Commodity Research Group (CRG) is an independent research consultancy specializing in base and precious metals, as well energy products. The Group provides research and general price analysis for these markets, along with advice to companies seeking to construct hedging strategies.
In this podcast, oil market experts Andrew Lebow and Jim Colburn discuss key fundamental forces driving oil prices in both the futures and options markets.
About Your Hosts
Andrew Lebow
Andrew Lebow has been involved in the energy derivative area since 1980. He began his career with Shearson Lehman Brothers where he worked in the initial formulation and marketing of the NYMEX WTI crude contract in 1983 as well as the NYMEX gasoline contract in 1985.
Mr. Lebow has appeared before the State Government of Alaska as well as the State Department of Defense to discuss hedging techniques. Mr. Lebow is also well known as a market analyst and is quoted frequently in the financial press. He has appeared on television on CNBC, NBC, CNN, CBS, and PBS. Mr. Lebow holds a BA from Lafayette College and an MBA from the Kellogg School of Management at Northwestern University
James Colburn
Jim Colburn is a futures and options professional with 30 years of wide ranging experience in commodity markets. For much of his career, at Man Financial (1989-2011) and Jefferies LLC (2012-2013), Mr. Colburn worked with major integrated oil companies, hedge funds, pension funds and other entities to develop market hedging and trading strategies.
He has conducted trading, hedging and risk management workshops in energy markets worldwide.
Mr. Colburn is a published author on options trading, hedging, market making and risk management. In 1986, while at the New York Mercantile Exchange, Mr. Colburn helped develop new markets in energy option contracts by educating the oil industry, banks, floor traders and brokers, worldwide.
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Transcription
Good morning.
This is Jim Colburn of Commodity Research Group. I’m here with Andy Lebow, also of Commodity Research Group, and we’re here to talk about energy markets.
To learn more about us, you can check out our website, www.commodityresearchgroup.com, where we post our podcasts and blog.
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This podcast should be construed as market commentary, merely observing economic, political and market conditions and is not intended to refer to or endorse any particular trading system strategy or recommendation. We’re not responsible for trading decisions taken by anyone. Information is not guaranteed to be accurate. This is not an offer to buy or sell any derivative.
Today’s April 12th.
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And Andy, I just want to start out and, and mention your monthly, uh, that you write for the CRG, a website. And for others, you mentioned that a few things took place over the monthly bef in the previous month, and it was an attack on Saudi infrastructure. There were two OPEC meetings. Uh, there was new extended lockdowns in Europe, the Suez canal issue, Iranian sales to China, U S vaccine rollout, just to mention a few and that’s over a month. So I, uh, I want to express my sympathy for you as an oil analyst, trying to get through these this past year.
Well, thank you, Jim. Uh, you know, yeah, last month, last month was, uh, definitely a headline news month. And, you know, as you and I have said off at all these podcasts, this always something going on in oil last month’s fever, there was something going on every day is, uh, you know, petroleum and, uh, crude trading this month. Not so much this month, the first, uh, first few days have been pretty quiet and amazingly, you know, the market’s just trading in a re in a really narrow range, uh, as evidence by, um, you know, yeah. As we had talked as evidences, what happened to the, uh, to the option fall last week? Uh, you know, you might want, you might want to vet should that, you know, we might want to talk about that right off the bat. Cause it’s really unbelievable,
Right? It was, it was like kind of like a wile E coyote off the cliff fall move because, um, Friday volatility front month, Val got crushed by about six points, which is a big move. I mean, it’s the front month. So there was a little time decay in that, but it was like the option market realize that, Oh, guess what? We’re in a trading range. And, and they started marking things down. It wasn’t on heavy volume, uh, but they did Mark things down. And I think it’s kind of like a white knuckle narrow range. Not, uh, I don’t think anybody’s relaxed in this market as if they know where this thing is headed or when people sell a vowel. Sometimes they feel like they know where it’s not headed. So, so there’s a lot going out there. Well, why don’t we begin with the OPEC meeting itself? Cause a lot came out of that. And, um, OPEC is over the, over the past years increasingly involved with, with these months. They’re not only month to month, uh, meetings, but they’re major policy changes come out of these monthly meetings. Now
The, uh, yeah, it’s amazing how these, uh, OPEC meetings have have changed just, just since the pandemic. But I think they’ve done a really good job at trying to manage the market. And, um, you know, one thing that, that they must be doing is getting a better handle on, on some of the data. You know, I think there’s, in my opinion, it seems that they’re using a lot of these, uh, you know, the mobility data and a lot of the big data to try to forecast where, uh, where demand is. And in fact, prior to the last once meeting, they put out, they put out a monthly demand numbers, you know, I don’t think they did. They’ve done that now for, for a couple of meetings. Right. Uh, and you know, they’re just trying to forecast these, uh, these monthly demands, demand numbers, and then, you know, make some attempt that, uh, at matching the supply to the, to those demand numbers.
