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 at www.commodityresearchgroup.com, where we post our podcast and blog.
We would like to thank our friends at EKT Interactive oil and gas training for hosting this podcast. Check out their newsletters, podcast, and learning modules at www.ektinteractive.com.
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 specific trading system, strategy or recommendation. We are 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 is April 18th, and it’s about 11:00 AM New York time. And welcome, Andy Lebow.
Hi, Jim. How are you doing?
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I’m doing good. I, I just wanna say, this is a, uh, these podcasts are kind of a continuation of a conversation. We started, I’d say September of 1988,
I’d say. That’s probably correct. So it’s, it’s a long, long-term conversation,
Long-term conversation, and let’s,
Through many ups and downs,
Many ups and downs. And, um, we’ve got a few more, uh, today. So, um, let’s kick off. I’m thinking, you know, China demand, Russia supply, OPEC policy. Let’s, let’s start with China demand. Um, I think it was yesterday, uh, some stats came out. GDP growth for the first quarter in China, uh, plus four and a 5%. World Bank has that region, uh, they’re looking at plus 5.1%, uh, GDP for the year. Uh, are you seeing that sort of increase in oil imports, in the oil demand in China and anyone? What, what do you wanna say about China?
Well, yeah, definitely seeing an increase in imports and exports. Actually, China in March set a record for crude imports, and they also set a record for exports, product exports and crude runs. I think also, uh, were fairly high, which makes a, um, you know, makes all the sense in the world, really. Um, it’s hard to say, you know, what went into inventory, what went into runs, uh, that, that’s hard to parse. But you know what, what’s interesting, if you take the numbers as they are, and just look as we do on, uh, crude runs here on the crude numbers here in here in the US and try to figure out apparent demand. If you took, uh, crude production plus or minus net imports, less runs, you know, and you try to get and change an inventory, you get a, uh, a feel for what the apparent disappearance was domestic.
And it wasn’t really that great, Jim. Uh, if you took those numbers, it was up, you know, maybe a hundred or 200,000 barrels a day in the first quarter relative to, uh, relative to a year ago. I suspect it’s higher than that. But, you know, the, the actual numbers are, it’s so far in the first quarter. I don’t, I don’t think it’s a, you know, it’s a boomer, uh, uh, for first quarter. The big hope is as we move on into the second, third, and fourth quarters, you know, it’s really important to this market that China comes through with big growth numbers. There’s estimates of a growth of a million barrels a day by the I e A, we’re the C R G. We’re, we’re up 0.7 because we’re not so sure. First quarter was that Great. So, yeah. And you’re also having, uh, comparisons to last year. Last year was soft in China cuz of all the, the lockdowns, but nevertheless, China for this market to really have a, a significant rally in the second half of the year. And I know we’re gonna talk about this, China really has to come through with, you know, significant demand numbers. So that in a way, you know, as copper is o oftentimes, you know, for, for, uh, the petroleum market, you know, spotlight on China, no doubt.
Yes. And I, and I think we, we’ll talk about it in a minute, but the, uh, there’s a divergence between the big three, uh, monthly supply demand estimate groups, the EIA a, the I e A and the opec. So, we’ll, we’ll talk about that in, in just a, uh, a minute. But, um, for the, for the rest of the world, it’s kind of, or the, say the O E C D, most of these groups agree that, um, increase in demand for a petroleum is kind of flat this year.
Well, for O E C D Yeah, the, you know, you look at us may maybe we’re gonna be up a little bit over last year, Europe the same, maybe a little bit up over last year, depending on, you know, obviously depending on the economy, weather had a factor, certainly in the, in the first quarter in the Northern Hemisphere because we had a, uh, milder than normal winter, uh, in much of the Northern Hemisphere, thank goodness, really <laugh>. Yeah. Um, so, you know, that that was a factor. And, um, you know, we’ll see as we move on into the second and third and, you know, into, into the balance of the year, you know, whe whether we go into this, uh, long expected recession or, or skirted, but, you know, it doesn’t look like the O E C D demand is gonna be that robust, you know, it looks like no growth, at least for, for Europe or US, or if there is any, you know, it’s really, it’s really gonna be pretty slight.
The growth is, is really a non O E C D. You know, I think China, as I just spoke about, India, uh, is probably gonna, you know, that could be up eight to 10%, but no, you know, that sounds great. Wow. Up eight to 10%. But India, even though their population is just past China, India’s demand for petroleum is only like around five, you know, a little over 5 million barrels a day, while China is expected to be, you know, the fourth quarter as much as 16 million barrels a day. Right. So, you know, that’s a big, there’s a big, there’s a big discrepancy right there. So a 10% increase, it’s still great. I don’t think it’s gonna be 10%. I think it’s more, you know, maybe six to 7% for, for India in terms of actual demand, not, not that great. And then the rest of Asia, if China does come through with big numbers, you know, that’s certainly gonna help the rest of, um, south, you know, the rest of, uh, Southeast Asia, south Asia, China and India and the Middle East also, you know, you might, you might see, uh, some decent demand out of the, the Middle East.
