The Oil Drum | The Forest and the Trees -- the Oil News Imbalance

140 comments on The Forest and the Trees -- the Oil News Imbalance

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SelfAggrandizedTrader on September 19, 2006 - 1:35pm

Dave,

That's one of the best posts I've seen here yet. There's actually been far more bad news than good news over the last month, but since oil prices are falling nobody wants to talk about it. They'll talk about it in a few months, though.

As we speak, oil is down over a dollar on news of Oil CEO's obsession with Paris Hilton.

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westexas on September 19, 2006 - 1:55pm

I agree with SAT, Oil CEO is obsessed with Paris Hilton.

I also agree that this is a very good post.

We have credible reports that the four largest producing fields are declining/crashing.

Saudi production is down.

World production is down.

World net oil exports, from the top 10 exporters, are going down.

As outlined above, new fields are delayed (as Matt Simmons predicted).

Chinese oil imports are up 15% year over year. There are reports that the rate of increase in world demand is slowing, but not reversing, i.e., demand is going up, albeit at a slower rate, at least for now.

However, I think we are feeling some strong deflationary winds. So, it is entirely possible that we will see an actual falloff in consumption, but I predict that there will not be an increase in production.

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smekhovo on September 19, 2006 - 2:11pm

Chinese oil consumption will be up about 9 or 10% in 2006 over 2005. That has consistently been the growth trend for a number of years. 2004 saw an overshoot - 15% growth - and 2005 a shortfall - 3% growth. So the trend is very much intact. I don't have to stress the longer-term implications for oil prices.

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khaos3 on September 19, 2006 - 3:37pm

WestTexas,

"With world production down, world demand still going up" and US inventories high are we drawing down inventories from other parts of the world?

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westexas on September 19, 2006 - 4:20pm

Cry Wolf has a note down the thread about year over year declines in oil consumption in India. I suspect that we are seeing similar declines in consumption in other poor and developing countries.

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khaos3 on September 19, 2006 - 4:36pm

I have some anecdotal evidence demand is in decline in my neck of the woods. My mate's father is a truck driver. He tells me traffic is very light. He has judged how well the economy is doing very accurately by this in the past. I have a friend in Maryland who drives up here every summer. He told me this summer he saw the lightest traffic in many years. But this is Maine, a poor state, and may not reflect what is going on in a place like NJ.

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fireangel on September 19, 2006 - 7:34pm

I suspect that is due to fuel switching. Being from India I know that it is highly likely. Alsdo when the bombay platform caught fire inventories were drawn down upon which werent replaced. I dont think BP has the first damn clue how to account for this. With India GDP growing at 8% and population at 2-2.5% there is no way consumption can decrease. That would imply an increase in energy efficiency of over 12% in a year. Well if thats possible then we are all wasting our time at the oil drum.

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jkissing on September 19, 2006 - 4:22pm

OECD oil stocks (which includes the US) are at a ten year low even as consumption is at a ten-year high, with overall coverage declining one day from last year per eia. And, US stocks are the same as last year, not up as widely reported, when 12mmb unpaid loans from the US spr is considered.

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khaos3 on September 19, 2006 - 4:47pm

Thanks jkissing, I was fooled by the reported US inventory numbers. The market is certainly saying demand is going to decline from these levels; unless futures currently reflect just a bunch of traders / portfolio managers all trying to bail out of long futures at the same time to protect this years bonuses. A $5 billion hedge fund loss is a great way to get momentum going.

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jkissing on September 19, 2006 - 11:11pm

Actually, I think most hedge funds have been short for a couple of months, riding the oscillation around teh three year trend line. However, maybe because other commodities are weak, I think others jumped on as it hit the lower portion of teh band, around 68, so far pushing it down another 8%. At some point those refiners that have allowed stocks to decline will begin buying, and at this point i expect a lot of short positions to reverse. ANd, China imports of crude plus products are up a combined 17%, and they have reportedly been waiting for low prices to fill their new SPR. Meanwhile, we are in the shoulder season, and distillate demand is down more than normal because of very cheap ng being burned at those utilities that can switch back and forth. Where she stops, nobody knows. Personally, I just stay fully invested and ride out the dips.

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khaos3 on September 20, 2006 - 4:20am

It seems there are triggers which have set everyone piling on in one direction. With tremendous short positions we are set for a strong reversal if we get the right event as a new trigger. Perilous business trying to predict short term prices. I prefer your strategy of sticking with long term conviction.

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totoneila on September 19, 2006 - 4:01pm

Hello Westexas,

http://www.rigzone.com/news/article.asp?a_id=36156

Is this desperation exploration? This reads as a lot riskier and even more expensive than the Jack oilfield.

Bob Shaw in Phx,Az Are Humans Smarter than Yeast?