Now, the last meeting was, was interesting in that the market as a result of, of what the Saudis were saying, whereas expecting that the, um, that they would be, they’d be unchanged, there’d be no, no production changes because the Saudis were worried about demand faltering. And you know, most of, most of the rhetoric before, before the meeting led the market to believe that, uh, no change. And then, you know, they came out and, uh, increased production by 2 million barrels a day, um, over the, over the quarter, uh, well actually from, from may to July, which was surprising almost the surprising was the fact that the market the next day went up, which was, you know, kind of hard to fathom the, the following day was, um, good Friday. We were closed and then on Monday they’d get hammered. So it it’s, you know, it’s hard to see where they’re, where they’re heading, you know, w I think they, they would try gym, you know, and in days past and meetings past, you know, they, they would try to make a longer term, you know, make some longer term changes and longer term assessments. And now we’re now we’re into a month, you know, month to month assessment. And, uh, it’s really hard to see, you know, are these policy changes, you know, you know, is this, is this the Saudis yielding to pressure from, uh, some of the, some of the OPEC members and saying, okay, you know what we think demand is going to be good enough of the next couple of months where we can increase production and, and, you know, we, we we’ll go for it.
Yeah. It, you know, it seems like step one is to get the price up. Right. Step two is to get the volume and it looks like they want to capture any new, any, any, uh, recovery in demand that’s out there and not, uh, and let not let non OPEC, you know, get, get any of that. But, um, what do you, what do you think about their demand projections like that? I mean, you said a two point, was it two point something million
That was fun that, that that’s the supply that they’re letting out from? Uh, from may to July, I flipped their demand, uh, numbers to me they’re a little high, but I’m, uh, I’m a little more conservative than they are on the, the growth. They, they think that from April to July demand is going to go up over, uh, almost 3 million barrels a day. So, you know, looking at those, looking at those monthly’s, you know, the monthly demand, they said, all right, well, if we think that then there might be room for another 2 million barrels a day of, uh, supply, um, closer they’re up three, you know, I’m closer to like up two and a half. Okay. Um, you know, yeah. I’m constantly kind of marking it down on, uh, you know, on extensions of the lock bouts that increased to get ghetto GDP views and vaccine distributions.
So it is, you know, it is, it’s hard to get a handle on it. Now, the other thing that’s really important is the Saudis also reserve the right to change their, what they’re going to do next month. Right. So, you know, they, they may not, it may be, they’ll say next month, and this of course will be, as you said, number one, get the price up. So this will be, you know, this will be price dependent. The market is on its heels Navy. Maybe they’ll say, Hey, you know what, we’re, we’re gonna, we’re not going to increase quite as fast right on the unilateral increase. So in a way, while these meetings are new, the Saudis really have come back as the swing producer. You know, they, they have most definitely taken the role of, uh, of, uh, the swing producer, uh, which is as you and I remember was a, uh, was one of their guiding principles within OPEC in the eighties and nineties.
Yeah. It looks like the, uh, I guess there, if you go back a little further, the, uh, the Rockefeller’s strategy of giving competition, uh, uh, sweating by lowering prices for awhile, uh, they tried that about a year from now a year ago. And, uh, I think that’s no longer, and I don’t think they liked the results of that.
No. Cause they gave themselves a sweating. Yeah. That, that strategy was, I think ill-advised, and certainly ill-fated given, uh, given what happened, I think what we’re coming up, right. We’re aren’t we coming up on the anniversary of the minus minus 40. So a year ago they were, they were scrambling to say, to say the least, but then they did the group did get its act together. Terrific job. Yeah. They’ve done a great job. Uh, of course they’ve been how they were helped by the world, governments, the STEMI, you know, all the stimulus that, uh, you know, the, the, uh, U S and other world governments get gave to the Cape, to the markets. Yeah.
