Shorting Oil: Someone Tell me why not

Your posts seem to reflect a belief that you can add up supply, subtract demand and come to an equation that will tell you about oil going up or down.

While I don't think an Israeli strike will goose the price of crude much, if at all, the destabilization of a region can produce enormous spikes in a commodity. The key here is neither Iraq nor Iran but rather Jordan. That's the shaky ground where hundreds of thousands of refugees are landing. Jordan has the potential for disaster written all over it. A fire in the house next door might make you wish you had purchased fire insurance. What we are speaking of is the price of the premuim not just the oil. More importantly though if you intend to trade it look at how it is trading not just the inventory situation.

Quote from trefoil:

First article above says Libya produces 1.6 million barrels/day. That's a lot. Understandably some may have gotten knocked out by the conflict, but that number is probably what they could do with all systems humming.
For Syria I see an estimate of 400,000 barrels/day.
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Quote from Swan Noir:

Your posts seem to reflect a belief that you can add up supply, subtract demand and come to an equation that will tell you about oil going up or down.

While I don't think an Israeli strike will goose the price of crude much, if at all, the destabilization of a region can produce enormous spikes in a commodity. The key here is neither Iraq nor Iran but rather Jordan. That's the shaky ground where hundreds of thousands of refugees are landing. Jordan has the potential for disaster written all over it. A fire in the house next door might make you wish you had purchased fire insurance. What we are speaking of is the price of the premuim not just the oil. More importantly though if you intend to trade it look at how it is trading not just the inventory situation.
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Yeah, I've been doing that. Haven't done anything yet. Saw the drop on Wednesday, then noted how on Thursday it barely reacted to the fall in nat gas at 10:30, and then spiked up within an hour of that, and on Friday not only finished making up all the ground it lost Wednesday but went up even more.
That's bull market behavior, definitely no time to short.
I'm just feeling my way around for now, but part of that is gathering as much info as I can on everything having to do with oil. I seem to have picked an interesting time in the oil market, with the supply number on Wednesday being a record.
I've been staring at how oil/nat gas ratio has spiked and wondering if that's permanent or if a convergence trade: short oil, long nat gas, might be the way to go as well. Lots of different moving parts here. No actual need to do anything, so I can spend my time watching and researching. Nothing like observing a market to see how it reacts to all the inputs it gets.
Re this weekend's ME action: will be watching the open of the futures tomorrow night with interest to see if that's having an effect. It's true that a risk premium would have to be priced in for this, but my question is, isn't one in there already? Will have to watch to see.
 
Quote from trefoil:

I've been staring at how oil/nat gas ratio has spiked and wondering if that's permanent or if a convergence trade: short oil, long nat gas, might be the way to go as well.
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For the past two years, CL and NG have a daily close-on-close correlation of - 7%. The twenty year correlation is +73.4%. So, I would disagree with the premise of your statement and the true relationship between NG and CL. There isn't one any more quite honestly.

As a side note, you should really be an honest assessor of yourself in terms of thinking through how effective your opinion of market valuation is versus reality. I know that speaking for myself personally that I suck at it, which is why I require technical price action models to trade.
 
As I noted above, trying to find every last source of info I can on this sector. Just the other day I ran across The Oil Drum, a forum for energy related stuff, and found a couple of very interesting articles on the Bakken Shale which also gets into recovery rates that are generally true for fracking.
Two articles I highly recommend:

#3 - Is Shale Oil Production from Bakken Headed for a Run with “The Red Queen”?"

Is the Typical NDIC Bakken Tight Oil Well a Sales Pitch?

Among the highlights here:

1 - The author figures breakeven on Bakken to be between 90 and 100.
2 - Wells in the Bakken deteriorate rapidly, much more so than is acknowledged by the NDIC (North Dakota Industrial Commission)

Taken together, it's a strong bull case for the oil price. It may even be a strong bull case for natural gas.
This site has a lot of info, just now starting to dig my way through it.
 
For a contrasting opinion on the Oil Drum's "Red Queen" articles, I'd encourage you to look up "Red Queen" or "Michael Filloon" on Seeking Alpha. As far as I know, Filloon is self-educated when it comes to energy things (I think he worked in health care) but he does a lot of research, presents granular data, and isn't an insufferable know-it-all when someone challenges his thoughts in the comments section.

John Kemp from Reuters also did a "Red Queen" article. http://blogs.reuters.com/john-kemp/. That particular article (April 11, 2013) is not very well written; there's no credit to an editor which probably explains why. Anyway, he usually writes better and often covers Bakken-related things.

The Oil Drum editors and most of its article contributors suffer from group-think. That's OK, it's a peak energy site after all; just be aware of the bias. If you have the time and inclination, you'll often find a good secondary debate in the comments section. Oh, and Art Berman's articles and analysis about the longevity and ultimate recovery from tight oil and gas resources are worth a read.
 
Quote from Brighton:

For a contrasting opinion on the Oil Drum's "Red Queen" articles, I'd encourage you to look up "Red Queen" or "Michael Filloon" on Seeking Alpha. As far as I know, Filloon is self-educated when it comes to energy things (I think he worked in health care) but he does a lot of research, presents granular data, and isn't an insufferable know-it-all when someone challenges his thoughts in the comments section.

John Kemp from Reuters also did a "Red Queen" article. http://blogs.reuters.com/john-kemp/. That particular article (April 11, 2013) is not very well written; there's no credit to an editor which probably explains why. Anyway, he usually writes better and often covers Bakken-related things.

The Oil Drum editors and most of its article contributors suffer from group-think. That's OK, it's a peak energy site after all; just be aware of the bias. If you have the time and inclination, you'll often find a good secondary debate in the comments section. Oh, and Art Berman's articles and analysis about the longevity and ultimate recovery from tight oil and gas resources are worth a read.
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Thanks for the info.
Still looking at everything. USGS published just a few days ago a reassessment of Bakken that upped their estimates by two times for oil and three times for gas, which is a pretty sharp contrasting view. I'm not taking this guy's word for it, but I will be watching.
John Dizard at the FT a while back said the same thing as this guy at the Oil Drum about fracking, that you get a very high recovery at the beginning that quickly tailed off. I wasn't paying much attention at the time I read those articles, which was a few years ago. I'll have to dig those up and reread them as well.
 

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