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totoneila on September 19, 2006 - 4:43pm

Hello TODers,

Did the conversions: 2,400 meters of seawater = 7,874 feet, 7200 meters of drill depth = 23,622 ft or 4.47 miles. The hopeful potential of 6-8 billion barrels is approx 1/2 of the optimistic potential of the 15 billion barrels of Jack. Ideal working conditions in the GoM vs the cold, wet weather off Newfoundland. My guess is that if icebergs come down this far: tugboats will have to lasso them, then drag them away to prevent a berg from hitting any platforms.

Bob Shaw in Phx,Az Are Humans Smarter than Yeast?

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Don in Colorado on September 19, 2006 - 6:28pm

There's a disaster movie in there somewhere, Bob. :)

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totoneila on September 19, 2006 - 7:17pm

Hello Don,

Check out this link on towing icebergs. My guess is that this is extremely energy intensive because 90% of the berg is underwater. Tugboats are basically dragging a huge underwater mass through billions of gallons of seawater--they won't move easily. In rough seas, the berg may want to rock & tumble making it nearly impossible to keep the towline on. The tugboat & berg have to move faster than the current they are both floating in to have any measureable effect if the current is headed towards an oil platform. The tug operator also has to compensate for wind drift too.

How would you like to have the winter job of floating in a boat in frigid, tossing seas sledgehammering or hot-water spraying off the ice forming on the underside of an oil-rig?

Bob Shaw in Phx,Az Are Humans Smarter than Yeast?

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Don in Colorado on September 19, 2006 - 8:25pm

I'm so distraught already I can't even thinking about hauling icebergs around the arctic in superblizzards.

Tell you what, Bob. You come up here and help me guard the gardens in the summer and I'll come down there and watch the fire tornados rage through Chandler in the winter with you.

We might as well have some fun with this!

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PeakPlus on September 20, 2006 - 7:33am

How about putting a sail on em let mother nature blow em somewhere else?

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haggisbasher on September 20, 2006 - 8:53am

Spent some time drilling on the Grand Banks. The recommended technique far smaller "bergy bits" was that the ice breaker on standby used their water cannon to shove the ice and divert it. The actual distance you need to move it is not great, just enough to clear the rig with a little bit of safety margin. For anything too large to move, once it came within a certain distance, operations were suspended, riser disconnected. Once collision was highly likely, we had weak links in the anchor chains so we could just drop them and move off location. Works fine for the exploration phase, different story once you are producing. As for sledge hammering ice on the underside of a rig - might work in Hollywood.

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westexas on September 19, 2006 - 7:11pm

http://en.rian.ru/russia/20060913/53834463.html
Oil export slowdown endangers Russia GDP aim, official tells MPs

Excerpt:

MOSCOW, September 13 (RIA Novosti) - A slowdown in Russia's oil exports is endangering plans to double the country's gross domestic product, a senior official with the Economic Development and Trade Ministry said Wednesday.
Hydrocarbon exports have been the main driving force behind Russia's recent economic growth and President Vladimir Putin set the target in 2003 of doubling gross domestic product in a decade.
But Andrei Klepach, the head of the ministry's macroeconomic forecasts department, said he thought this was unlikely to happen. He said oil exports were losing momentum and that the sector's contribution to GDP growth would fall from about 33% now to 25% in 2007.

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Darwinian on September 19, 2006 - 10:01pm

Okay, so someone tell me again that it is supply and demand that drives the price of oil and not news.

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louGrinzo on September 19, 2006 - 11:27pm

Supply and demand do indeed drive prices. So does news and anything else that affects market psychology and the collective guesses we all make as to what is and isn't a "safe bet." Nowhere is the old line "perception is reality" truer than it is in economics.

Who the heck ever said that prices were controlled by only supply and demand? The news has mentioned repeatedly in recent weeks how much a fear of war or terrorism, or concern about a possible hurricane in the GoM was helping to push up crude prices.

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David JM on September 19, 2006 - 11:34pm

Maybe the best way to think about it is PERCEIVED current and future supply and PERCEIVED current and future demand: EVERYBODY PLACE YOUR BETS?!

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step back on September 20, 2006 - 3:59am

An earlier poster already brought up the topic of Quantum Marketronics.