You know, if you, and you think of storage, it was, um, it was like a golden month for storage or a couple of months for storage. And now, um, all those contracts are being, uh, you know, say it’s a year. Maybe a lot of them were, many of them were done a year out and in that year is up. And, uh, now nobody, your storage facility might is definitely not worth as much.
No. I mean, a year ago we were, you know, we were going into very steep contango, uh, for good reason. You couldn’t see the end of it. Right, right. You just, you just couldn’t see the, the faucet ending at that point.
And the, the additional, uh, information we get these days of satellite pictures of ships around the world is like flotillas.
Yeah. Yeah. There, there was no, there was no end. Right. Cause we were filling up. Yeah. There were flotillas of, uh, of crude tankers with nowhere to go. Um, because we, you know, at that point, floating storage was just going crazy.
So w we now have, um, you know, the U growth world growth is, should be up sharply this year should add to oil demand, but it’s not what we would call a synchronized world growth. Like we’ve talking about a couple of years ago. Just give us an overview of, um, how, how you’re seeing overall growth. And maybe we can get into us.
Well, if you go from a product to product, you know, refined product to a refined product, you know, I think that, uh, diesel, uh, global diesel demand this year is probably going to be on change or grow some petrochemical demand, which did well last year is still going to do very well. This year, diesel is going to grow over the last year. I guess my comment was more towards 2019. The diesel is going to grow nicely this year as well, gasoline relative to 2020, but relative to 2019, we’re still going to be, you know, a million to 2 million barrels a day, probably below 2019 when the, when the, um, years, years old for may, maybe less than that. And we’ll definitely be talking about us gasoline demand coming up and, you know, there’s still, the big problem is, is that we can’t get away from is, is jet fuel demand. That is a, you know, it’s, it’s, it’s, it’s still problematic because we have international restrictions still. And, you know, the business travel is not where it was. And it probably won’t be, you know, until, you know, maybe into 2022. So some few, some analysts are saying 20, 23 travel. I think domestic travel us travel is, is certainly going to pick up this this summer and, and into the fall. But again, those international routes, you know, we’ll have, we’ll have to see how it, Y you know, when and how they get, how they get lifted.
It’s a, it’s a problem. I think, you know, let’s in the U S we’re getting the vaccines out there and people want to become, they want to fly someplace. And the question is, where do you go? And we, we can’t all go to a Gibraltar or Faroe islands where, you know, Europe is still, you know, still in lockdown. So
Yeah, Europe’s still shot and we’re already, it’s April. So when you know, they’re going to be open for the summer season. Right. So they’re going to try, but
Hiding. We can kinda, uh, I th I think that, I think you goes, I think there’s got to be some major pent up demand for gasoline and not, not for diesel.
Yeah. Yeah, no, I, I, I think that’s, I think that’s definitely the case for the, the EIA, you know, just increase their gasoline, their, their view of gasoline. I’ve increased my view of gasoline by a couple of hundred thousand barrels a day. May it could be even more, uh, yeah, I think there’s definitely pent up demand. And when we’ll see where, you know, where the animal spirits prevail on, uh, on gasoline, gasoline is in pretty good shape. We had a build last week, but, you know, overall, if you look at gasoline inventories where, where a day supply is actually behind the five-year average, so that that’s, that’s pretty remarkable. So, yeah, I think ghastly globally, however, right. You know, there’s another, you know, that’s another issue as, as you said, Europe’s in locked down, even though they use more diesel than, uh, than gasoline. And we look at the, you know, you look at some of the emerging markets, which are, um, basically use gasoline they’re, they’re not getting the, uh, vaccine distribution that some of the more developed countries are getting and, uh, you know, that that’s going to impact on, uh, on gasoline demand that the no doubt, right.
Maybe that was your
Point. Yeah. Less tourism there as well.
Yeah. Less tourism.
Yeah. And, um, so you’re, you’re seeing, uh, we’re seeing imports from Europe.
Right, right. That’s and that’s certainly not a surprise. Uh, last weeks was, uh, was a huge number, was, uh, I think 1.3 million barrels a day of, of, uh, imports of, on gasoline. And, uh, it looking at where the arm is now, and some of the talk on, uh, barrels moving, you know, it looks like the, those imports are gonna stay pretty strong here for the note for the next couple of weeks. Diesel finally is beginning to ease off some on the, uh, on the imports, into, into, uh, into the U S some buzz, Phil, it’s still pretty, pretty strong. So all that surplus in Europe is there because of the lockdown. So, you know, I would say it’s finances as to where the price is.
