<New feature: New comment notificationThe Oil DrumGristmill sees the positive>

8 comments on More stormy weather

Comments can no longer be added to this story.

Dave Cohen on August 24, 2005 - 3:31pm Permalink | Subthread | Parent | Comments top
I have mentioned, Ben, on numerous posts here at TOD the non-transparency of the oil data (reserves, existing production and depletion, new production) and simple economic data (available supply, demand).

It seems clear that the settle price in the daily and futures markets are not set based on some "deep" understanding of what is going on. These prices are based on short-term data like this week's hurricane, pipeline bombing in Iraq or Ecuador, current inventories versus perceived demand, etc.
0
Comments can no longer be added to this story.
louGrinzo on August 24, 2005 - 4:08pm Permalink | Subthread | Parent | Comments top
Bingo.  Or as I like to say, everyone is guessing about what everyone else is guessing about what they're guessing.  

Given the horrendous uncertainties in the market, which we can't do much, if anything, about, the commodities market is like Democracy--the worst possible solution, except for all the others that have been tried.

0
Comments can no longer be added to this story.
mw on August 24, 2005 - 9:17pm Permalink | Subthread | Parent | Comments top
The futures markets are based on emotion and herd mentality, as well as a little bit of current or near term data.

Prices aren't high on Decembers contract because of today's storms; they are high because of perceived scarcity and continued supply/demand issues. How much pure speculation plays into this is irrelevant - the market simply... is. All comers can play, some will win and some will lose.

As for demand - 21.3 M bbl/day is  a new 12 month high, following on last weeks 21.2 new 12 month high and a trend from may. The interesting thing is jet fuel demand dropping off sharply, more than last summer but I've not gone back further to look. Chart:

http://www.trendvue.com/charts/2005/08/tv20050824-16.gif

Demand still above projections, esp. distillates:

http://www.trendvue.com/charts/2005/08/tv20050824-30.gif

CL and next two months of spread

http://www.trendvue.com/charts/2005/08/tv20050824-28.gif

So far Crude is acting like any strong market in an up trend. Eventually all up trends pause and ultimately all up trends do reverse, even for a little while. This one continues to find new levels of support. We can assume that 58 is now at least intermediate support (meaning prices are less likely to trend lower than 58 for now) and its certainly feasiable that last week's low may become that next highest level of support. In fact, if events conspire to push price down for more than a day or two under last week's low, we (technical analysts and traders) will assume that the trend has bent, reversed, for a period of time. We've not seen that since the spring in CL, and except for perhaps a Sept - Oct lull, I would lean to not seeing a reversal through the end of this year.

On the other hand, when price jams up rapidly, the opportunity rises for a fast reversal of lasting measure. Has crude ramped up "fast" - perhaps on a percentage basis compared year to year, but its not extraordinarily fast if indeed supply crunch is on the near term horizon. One could argue in that event that price is acting very rationally indeed.

Heads up:

Natural Gas
http://www.trendvue.com/charts/2005/08/tv20050824-29.gif

Now this one has been rising in parabolic fashion and that is always a concern. Lifted in part by oil as usual, there's been extra lift on supply concern. A bit of self-reinforcing feedback loop here too - its highly unusual to see these prices in the summer! Fear is driving buyers in subsequent months. If prices remain anywhere near these levels into the deep of winter, 12 - 14$ NG may be seen at peak usage. That's going to hurt anyone heated by NG in cold areas of the N.A. continent with heating bills 4 - 7 times normal (as compared to a low cost year like 2002 if I recall correctly).

To put that in context a drafty old house in the middle of a cold winter might have costed 150$ a month to heat and will now cost $400 - $1000 during those one or two cold months. I have a drafty old house :) - last year we cut our heating bill in half by very carefully using heat and... dressing warmer indoors...

Better invest in sweaters. We have.

0
Comments can no longer be added to this story.
Ben on August 25, 2005 - 5:44am Permalink | Subthread | Parent | Comments top
re: Natural Gas

I know I read a couple years ago where Simmons was concerned about how many power plants were switching to Natural Gas (at least here in Texas and nearby).  It's cleaner than coal, sure, but then with declining production you never have a chance to refill the stocks during the summer since electricity demand goes way up.

My gas bill this month (we use it for hot water, cooking, and heat): $2.00 for gas, $9.00 "customer charge", and $18.00 "gas cost adjustment".  And this is a month where we don't really use any gas (I too have a drafty older house but fortunately moderate winters)

0
Comments can no longer be added to this story.
mw on August 25, 2005 - 8:45am Permalink | Subthread | Parent | Comments top
2.00 for gas? Wow. Even in the summer we spend more on hot water and cooking (gas range) alone...

The west coast of Canada is fairly temperate - not too cold in the winter but does get some snow and below zero weather. Damp.  Heating is unavoidable.

Cost of gas will show up in vegetable prices in the winter, at least for "hothouse" produced goods (we have a lot of tomatoe and cucumber grown under glass... they are going to be pretty pricy, as will food shipped up over the winter.

0
Comments can no longer be added to this story.