48. http://video.cnbc.com/gallery/?video=3000343842
Watch the video.

Right now, WTI front month just bounced off of $48.50 and temporarily climbing but will likely be between $47-48 sometime today. Let's see if he's 'got the guts' to buy today.

I didn't think he made a rational argument for support in oil. At one point, he blames the dollar versus supply. While I see the dollar as a problem for oil prices, it's definitely an issue of supply. He even mentioned how Russia and Iraq are increasing production. He even points out the paradox that's now taking place ... as oil prices fall, some of the countries with financial issues are pumping additional oil.

I sensed a bit of panic in his tone and body language.