Yeah. So, so does that, how does that affect the let’s? Well, let’s talk about refineries coming out of the freeze and how does that affect the crack values are Bob and diesel cracks?
The, um, okay. So the refineries we had talked about, uh, it’s going to take them some time to get out of the, to repair themselves, not repair it, to be repaired by workers repair themselves, but, uh, it’ll, it’ll take time to be repaired, uh, right. The, the AI, right? The, um, crude production will come up faster and it did. Uh, so as, as a result, crude stocks, bill, but, uh, product stocks, didn’t quiet on the cracks, really, you know, they blew out you all this thing up there that even though, even though the, uh, you know, croup crew production has come up, come back, the cracks still remain strong and refineries have, are now running at a higher rate than they were prior to the, prior to the, uh, prior to the freeze off. So I think, you know, what I think is going to happen is that margins are gonna weaken some here.
I think the diesel cracks just were just rallied big. The last, the last couple of days, and gasoline cracks have stayed pretty strong. This is the WTI New York crack, but I mean, you could just take the brand crack and they’re strong too. And margins are decent. They, you know, they’re not horrible, right. So runs are going to increase, uh, certainly runs are going to increase. And I think the, I think we’ll see these cracks come off. Some, I think we’ll see these cracks come off. Some, I don’t think they’re going to collapse though, because as you mentioned, Jim, a gasoline demand should be pretty, pretty robust here, you know, over the next couple of months. And as we, you know, as we move along into the summer
Yeah. That’s, um, that’s kind of the, uh, of all the wildcards that’s, uh, you know, it gets back to how quickly these, uh, uh, COVID infection numbers improve and how, how more, how comfortable people feel and going out, but just, it just seems like there’s a lot of pent up demand to, to drive, to go places.
It also seems as though politically, I’m not sure any of these governors want to lock their States down again,
Right? Yes. So, so when you see, like in New York, we’ve, we’ve had a flattening out and then a little rise in, in infections and, and, you know, it’s, it seems like it’s more of a, an indicator of economic activity picking up. So, so perhaps, you know, when, when you have, uh, the younger folks, their parents and grandparents are vaccinated, they feel more comfortable, you know, going out to restaurants and bars and such, I don’t know. And they, and they’re getting infected, but maybe not, you know, it’s not as dangerous obviously as, as their parents and grandparents. So, so it’s not necessarily, uh, you know, uh, uh, Oh no, we’re going into lockdown type a number. It’s more like, Oh, the economy’s picking up. So,
Right, right. I guess if we get to the point again, where there are no beds, you know, the, the governance, no hospital beds. So the governors will have a tough, you know, tough decision to make, but
Right. And that’s, and I’m talking New York and some of the other States like Florida, a little, little uptick in infections, but there, you know, obviously they’re not going to lock down there. They’re open for business.
No, they’re not locking down Texas. Isn’t locking down. I don’t think Michigan’s going to lock.
Yeah. Michigan is like a, that’s not their infections I think are up to record level.
I’ll have to have to look, but yeah. But I don’t, I don’t get the sense that the governor is, is ready to lock, wants frock down, especially the Northern white sheet.
Yeah, yeah. Going into the nice weather it’s uh, and I think people will, people know, people understand what this is about and they can do their own risk reward, you know? Right. So, yeah. So, uh, I’m looking for it for me, I guess. Uh, I have this bias when I, my first commodity job was at the USDA and the world agricultural outlook board. And we came up with a supply demand numbers in a committee. So if somebody was very bullish on, say corn demand, it took a couple of months to get up to that number because you’re, you’re dealing with a con you had to get a consensus. So I’m wondering if we’re going to see the same thing where the, you know, the, the big three, uh, project higher demand, but they just can’t get up to the real number right away. You know, like demand will keep getting better. They’ll keep revising demand upward as time goes on. I think that’s, what’s going to happen. We’ll say. Yeah.
W w we’ll see, you know, the U S numbers certainly are all heading in the, well gasoline’s heading in the right direction. Diesel spin a little bit Rocky. I’m not, I’m not exactly sure why,
But one leading indicator in New York turnstiles are just there they’ve improved, but they haven’t broken out. They’ve been up at this level before. So that’s the people going through the subways. I haven’t seen that, uh, come back strongly yet. So we’ll see. That’ll be, that’ll be kind of by the time that happens. It’s, uh, the move is probably already taken place.
