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70 comments on DrumBeat: October 21, 2006

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curmudgeon on October 21, 2006 - 9:47am Permalink | Subthread | Comments top
For RR, Westexas and others:

As some of the articles above note, futures prices continue to be weak (at least for near-term dated contracts).  What is the supply/demand situation in the physical market?  Is there a excess of supply?

Is it because Iraq is producing more than expected?  Other countries?  Or has there been a reduction in demand?

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Robert Rapier on October 21, 2006 - 10:09am Permalink | Subthread | Parent | Comments top
As some of the articles above note, futures prices continue to be weak (at least for near-term dated contracts).  What is the supply/demand situation in the physical market?  Is there a excess of supply?

There is an excess of supply (crude and gasoline) at the moment. Refining margins are sliding, and upstream producers are getting less for their product as inventories remain very high. Production is starting to ease off in response (also in refining), but prices are still historically high.

I think we are getting closer to getting supply and demand back in balance. Refinery utilization has been down the past few weeks, and there was a very big draw in gasoline inventories last week. If that trend continues for a couple more weeks, prices will start to come back up. I believe they may have overcorrected at the moment.

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Hothgor on October 21, 2006 - 10:12am Permalink | Subthread | Parent | Comments top
There was a small ammount of demand erosion in OECD countries that ammounted to aprox 100,000 barrels a day.  There were a lot of smaller non-OPEC projects that went online this year and even more for the next 2 years.  OPEC has acknowledged that their own share of the market would decline 2007-2008 if they chose to do nothing, so they are acting proactively to shore up oil prices in an attempt to save the social programs in Iran and Venezuela under the guise of maintaining said market share :P
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serengetiplains on October 21, 2006 - 10:34am Permalink | Subthread | Parent | Comments top
Curmudgeon, I think weak prices probably reflect but the seasonal fall trend to lower prices.  I also think the degree of variation showing up this year---the degree of this particular year's appreciable price drop---probably reflects a spooked market,  Counterintuitively, this drop probably thus signals market tightness.

I quickly scanned week-end prices for Canadian 40 (~WTI).  Price drops at this time of year are as follows:

2000  71.6%
2001  63.7%
2002  82.0%
2003  83.5%
2004  77.0%
2005  82.5%
2006  72.0% (thus far)

2005's shallow drop probably reflects extra market tightness created by last year's hurricanes.  If it does, one can see greater volatility emerging from 2003 onward, when oil prices truly began rising.

As to your questions, I think the answer to each, aside from imprecise generalizations, is "nobody knows."

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elwoodelmore on October 21, 2006 - 3:05pm Permalink | Subthread | Parent | Comments top
when we say weak prices    arent we really talking about falling prices   falling from an all time $ high of last summer    $ 60 or $ 58  or  $ 50   any well run oil company can virtually mint money at these prices   (although the money they are making is $us)    is our perception out of whack because prices were just too high during the summer ?  despite the msm  i am convinced that oil prices are subject to manipulation   remember 1998   $ 10 oil ?  (apologies to the punctuation police academy)
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HiD on October 24, 2006 - 5:41am Permalink | Subthread | Parent | Comments top
weaker prices are typical in sept/oct/nov.  this is the lowest demand period as summer driving is over and winter heating demands are not here yet.  Not to mention refiners do maintenance also dropping demand for crude.

The s/d balance is tight in summer but fairly sloppy this time of year.  So the fear premium should wane.  Not to mention those speculating on Katrina II have had their asses handed to them and had to sell (Hence the $2+ contango as Nov WTI expired).  Longs are suffering.  Looking like Dec will roll down to converge (Still excess supply).  Won't be too long before the GSCI has to roll thousands of wti contracts forward.  that should put a heavy feel on this market in the front.

If we have a mild December, OPEC is gonna have to cut seriously or accept much lower prices.

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serengetiplains on October 21, 2006 - 10:49am Permalink | Subthread | Parent | Comments top
Fall price declines for WTI, expressed as a percent of the previous high, are:

2000  82.4%
2001  59.1%
2002  82.2%
2003  89.6%
2004  72.2%
2005  80.8%
2006  73.7%

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oldhippie on October 21, 2006 - 11:45pm Permalink | Subthread | Parent | Comments top
Do you really believe Iraq is producing more than expected? Do you believe the infrastructure remains to handle this sudden gusher?
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