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Page added on September 1, 2015
The oil price explosion is totally detached from reality
Oil prices are still massively higher than they were a week ago but Citi believes that the surge is pretty much devoid from reality.
Crude oil rocketed nearly 30% in just three days, its biggest three-day rally in 25 years. Since Friday August 28, oil over 20% higher.
Today, crude oil prices are initially ebbing off ever-so slightly. But while crude oil is hovering around $47.86, the chart shows the undeniable explosion in prices over the last few days.
Marketwatch.comNYMEX crude oil price over the last five days.
However, the spike isn’t good news, considering oil prices are still around 50% lower than they were at their peak in the summer of 2014.
Edward L Morse and his team at Citi, in a note entitled “The Oil Price Surge” sent to investors this morning, say that the markets may be in for a nasty shock as people are not trading on “facts” (emphasis ours):
The bullish c20-25% crude oil price spike since late last week looks driven more by sentiment than by reality.
Bottom Line: Citi foresees that WTI and Brent prices should post another fresh leg lower—perhaps making new 2015 lows—before year-end.
In Citi’s view, it’s time to “sell the news and buy the facts.” This is reinforced by today’s strong intra-day gains around 8%, which appear driven by a misread of market data and financial headlines. Notably, nearby timespreads are lagging the move higher in flat price, which is consistent with weak fundamentals.
Sharp gains over the past three trading sessions were driven by a combination of short covering and chart-readers again looking to call a bottom falsely.
So what are the “facts” that Citi talks about?
Morse and his team laid out a lengthy list of reasons but one of the key issues is that how investors may be “misreading” data.
For example, Citi highlights how the US’ Energy Information Administration’s data “should be treated with caution.” It also added that there was a rounding error in Saudi Arabia’s barrels per day production numbers which makes it look like they are cutting production when in fact they aren’t, says Citi.
18 Comments on "The oil price explosion is totally detached from reality"
rockman on Tue, 1st Sep 2015 4:11 pm
A reminder I hope few here still need: there was no massive surge in oil prices. What increased significantly was the bet made on the FUTURE PRICE of oil…probably in 30 days. In 30 days oil may at that closing price…or higher…or lower We’ll have wait a month to see if thaf GUESS was correct or not. Just as we’ll see how accurate the bet on the future price of oil at closinv tomorrow in 30 days from tomorrow.
Speculawyer on Tue, 1st Sep 2015 4:44 pm
Aaaaaaaand . . . they crashed down 10% today to $44/barrel. Crazy days. I don’t think ANYONE knows where oil prices are going. Someone will no doubt be correct but I suspect those people that get it right will only do so by dumb luck. There are just far too many factors (Chinese economy, extracting technology improvements, Europe economy, Lithium-Ion battery costs, new oil finds, Iran nuclear deal, Saudi Arabia’s oil policy, OPEC rumors (which are probably more effective than actual OPEC!), a hurricane that knocks out refineries, a mid-east civil war, etc.)
Plantagenet on Tue, 1st Sep 2015 5:24 pm
Iran is about to dump another million bbls per day on the market as soon as sanctions end. Look for the oil glut to get worse
penury on Tue, 1st Sep 2015 5:35 pm
With the world stock markets crashing, manufacturing cratering, and retail sales (xauto,hahaha) are not expanding I would be skeptical if any answer could be given as to what the price of anything will be in 30 days.
Makati1 on Tue, 1st Sep 2015 8:14 pm
“The oil price explosion is totally detached from reality”
“REALITY” is what you see outside your window, not what you read about or see on TV. In today’s lying world, there is no truth that can be pinned down, except that we are in a declining/contracting world where each day gets a bit worse.
There is no logic in most of what we experience today.
The Stock Market is still bleeding red, on it’s way to it’s real value.
Oil is a game played by countries trying to stay alive, the US included.
GDP doesn’t mean anything, if it ever did.
Population numbers are still only a rough approximation. No way in hell to actually know, even to the nearest million, how many of us inhabit this planet at any given time.
And on and on…
So, pull up a comfortable chair, grab some munchies, your favorite beverage, relax and watch the show. You have a front row seat to the 6th major extinction event. It will prove to be a block buster!.
idontknowmyself on Tue, 1st Sep 2015 8:53 pm
These prices oscillation remember me my mechanical engineering course in vibration analysis. System experience wide swing just before collapse. THis is a good example of that.
https://www.youtube.com/watch?v=j-zczJXSxnw
apneaman on Tue, 1st Sep 2015 9:21 pm
That’s what I’ve been seeing and saying too, Idontknow. We have been seeing it in the climate system and recently the economic system. Same thing for cultural/social systems with climate refugees and xenophobic reactions. Extremes extremes everywhere.
onlooker on Tue, 1st Sep 2015 9:39 pm
No way to improve on what you guys are saying as the Chinese proverb says “May you live in interesting times”
apneaman on Tue, 1st Sep 2015 10:18 pm
looker, would you trade times to live in if you could? Not me, I feel privileged to be here at the end – plus it’s fucking hilarious when you see us for what we really are.
https://www.youtube.com/watch?v=EkTeZLiNCoM
onlooker on Tue, 1st Sep 2015 11:03 pm
Yep Ap, these times kind of take all our hubris out of us and puts us down a notch or two in our self perception.