Yeah, that’s right. Yeah. That’s right.
Um, so cracks, you think we’re going to get enough product from overseas and maybe, maybe see it, and, and, and also we’re at, I think runs last week, we’re at 15 million. What’s a typical, typical number for around this time, period. Would you say
W th the typical number would be somewhere in the closer to 16 and a half, 17 million, 16 and a half, let’s say, cause we’d be coming out of turnarounds now. So we’re still, we’re still below. Got it. You know, where we, uh, you know, where we usually are, but, well, well, yeah, you know, I think brands are, are, are certainly heading, you know, there’s, there’s certainly heading higher. I also expect that the crude stocks are gonna, you know, we’ll see some draws here as, um, you know, as runs increase. I’m not sure think that net, uh, imports are gonna decrease. Um, and, uh, I think we’re going to see some, some healthy crude draws coming up over the next, uh, you know, a couple of months, which may, uh, maybe that’ll tighten the curve. We’ll see. The curve is really, has really weakened, probably all going to the expectation of, of added, uh, barrels like the, um, month, one to month. Well, actually the June, June has come off from $7 backwardated to like three and a half dollars. Backwardated so it’s like, it’s tabbed.
Yeah. I predicted that was going to happen. But, um, I think that was about eight months ago. I says that. All right. So what I know. Yeah. Um, so, you know, if I am, I’m looking in for, I look for a little clues of what’s going on in the market from a options world. I mentioned the, a vowel collapse in the front month. It’s, it’s still, we mentioned this in previous podcast, but the, um, the, the most open interest in on a strike continues to be the DCE 100 call for 2022. And that’s about 60,000 in the, the second biggest, uh, cause the D 70 call at around 31,000. So it’s almost double. And, um, it’s just, that puts, you know, uh, June 50 puts got 25, the DS 50 put has got 15,900. I just thought you would have seen that explode in open interest with these higher prices, but I’m just not seeing it. So I don’t know if that’s an indication, there’s gotta be some hedging going on, but maybe, you know, I thought there would be an extraordinary amount. And, um, so let’s talk about us production. How do you see that unfolding as the year goes out?
Well, the I’m a little, the EIA has production rising to it, I think in the fourth quarter. Uh, right, right. The last weekly was 10.9, I think in the fourth quarter, they’re seeing 11.4 million barrels a day. So that they’ve got it going up from here to about a half million barrels a day, which I think might be a little bit low, actually, Jim, I think there was a fair amount of hedging on the, on that rally that we saw, you know, basis, uh, Brent going to 70 and WTI in the highest fix these, uh, the back of the curve didn’t rallies quite as much, but you had some pretty good numbers back there to, to hedge. So I think there was, I think there was some pretty good hedge activity. The, you know, the rig count has gone off. There’s usually a lag on rig count. Uh, ducks are being, uh, the dock inventory is going, going down. So, and, uh, the AIAA did mention in this report, uh, talking about debt issuance by a U S independence being, uh, do you remember what the number was exactly
For March, 2021 is 4.4 billion, which was that they said the highest since August 20, 20 and higher than like the five-year median, so that they’re making a deal big deal about it. That some it’s the, uh, the us oil companies, uh, producers have been active raising money. Yeah.
So, uh, you know, they’re either, they’ve got, they’ve got to spend it somewhere. So, you know, a lot of these is, as we’ve mentioned in many podcasts, the sector they’re called is exploration and production. So, you know, I think that, uh, the number is going to be higher than what the, the EIA has for both this year and next year, maybe not significantly higher, but I think it’s going to be higher for, uh, going forward into the, into the fourth quarter. You know, I, I w I would think it would be closer 11 five 11, six,
Just a quick technical question, Andy. And in the EIA weekly numbers that looked like they production was down 300,000 barrels.
Yeah. Well, some of that was because the, you know, they’ll, they’ll use the short-term energy outlook and if the short-term energy outlook has different numbers, they’ll, they’ll revise it closer to the short-term energy outlook. So I think the, uh, I think it was 200,000 from one week to that. I think it was 11 one to 10, nine. Think half of that was from the, the, uh, from the short-term energy outlook, not sure, but, um, I’m pretty sure that it was half, so that, that’s why that that’s more of an accounting than reality. So
Anything you want to mention before, I want to sum it up and then just ask you about prices going forward, but, uh, anything you want to mention? Yeah.