I, I don’t think so much out of the Americas, you know, out of, out of South America. I, I don’t, you know, I, I don’t think we’re gonna see anything, you know, may maybe slight demand increase. So, you know, when we put it all together, we’re looking for, you know, this is the big three, right? And then there’s all, all the banks. Yes. And then, and then there’s crg,
Little crg. Yep.
Little crg. And I think
Jim, I imagine that could
Yep. And I think, uh, Jim has, uh, you know, seened, a lot of these estimates, they’ve seen every estimate over the last X number of years. Yeah. And I think little CRG does pretty good.
You, you do. You’re very good, Andy. And why don’t we, why don’t we just, um, why don’t we go talk about Russia supply on the market, and then we’ll pull them both together and talk about the, uh, the different groups’ estimates and where you stand. So, um, you know, a lot of stories like Russian products showing up in Saudi Arabia, uae, and, you know, part of that China refining is from discounted, uh, Russian oil. Same with India. What’s, can you kind of sort it out for us,
<laugh>? Well, you know, the, the Russian story, since the invasion has been, you know, the market has, has kind of misfired on where they think Russian production is, is gonna be, or even what it is. Uh, and it, it is, it’s been difficult to, um, get those numbers right. You do remember that right after the invasion, like the I e a was saying, well, Russian production is gonna be down, could be down two to 3 million barrels a day. And, you know, last year was, it was hardly down at all. You know, in fact, at the end of last year, they were right where they were pre-invasion, you know, which was like, you know, over 11 million barrels a day, including Condensates, uh, 11.1, 11.2. It looks as though, and I think for the first quarter they, they probably reduced production slightly, you know, may maybe a couple of hundred thousand barrels that they, maybe now, uh, no, Alexander Novak, their, um, ex oil minister, I think he may still be oil minister, but Novak was, was talking about Russian production being down 500 to 700,000 barrels per day this year, crude production.
And, you know, I, I think that, I think that is a chance to being right. You know, that the last OPEC meeting, OPEC plus meeting, they did, they did say they were gonna be down 500,000 barrels a day o over the balance of, of 2023. But, you know, I th I think we’ll see, you know, we’ll, we’ll, we’ll see. They have been able to, you know, they just had record in March. They just had record Seaborn exports despite the embargo, despite the, the EU embargo, you know, crude and product exports were like 600,000 barrels a day. Um, could, could some of that.
Sorry. Could, could some of that been, you know, buying ahead of the embargo?
Yeah. Little extra. That’s a good, right, right. Definitely.
So we’re gonna, but go ahead. Sorry.
But, you know, diesel is showing Russia, diesel is showing up in Asia, Latin America, big, some in Indian, certainly in the Persian Gulf. The Saudis have been happily taking in discounted Russian, uh, refined products, taking it into their systems for domestic use and exporting Saudi product, uh, and making, you know, that’s a great trade for them.
Mm-hmm. <affirmative>,
Now Russia’s going into some maintenance now. So, you know, presumably there’ll be less refinery maintenance. So presumably there’ll be less product on the market, uh, over the next, you know, in April or May. Uh, you know, I’d expect those March numbers will still be down. But, you know, the numbers that we had thought Russian diesel down, like, you know, 600,000 barrels a day or something, something like that, you know, that hasn’t come to, that, hasn’t come to fruition. And it’s really pressured, you know, it’s pressured the diesel.
So you, you see that showing up in the diesel cracks?
Oh, totally. Yeah. Yeah. Yeah. Singapore cracks are really weak. European cracks have come off us. Cracks have, uh, have come off. So again, the classic, the market expected one thing, didn’t really expect that Russia would be able to so easily and quickly find pro, you know, find home for their, uh, for their refined products. But, you know, it took them no time at all, really to get Yeah. You know, to redo the, to redo their, uh, distribution map similar to crew. Crew took a little bit longer. So, in any event, so the numbers that we are using for Russia is like 10 and a half million barrels a day production for the balance of the, the rest of the year, which would be down, down like, you know, 0.5, 0.6. But like OPEC is using 10 million barrels a day for OPEC production, which for, I’m sorry, for, uh, Russian production, which is, you know, I, I, I don’t see that. I don’t think they’re gonna be down over a million barrels a day.
And how are they doing with the, uh, $60 price as we were, we’re hearing
Stories they’re doing, they’re do a great Jim. Cause it’s not, you know, it is over $60.
It is over.
Yeah. The West has really, you know, you, you haven’t really seen the west heavily policing the, the price, you know, the price cap or a lot of the, you know, a lot of the embargo. And, um, you know, we’ll, we’ll see how hard, you know, the, the EU and the Biden administration is gonna come down on, uh, Russia, if it, you know, on, on, I guess it’ll be India or China or some of the other end users, you know, that, that, that remains to be seen.
