Some WTI options notes…

by Jim Colburn • Sunday, September 30, 2018

After Friday’s sharp price move to $73.25, we looked at options activity for any clues to what the market might be looking at away from the current price… In our podcasts and other comments on this blog, we have pointed out that the market has been trading strikes way above current prices including $100 (we assume that these are mostly initiated by buyers)… Here is the CME’s Most Active Strike tool which now shows 3 strikes in the top 20 for open interest that are $100!  These have been accumulating over the past year..

A look at a price chart from shows us a crude market that has been in a range but recently (post-OPEC meeting) has rallied sharply:

And, here is the CME again, showing just Friday’s options action based on top change in open interest… Note that around 200,000 traded, pretty much evenly between puts and calls… But net change in open interest was much greater for puts, 39,000, than calls, 17,000…  So, a sharp move higher in price, after a week of rallying gives us a day in which put open interest goes up more than calls… Could mean nothing, but we’ll see…

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Iranian oil production and exports… Reuters

by Jim Colburn • Friday, September 28, 2018

Sumita Layek, Reuters, discusses oil price projections here… Included in the article is an excellent chart showing Iranian oil production and exports:


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Oil fundamentals… Oil Price

by Jim Colburn • Thursday, September 27, 2018

Nick Cunningham, Oil Price, has an excellent piece on oil fundamentals as he writes around recent Goldman commentary… Here are some pieces, but more is here..

”Iranian exports may drop below 1 million barrels a day in November, with Indian refiners potentially loading nothing and China cutting back as well,” Amrita Sen of Energy Aspects Ltd. said in a note.

Still, Goldman Sachs says this isn’t a reason to panic. “The decline occurred faster than we had expected, although some Iranian production is likely being exported through Iraq, with Basra loadings up 0.3 mb/d over the same period,” Goldman analysts argued. “While we adjust our Iran export path to re?ect this faster decline, this has no impact on our oil balance as we continue to expect that the rest of OPEC will offset such losses.”

Right on cue, Libya’s oil production just rose to a five-year high at 1.28 mb/d.

Increasing output from Iraq, Saudi Arabia and Russia have led aggregate OPEC+ production to come in higher than expected. Plus, the pledge from OPEC+ to return to 100 percent compliance suggests another 0.5 mb/d could be on the way. Saudi Arabia has already hinted that it would ramp up production in September and October as Iranian supply goes offline. To top it off, production from the Neutral Zonebetween Saudi Arabia and Kuwait could come back online, adding another 0.3 mb/d by the first quarter of 2019, Goldman says.”


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On ethane… EIA

by Jim Colburn • Wednesday, September 26, 2018

The EIA’s This Week In Petroleum has an excellent piece on the growing importance of ethane, here

“As a result of growing supply and demand, accounting for the growth in ethane supply and disposition is becoming an increasingly important factor in liquid fuels balances.

Ethane is a hydrocarbon gas liquid (HGL) and one of several natural gas plant liquids (NGPL) found in raw natural gas. Although heavier NGPL such as propane, normal butane, isobutane, and natural gasoline must be removed from raw natural gas before being put into interstate pipelines, some ethane can be left in pipeline-quality natural gas (a practice known as ethane rejection). The incentives to reject ethane, leaving it in natural gas, follow the ethane-to-natural gas price differential, so when ethane prices are significantly higher than natural gas prices (on an energy-equivalent basis), producers achieve greater revenue by extracting and selling ethane separately rather than leaving it in the natural gas stream.”

Here are some pictures (but do read the whole thing!)



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Refinery runs down sharply… EIA

by Jim Colburn • Wednesday, September 26, 2018

The EIA reported U.S. refiner net input of crude dropped by 901,000 bpd… Here is a historical perspective:

Here is the link:

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Highest summertime electricity prices in western US since 2008… EIA

by Jim Colburn • Wednesday, September 26, 2018

The EIA’s Today in Energy has a nice piece describing what happened to power prices out West during the summer:

“As a result of record-high temperatures and fuel supply constraints this summer, wholesale electricity prices in the western United States reached their highest levels since 2008. In the area served by the California Independent System Operator (CAISO), peak-period electricity prices in July averaged $101 per megawatthour (MWh), the highest monthly average since the current day-ahead market began trading in April 2009. Peak-period electricity prices at the Palo Verde trading hub in Arizona and at the Mid-Columbia hub in the Pacific Northwest averaged $89/MWh and $72/MWh, respectively, in July. Prices in each area also remained relatively high through August.”

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Permian pipeline woes about to ease…. The Motley Fool

by Jim Colburn • Tuesday, September 25, 2018

Mathew DiLalllo, The Motley Fool, writes that help is on the way, here

”Plains All American is building oil pipelines in the Permian as fast as it can. The company currently has two large projects underway, Sunrise, which it initially expected to finish in January of 2019, and Cactus II, which it hoped would start partial service by the end of 2019.

However, given the crucial need for more pipeline space, Plains is “trying to accelerate both of these projects as much as reasonably practical,” according to Chief Operating Officer Willie Chiang. To do so, Plains is “incurring additional costs to expedite material deliveries and vendor services and even installing temporary generators for our pumps until permanent utility power is available.” Those efforts are paying off, as the company now expects to begin commercial operations on Sunrise on the first of November.

The pipeline will move oil from the Permian up to a hub in Texas, where it can catch a ride on other systems to America’s main oil storage hub in Cushing, Oklahoma. Sunrise should be able to transport 360,000 BPD by the first quarter of next year, with full capacity slated to be as much as 500,000 BPD. That near-term in-service date has helped ease the pressure on oil prices in the Permian, causing the discount with WTI to narrow to $11 per barrel.”



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Record Brent options volume… Bloomberg

by Jim Colburn • Tuesday, September 25, 2018

Alex Longley, Bloomberg, reports:

”ICE Brent options was record, at ~274k lots.  Call volumes also
reached record at 191k lots, with more than 2 calls traded for
every put.”

The link is here

From the CME’s options tool, here is a snapshot of WTI options activity from yesterday (not a record volume day):


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Tumbling currencies, growth rates solid… The Economist

by Jim Colburn • Monday, September 24, 2018

From The Economist:

“A person returning from Mars would assume that something horrible had happened in the region, says Chris Wood of CLSA, a brokerage. But in fact Asia’s emerging economies are enjoying a happy spell of respectable growth and stable consumer prices. Only Pakistan has a combined trade and fiscal deficit as devilish as Turkey’s or Argentina’s. And not even Pakistan has anything like their double-digit rates of inflation. India’s GDP grew by over 8% last quarter, compared with a year earlier. Indonesia’s expanded by over 5% (as it almost always does). And China’s grew by over 6% (as it always does). Nor is a widespread slowdown expected this quarter.”

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The Mystery of Missing Hedge-Fund Performance… Ritholz

by Jim Colburn • Monday, September 24, 2018

Barry Ritholz, The Big Picture, has a great post on underwhelming  hedge fund performance, here

Here is one of 5 theories he lists (do read the whole thing):

”1b. Fat head, long tail: A variation of this is the distribution of alpha among managers; it may still be with the handful of those few geniuses. Jim Chanos of Kynikos Associates has suggested that in the 1970s and 1980s, only 20 to 30 managers were creating alpha out of the hundreds of hedge funds; today, there might still be 20 to 30 reliable alpha generators, but out of 11,000.”

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