Let’s talk about the big, you know, there’s, there’s two things that I, uh, I want to mention. One is, um, the first is Iran, which, uh, and the second is related because it’s China. So, uh, interestingly, some of the numbers that are coming in from China on their, uh, April imports were, were down because, you know, they’ve got turnarounds calming and they’re, uh, crude imports for, for, uh, April, you know, predicted crude imports were down actually quite a bit, uh, may, may, may or may not pick up. Uh, but you’ve got, you’ve got some big turnarounds in, uh, in China and also their inventories are high. And with prices where they are, you know, when prices were one Brent, one, Brent was 70, they were not a buyer. Right. Uh, and that was probably one of the barriers factors in the market is that China was, you know, had stepped back and that’s something we had mentioned over these podcasts. That one thing to watch is the China’s inventories are high and, you know, they, they don’t have to buy and they didn’t,
No, they’re very opportunistic. Aren’t they very awkward.
Now they have bought more from Iran. The official numbers have their purchases from Iran at zero. But the, um, you know, if you look at what they’ve bought from the UAE and, uh, from Oman, that that’s almost the proxy for, uh, for Iran. So th those, those numbers have, have picked up some, some analysts have it at like 1.2 million barrels a day. I don’t think so. But from, from Iran, from Iran. Yeah.
Cause he was up to 800,000. What in March? Yeah. Or before
300,000 in November. So they’ve really kicked it up. It looks like in April, it’ll be down and may it’ll may, it’ll be down, but certainly, you know, that’s, that’s an issue going forward for the, for the U S and you know, I’m sure that through back chat, like, I don’t know if I should be sure or not, but that’s gotta be a back channel state department issue, uh, that how much China’s buying from Ron, given that they’re, you know, that they’re in their sanctions.
Well, that’s, that’s, that’ll be one of those price moves when, um, when, and if sanctions get lifted, the price of oil goes up, right. Because it’s already right. It’s already selling as much oil as they tried.
Well, they haven’t though, if sanctions get ever get lifted, there’s another million barrels a day, uh, that Iran could, could export on top of what they’re surreptitiously exporting, right. To, uh, to China. But in any event, the, and getting back to Iran, certainly that that’s going to be a big second half 21 issue for, uh, you know, for the Biden administration and, and whether or not we rejoined the JCP way. They just had a meeting last week. Uh, the, the nuclear deal, um, I’m referring to, they just had a meeting last week. They’ve established working groups and, uh, there’s, there’s a long slog. Uh, there’s a lot to negotiate and it’s a long slog. Uh, and there are a lot of, um, uh, there’s a lot of issues. Oh yeah. I kinda, I, I go back and forth. And then, you know, yesterday there was, uh, there, uh, at the times, which is where they enrich their, their uranium. There w there was a, um, there was a blackout, uh, which most, everyone is pointing to the Israelis. Um, so there was a blackout, I don’t know how that’s going to help, you know, and that’s going affect everything. But nevertheless, you know, we’ll be watching, we’ll be watching for the, for the second half of the year after the, uh, after the elections. If I had to bet, I, I think we may have, there may be some
Made, so that’s another wild card to throw in the mix. Right.
Um, yeah. I have one, one question for you. Oh yeah. Okay. So we have these old OPEC meetings and they’re, they’re monthly, you know, they used to be every six months where they’d make production changes. Do you think we’re going to start like every month, fall is going to pop, going into these meetings and, you know, like the, like it usually does, or,
Well, it hasn’t been usual for a while now because, um, you know, in, in the old days, when we started sitting next to each other on a desk, the oil company, the oil ministers were tight-lipped going into the meeting. And so you didn’t know what was going to happen. And I, I I’d say there was less trust of them coming out with a good result. And so you’d get this huge increase. You get an increase in vol going in, and then maybe the day of the meeting you’d see a decline. And then it would decline after the meeting. But as time went on, especially now there’s so many, so much commentary before the meetings, even by oil ministers, that you’re, sometimes the volatility is taking place ahead of the meeting for the, for the ministerial, the last ministerial meeting. Uh, it seemed like people waited till after the OPEC meeting to put positions on. So there’s like light volume ahead of the meeting and more volume after the meeting. So there is not, there is no one way to look at these things anymore, except for, you know, like obviously last year when the meeting was a disaster prices went down, vol blew up. But I, I don’t see any, any major recurring theme each, each meeting seems to be its own case.