BobInget on Tue, 1st Sep 2015 11:23 pm
this is the way it will go.
Russia, Iran, Iraq, Ecuador, Venezuela oust KSA Prior to December OPEC meeting.
Associated Press
Updated Sept. 1, 2015 10:27 p.m. ET
0 COMMENTS
CARACAS—Venezuela’s government, facing a cash crunch amid a slump in oil prices, signed a deal to receive a $5 billion loan from China, President Nicolás Maduro said Tuesday.
The funds will go to increase oil production in Venezuela in the coming months, Mr. Maduro said without offering more details during an address from China that was broadcast on Venezuelan state television.
Russia, Venezuela to Discuss Potential Steps to Stabilize Oil Prices (Aug. 31)
Support from Beijing—which also renewed a separate $5 billion loan to Venezuela earlier this year—may offer some relief to bond markets, where Venezuela’s debt securities are rated among the world’s riskiest. Wall Street analysts say the country could default on its debt as soon as next year.
Mr. Maduro visited Vietnam and China this week in pursuit of financial aid for South America’s largest oil exporter as it reels from triple-digit inflation and worsening food shortages. The economic troubles are weighing on the ruling Socialist Party’s popularity ahead of hotly contested parliamentary elections in December.
China has been Venezuela’s largest creditor in recent years, lending Caracas more than $50 billion since 2005. Much of the loans are repaid with shipments of oil, a commodity that accounts for 96% of Venezuela’s export revenue.
The price of Brent crude oil, the global benchmark, is down almost 14% this year, settling Tuesday at $49.56 a barrel on the ICE Futures Europe exchange. Venezuela’s tar-like heavy oil usually sells for much less on international markets because it is costlier to process.
Write to Kejal Vyas at kejal.vyas@wsj.com
BobInget on Tue, 1st Sep 2015 11:30 pm
by Cara Anna | AP September 1 at 7:41 PM
UNITED NATIONS — A new United Nations report says Gaza could be “uninhabitable” in less than five years if current economic trends continue.
The report released Tuesday by the U.N. Conference on Trade and Development points to the eight years of economic blockade of Gaza as well as the three wars between Israel and the Palestinians there over the past six years.
Last year’s war displaced half a million people and left parts of Gaza destroyed.
The war “has effectively eliminated what was left of the middle class, sending almost all of the population into destitution and dependence on international humanitarian aid,” the new report says.
Gaza’s GDP dropped 15 percent last year, and unemployment reached a record high of 44 percent. Seventy-two percent of households are food insecure.
The wars have shattered Gaza’s ability to export and produce for the domestic market and left no time for reconstruction, the report says. It notes that Gaza’s “de-development,” or development in reverse, has been accelerated.
Israel and Egypt have maintained a blockade of Gaza since the Islamic militant group Hamas seized control of the territory in 2007.
https://www.washingtonpost.com/world/middle_east/un-gaza-could-be-uninhabitable-by-2020-if-trends-continue/2015/09/01
green_achers on Wed, 2nd Sep 2015 10:55 am
When I read the words “devoid from reality” I stop right there. I’m tired of considering the opinions of illiterates.
BC on Wed, 2nd Sep 2015 11:36 am
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1Khe
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1Khp
Above is US gasoline to working-class wages adjusted for core CPI and the US$. Gasoline is at the same price as the previous two recessions, but that’s just a coincidence, surely.
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1Khj
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1Kho
Same vs. all wages and salaries.
Recessions are great for “gluts”. 🙂
BC on Wed, 2nd Sep 2015 11:45 am
As for WTI, I’ll reiterate that there is a technical stop at $32, having already bounced off critical technical support at $39-$42.
The only significant support below $32 is $24.
Resistance above is $58-$62.
BTW, the technical condition for the current selloff is structurally weaker than in 2008, 2001, and 1998. Therefore, the bottoming process could be protracted.
Finally, the decline in the price of oil and gasoline is being offset by the increase in medical spending and rents for 30-35% of the population. So, there is no net gain to spending ex medical spending and higher rents from the crash in the price of oil and gasoline.
Boat on Wed, 2nd Sep 2015 8:45 pm
China takes US dollars to Valenzuela. Nothing there could go possible wrong. Lol.
Makati1 on Wed, 2nd Sep 2015 11:23 pm
Currently, Venezuela is shipping crude and oil products at the average of 330,000,000 bbl/yr. Down from about 380,000,000 bbl/yr last year.
Venezuela can spend those dollars to buy imports from other countries or from the US.
“In terms of the overall total exports and crude oil shipments in April, Venezuela retained its fourth place in the league of leading oil exporters to the United States – the biggest energy market on the planet – as it has done for quite some years.”
http://www.laht.com/article.asp?ArticleId=338267&
CategoryId=10717
What Americans hear about Venezuela is bullshit propaganda as Venezuela is currently one of those “bad guys” because they refuse to be plundered by the Empire.
Makati1 on Thu, 3rd Sep 2015 8:28 pm
P,S. Those numbers are US imports of Venezuelan oil.