But let's recap.
There are 5 fundamental particles (aka the digits of the Invisible and Brainless Hand):

The Price Nucleus: This particle is the largest and most visible. It moves in an ether of currency, shifting to lower levels, even negative ones, but never to positive infinity. Often governments will print more ether in an effort to keep the Price Nucleus colloidally suspended at artificial levels.
The Infotron: This particle carries information energy in two flavors, positive and negative.. It orbits the Price Nucleus, causing the nucleus to move up or down based on the net polarity of infotrons spinning around the nucleus. If there is net negative news, the nucleus is propelled downwardly by bombardment of negative infotrons. If there is an overexuberance of net positive news, the Price nucleus is lifted to dizzying heights before leveling off due to counter drag by reality.
The Dis-Infotron: This particle carries dis-information forces of two flavors, cornucopian and doomer/gloomer. It orbits in a higher valence band than the Infotrons and therefore often obscures them. It is very difficult to tell the difference between Infotrons and Dis-infotrons. It is said that Infotrons triumph in the end, but that is true only in a civilization that manages to survive. It is believed that collapsed civilizations exhibit an excess of Dis-Infotrons just prior to their collapse. Recently, on Easter Island, scientists found a monolith. It said "Dump wood, buy rock." There were no engravings after that.
The Growth-o-tron: This particle spins about the outskirts of the orbitals of the infotrons and dis-infotrons. As its radius of orbit increases, it induces volumetric expansion in quantity attributes of the Price Nucleus. There are two main attributes: supply and demand. With all else equal, supply and demand can remain proportional to one another as long as growth does not exceed available resources.
The Collapse-o-tron: This particle spins about the outskirts of the orbitals of the Growth-o-trons. It is very high energy and dangerous. If Growth-o-trons exceed their orbital boundaries and crash into the Collapse-o-trons, all hell breaks loose. The event is otherwise known as WTSHTF.

With all this in mind, you can now understand why the price nucleus of crude oil appears to oscillate in resonance with background noise. It's mostly Brownian movement of the Katrina type. Try to pay attention to real things, like geology and geography. Note that the continental shelf has an edge. When herd animals go over the edge, they usually fall and drown. Pocket change quickens the process,

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mikeB on September 20, 2006 - 7:22am

stepback, you're funny!

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DIYer on September 20, 2006 - 8:52am

Don't forget producons and consumons.

Probably the most fundamental particles of marketonic theory.

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step back on September 20, 2006 - 2:43pm

Don't forget producions and consumions.

DIYer,

Well yes, but now we are getting into Advanced Quantum Marketronics.

The Producions and Consumions are charmed versions of the basic Sapien-Decepticon particles that tunnel through the Forbidden Zone.

As you probably recall from your intemediary QM classes, the Forbidden Zone separates the Belief Core (the center that is populated by the Infotrons and Dis-Infotrons) from the Outer Reality Shell (populated by Growth-o-trons and Collapse-o-trons).

Decepticons tunnel through the Forbidden Zone to occassionally actualize image patterns held in the Belief Core. So sometimes, but rarely, the When-You-Wish-Upon-a-Star phenomenon is observed to transend through the Forbidden Zone and into the Reality Zone due to quantum entanglement.

Entanglement is maximized when the Producions bombard the Consumions with Advertisement-cons, causing population inversions among the Consumions and causing many of the Consumions to tunnel through the Forbidden zone so as to collide with the Growth-o-cons and push the latter particles towards the outer Collapse-o-con orbitals.

But as indicated above, these more advanced aspects of Quantum Marketronics are not suitable for general public discussion.

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Reed on September 20, 2006 - 5:18pm

step back,
These are absolutely the smartest and funniest posts I've read at this site yet.

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step back on September 20, 2006 - 7:46pm

Thanks. You obviously understand the Gravity of our situation.

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Reed on September 21, 2006 - 2:54am

Absolutely!
I've fretted most of my life away trying to visualize the subtle influence of the invisible, brainless hand, but it's all clear now. Everything will be alright, and then some.

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step back on September 21, 2006 - 10:42pm

Good to hear that you are unperturbed.

Most people are deeply troubled to learn of the existence of the Forbidden or Exclusion Zone.

I'm glad that you are able to accept it as a necessary part of our current Standard Model of the Universe.

Albert Einstein was wrong when he said that God does not play dice ... at the same casino table as we do. God loves us to death and that is why he (she, or it) is with us to the bitter end. That is why God quantum meritly exists --and not-- right there deep in the heart of our Belief Core. God is part of our Price-Value-Spirit triune.

Despite all that being said, the Forbidden Zone (or Magic-is-Forbidden Zone as it is more formally known) prevents all mere mortal thoughts from instantly becoming reality. That would be a bad idea as you may know from having watched "Forbidden Planet".

"Price" and "Value" are tightly bound together with "Spirit" in our Belief Nucleus or Core by this incredibly strong force known as the Wisdom-of-the-Crowds. If Price is split apart from Value, or if Value is separated from our Spiritual inner-being, then the Belief Core can become destabilized and this can lead to chain reaction disruptions extending out into the reaches of the Collapse-o-tron outer orbitals.

This is why the Government has instituted a Federal Reserve task force, to reserve and preserve the binding energy between the Price, Value and Spirit particles. The Federal Reserve has been authorized to use as many Dis-Infotrons as it needs in order maintain stability in the Belief Core all while preventing the masses from realizing that the Magic-is-Forbidden Zone disallows mere human "ingenuity" from becoming reality.