Right. Yeah. Yeah.
Okay. Yeah. Yeah. And, and this was, you know, this, after the, this recent meeting and the market’s Mo was moving sideways, I guess it took a couple of days for people to crush vault. Right. You know, I guess you have to see, I don’t know. He’s still, there’s still some, uh, you still have a lot of people are bullish this thing. Um, you know, it’s, it, it seems to me more like OPEX looking for a balance at a particular price area, then, um, you know, then we’re going to see 70 or $80 down the road. I don’t know, ma ma I mean, as quickly as they’re coming out with you, new barrels is it, they, they, um, they seem to be managing this demand thing pretty well as you, as you,
I think they’re doing a great job.
So I guess the question is, will they manage it on the upside as well as they manage it on the, like, if prices go up to 70, are they going to come out with more barrels? Are they just going to let it run?
Yeah. That’s, we’ll, we’ll, we’ll have to see right there. There’s a lot of, uh, you know, when you’re getting up to 70 or 80 typically, you know, yeah. If you’re getting into the seventies and eighties, there, there are other issues, right. Uh, you know, non OPEC producers, I, the us, the S in particular, and then, you know, Iran is exporting, how much, how much does the Saudi one Iran together, you know, and any excess revenue. So, you know, this, there’s this a lot that they have to grapple with, you know, it’s interesting, you said, well, what price? I think, you know, you look at some of these, um, what price they need to balance their budgets. You know, a lot of the Persian Gulf producers are right into the sixties. So, you know, $60 60 to 65 brand would be fine. It would be good. It would be good
Volume up.
Yeah. If they could get the, if they can get the volume up, but even if they can, I think there, you know, that that would be a good price. I don’t see them really wanting to let Brent get, you know, much below 50. So
Let’s talk about w w what do you think about crude prices going forward?
Well, the markets are trading at a dowel range for a good reasons. I think a lot of us are kinda stymied as to where, you know, what, where we think the, uh, where we think the market is going. Not that we, you know, not that any of us has, you know, we’re usually clueless, but I think, you know, my, my own view is that there are going to be, as we head into may and June, there, there are, there are going to be, there is going to be more supply, will demand be strong enough to, to take that out. I sorta think so. I have a, you know, I have less of a, I have less of a stock dry in the second quarter than I did naturally because, uh, you know, there’s, this, this is going to be more supply on the market, assuming there’s no change in monthly policy. So, um, you know, I, I think that takes the ceiling out a little bit on, uh, on prices. But, uh, I think from, I think from here slightly bullish, slightly bullish, but also slightly barest chips, just like the market. Yeah. Sort of, uh, you know, it’s sort of a, it’s a hard call.
So if I were to, if I was to say to you $50, put, let’s say June $50 put, expires in, may you say, it’s going to go, you think it’s going to expire out of the money or in the money
That’s going to expire. I would say out of the money
I’m talking. Definitely. And then for WTI, what about a June 70 call Jude 70 call
We’re at 60 now, I would say also out of the money. All right. So, but I, but I think that may be more alive than the, than the 50 foot only because, you know, I take T I is gonna, I think we’re going to see those stock draws and that, so I think, you know, we’ll, we’ll see the, um, structured, tighten up some, and, you know, if, if we do get any demand surprises on the upside, as you’ve been talking, you know, as you said, Jim, on gasoline, that that may have a shot,
You have a shot. And so I guess related to that is, uh, without thinking about a peak in price, w what part of the year do you think that the price will peak out at, in, in June, may, June?
That’s, that’s a really tough question because you just have no clue as to what not no clue. I mean, OPEX has given us some clue as to what they, you know, they’ve also put out OPEC, OPEC, um, production month by month going forward. And if, if they’re, if they stay by what their numbers are, you know, I think the second half could, could draw some. And, um, you know, I, I think this a chance for another, another peak in the, in the second half.
So, uh, my final question on oil prices, um, the, the D the biggest option that I mentioned of open interest, the DCE 20, $2,200 call, do you think that has a shot?
Sure. COVID, we’ve been saying since we started these, these files,
Right, right. Yeah. Anything could happen. It could happen.
Eddie think could happen. And I think if I was to say to you, no chance, right. I’m sure you would go out and buy it right now.
Yeah, of course. That’s, that’s, uh, that’s uh, over the years, Andy, that’s a winner. That’s a winner.
Yeah. Anytime anyone says no chance, no way. You know, you got to think about doing it.
My favorite was always, I, I don’t know where I was. I don’t know where prices are going, but I know where they’re not going. So I’m going to sell thousands, these calls, and they’d say, okay, let me get my grandmother on the phone, because we want to buy a few for her, for her account
In, um, let’s see. So these 20, 22 is 20 months from now. Yeah. So let’s say in January of 2019, I said to you, Jim, I’m thinking about buying some minus 20 puts for April 20, 20, or some flat put source of, you know, $5 foot. What would you say to me?
Well, you know, my bias is I’m, I’m okay with you buying it, but don’t sell it. Right, right, right. That’s true. Yeah. That’s my bias. I wouldn’t say I wouldn’t turn that down, but yeah. I’d say what are you out of your mind? Probably. Exactly. Yeah. Um, of the three gasoline, diesel and crude, um, w relatively speaking, what do you like say over the next quarter?
Uh, since I think the cracks are gonna soften, uh, you know, I, I probably, I liked WTI WTI and, uh, diesel, diesel stocks have rebuilt. They had a big draw. They’ve rebuilt. We’re a little, we’re a little surplus. We’ve got the, um, planting season starting. I mean, the planting season is about to get underway. It looks like a lot of acreage, even though it came in less than expectations. It’s still the second most ever.
Yeah. I wonder if it’s going to turn out to be the most ever down the road. I don’t know. No follow that market as much, but those prices look pretty good. Yeah.
Yeah. I bet. I bet it’s even stronger. I bet it’s even stronger. And of course manufacturing is just like sizzling. So, you know, what follows sizzling manufacturer of course is distribution of goods. And, uh, so, you know, I think these will demand. We’ll be, we’ll be pretty good. We’re making way too much diesel cars. Uh, you know, some, some of the jet is getting into the diesel pool. Uh, if jet fuel demand improves, then you know, that that diesel productional will come off. So, you know, may maybe diesel, I would say second and, and gasoline third, but only because the cracks are, you know, are pretty, pretty heightened already. Right. And, um, what was I gonna say about, uh, jet fuel
Will demand you think is still going to be kind of awful for her?
Wow. Well, kicking off, it’s definitely picking up us. Chatfield demands is definitely picking up again. As I said earlier, we’ve got to lift those, uh, you know, the international restrictions have to have to be lifted and then, you know, there’s going to be, you know, we’ll see where business travel goes, right. What w you know, maybe there’ll be maybe all, maybe everybody’s going to want to go visit their clients, you know, to begin with. And they’ll, there’ll be a big surge, but you know what, what’s the longterm, you know, w what’s the, what’s the change there? You know, people gonna want to do zoom meetings after they, you know, less, less face-to-face and more zoom meetings will receive.
Yeah. So these, uh, airlines have been stung so badly over the years by, uh, hedging and, you know, the mission creep of, of their hedging programs. I’m not sure they, it’s probably something they could look at is as, as they start, uh, uh, signing up, uh, trips down the road. I mean, they’re going to see, they’re going to see ticket sales pickup, which, uh, which they already are. Um, I wonder if they’re, if they’re interested in hedging, you know, jet fuel as it goes, like, you know, not getting, not anticipatory, but just saying, you know what, we, we better buy the jet fuel now for trips that are being planned three to six months in the future, because if this stuff starts taking off, you know, we’re gonna, it’s gonna squeeze into our profits and we, we’re still not back to where we were. So, um, I dunno, I guess, like I said, they’ve been, uh, some of these guys have, will never had you again after their experience.
Oh my goodness. Oh my goodness. Right. Yeah. Particularly. Yeah.
Yeah. So anyway, uh, anything else, Andy? I think we can wrap it up.
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Yeah. Let, let, let’s wrap it up. Um, you can, if you want more information about Commodity Research Group, we’re on the web at www.commodityresearchgroup.com and if you want to get ahold of us, my email address is alebow@commodityresearchgroup.com.
And I’m more on a, I have more of a LinkedIn presence, so I don’t look at my email that much on the Commodity Research Group. I’ve got too many emails going as it is, but, uh, you can find me on, uh, look me up on LinkedIn.
Yeah, me too. And if you have a question for Jim, you know, just send me an email. Yeah. It will. It will get to them.
Definitely. Okay. Thanks, Andy. I’ll talk to you next month.
All right. Thanks, Jim.
Okay.
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