So yes, Reed. Everything will be all right. Human "Ingenuity" will power us out of this mess as it has done in the past. Together we will merge our ingenuities, cross that Forbidden Zone, climb every mountain, Ford and GM every stream, till we reach our dreams!

May the krell be with you.

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Starship Trooper on September 21, 2006 - 3:34pm

You're not going to go into broken rig symmetries, are you?

Great post.LOL!!!

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step back on September 21, 2006 - 10:48pm

They have been surplanted by nano-particle super-string rigs.

That is the problem with starting a new world model.

It takes on a life of its own.

And the advancements in the field are so rapid that it is hard to keep up.

Recently, Prof. Barlett has noted an exponential increase in peer-reviewed papers dedicated to exploring the Forbidden Zone and its implications to real world existence and sustainability. Fascinating stuff.

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Oil CEO on September 19, 2006 - 2:03pm

You're right, it's down over a dollar. When did that happen? C'mon $53!

I had a little problem with my Amaranth investment yesterday. Paris and I are out shopping for matching electric bicycles right now.

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jkissing on September 19, 2006 - 4:32pm

Glad to see you are reducing your hydrocarbon usage... Still betting on 80 before 60, but getting a little nervous.

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Oil CEO on September 19, 2006 - 6:21pm

Reducing! I'm afraid not. I'm increasing. Before I met her, I used to walk everywhere. But with the paparazzi and all, we've got to be able to scramble sometimes. She's not so bad, but her friend, Nicole - whoa - I'll tell you about her some other time. Little Miss Richie is quite the carbon-monster.

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Syntec on September 19, 2006 - 5:31pm

Billions lost. Happy times in Conn.

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Oil CEO on September 19, 2006 - 6:25pm

It seems like all the hedge funds that get smoked are in Greenwich, Connecticut. Or is it just that all the hedge funds are in Greenwich?

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Triffin on September 20, 2006 - 12:54pm

LOL ..

The money was in CT ..
The trader was in Alberta ..

Triff ..

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Syntec on September 20, 2006 - 3:38pm

Head offices in CT.

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Oil CEO on September 19, 2006 - 2:20pm

Sept. 19 (Bloomberg) -- Crude oil fell to $62 a barrel and gasoline plunged after U.S. President George W. Bush said he will give diplomacy a chance to end a dispute with Iran, the fourth- biggest oil producer, over the country's nuclear program.

That piece of news right there might be good for your $57. Isn't that what they call "geopolitics." Warwonger, my ass. George is givin' peace a chance.

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SelfAggrandizedTrader on September 19, 2006 - 2:34pm

If there's no war, how long before we lift sanctions?

I've always maintained that the tension with Iran was all about the unacceptability of the status quo. One way or the other, the business community is going to demand access to the Iranian market.

Also, I think the Bush years will be remembered as Part I and Part II, with Part II being four years of face-saving, backtracking, and, above all, paralysis in the face growing global opposition to U.S. imperialism.

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Oil CEO on September 19, 2006 - 2:44pm

I don't know, how long did it take for us to lift sanctions on Cuba? ;)

It takes two to tango, and the US(not just Bush, but going back to Carter and beyond) has definitely made some dumb moves. Or let's just say it could have done some things differently.

On the other hand, Iran, since the "revolution" hasn't exactly been very friendly. Hostages, Lebanon, their end of Iran-contra, you name it.

I totally agree on your last point about Parts I and II.

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davebygolly on September 19, 2006 - 10:49pm

Treat this issue the same way one would treat arguments for and against peak oil -- make two columns, Iran and US. Then fill in the following boxes: number of countries invaded, destabilized, etc; number of people killed; oil consumption; size of military budget; size of weapons sales; stockpile of nuclear weapons; USE of nuclear weapons; number of elections rigged; etc.

Was the Shah a US dictator imposed on us by Iran? Was Mossadegh a US president overthrown by Iran because he had nationalized US oil?

No -- this is the same sh@t as Iraq.

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Consume More on September 19, 2006 - 2:54pm

Ahmadinejad addresses the Gen Assbly later. Watch oil go up $1 for each time he uses the phrase "Great Satan"

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geewiz on September 19, 2006 - 10:06pm

What are your oil charts showing for price now? still hitting 60? or falling down to mid 50's?

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Oil CEO on September 19, 2006 - 10:19pm

That's Black Magic. He can't reveal those secrets. He would be cast out of the Circle of Traders.

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geewiz on September 19, 2006 - 10:46pm

darn code of ethics.

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Oil CEO on September 19, 2006 - 11:27pm

Ethics has nothing to do with it. You ever see that movie 'Casino' where the New York boys had Nicky Santoro(played by Joe Pesci) beat with baseball bats in the cornfield until every bone in his body was broke. And then buried him while he was still breathing.

That's what happens when you are a trader and you give up your charts.

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