Yeah. The US has, uh, an, an inflation issue and an election next year. So they, their ha their interest, our interest is, uh, to have oil on the market and not, not be, you know, not show up in the, uh, cpi.
Right. You know, we’re, we’re at the, you know, we’re at the pumps now, you know, at the pumps, you know, unlike last year, well, like last year. This is not an election year, so. Right. You know, there’s a little less pressure on the, uh, on the Biden administration.
Um, but they’re always running.
They’re always running. Yeah.
Yeah. Yeah. So it, I mean, it’s, it’s interesting also, um, that, that, you know, talk about Saudi Arabia, they, the, the Chinese broker, this, um, uh, what do you call peace deal and, uh, between Iraq, I’m sorry, Iran and the Saudis. And, um, you know, it’s perhaps gonna help with the, uh, fighting in Yemen and, um, which is what the US wants to see. And then the, and then the Saudis go ahead and raise or, or cut production and raise prices, which the Chinese can’t be happy with. I mean, that’s, you know, so I, unless maybe they are getting contracts to build, uh, the new city that, uh, right. The leaders of Saudi are investing in.
Right. You don’t, you, you never know. Right. You don’t, you don’t know what what goes on under the table.
Yeah. It’s a con it’s a very complicated game. I mean, if you think about trying to restrict Russian oil off the mar off the market, you don’t, you don’t want Russian oil off the market. You just don’t want ’em to get a good price. Cause the whole world economy will pay if you Right, right. So Yeah, very.
Which is probably why the policing of the cap has been pretty gen pretty non-existent actually.
Yeah. And I, you know, I was, I, I think I mentioned that to you a while ago, is why wouldn’t the US look the other way, uh, if Iran started producing more oil than products on the put, putting ’em on the market? And, um, are, are they you seeing increases in, in Iranian oil and products in the world?
Not steady, steady, steady, steady at 2.5. And, uh, you know, I think in Russian, the Russians carefully in, in, um, preparation for the embargo, you know, the Russians definitely carefully studied the Iranian tactics on, you know, how to, how to get around the embargo, uh, including, you know, what ports they could use, ship to ship transfers, you know, turning off,
Turning off the gps
Or turning off the gps. Yeah. They used all the, uh, all the Iranian tricks and, um, yeah. It, it, and it’s been successful for them.
Yeah. And they, uh, Russians also have probably have more willing buyers, you know, India and China than others. Yeah,
Exactly. Yeah.
Yeah. Yeah. Very good. Um, so why don’t we just quickly move to OPEC policy. What, what do you want? Or Saudi policy, whatever you wanna call it. Sure. What, what, what’s going on? What do you wanna tell us?
Well, yeah, I, I think there’ve been a lot of, um, you know, different views on, uh, opec, seeing, seeing, you know, the, the rest of the year, uh, that demand could be soft and that’s why they cut production. Well, in reality, you know, if that’s the case, they obviously didn’t read their own research because the OPEC report has demand booming in the second, in the second half of the year. So I, I tend to, I tend to poo poo that. I don’t, I don’t think that’s, that was a, uh, factor at all.
Well, they did do it after our banking, our banking crisis, which, you know, people, the, the people who are expecting, uh, recessions later this year, were where voices were louder after that. So it’s, it’s still possible, you know, and it’s, it’s not like these big three opec, I A E I a have done a good job forecasting demand. So, you know, if, if, right. You know, right. So I hear, hear
Saudi has, Saudi has, you know, their own information and, um, great information cuz of Aramco. Right. And they, they see what their customers are doing for, you know. So I think that was, um, yeah, maybe there was a little bit, uh, of that. But, um, it still looked like e even, you know, the EIAs looking for builds, but e even the most pessimistic forecasts were, were looking for draws in the second half. You know, were unchanged on, on inventory. But I think the point you made that, that, um, the banking crisis and, and price got down to $64 on, on W T I, which was, you know, it was completely unacceptable to, to the Saudis. But I think, you know, to me the, the cut was just, it was revenue related, just price related. I think that so far this year, rent up in the first, up to the first quarter when they made the cut, you know, Brent had averaged about $81 and, and W t I, I think was 76, 70 $6. So, you know, to me, you know, the Saudis were looking to protect at least $80 Brent, and really wanted, you know, really would like 90 to a hundred dollars Brent. Um, and I, and I, and what I think happened, uh, is that it was, it was more of a, a revenue need. You know, they have big infrastructure needs. You mentioned the new city that they’re building and, you know, some subsidy needs as well. So, you know, to me the cut was more about money than anything else. Jim
<laugh>. Yeah. Okay. We’ll go, we’ll, we’ll go with that. Definitely. Is it, it’s just, uh, Saudis, you know, we’ve been following them for a long time now. And, um, their, their, their policy. I mean, that’s, that was a big surprise to the market. You know, people, people were talking about them being like the fed of the oil markets and, and, um, you know, I, I thought it was interesting that they’re reacting quickly to a situation that really hasn’t of weak demand, that really hasn’t quite unfolded yet. Whereas, whereas our, our seems to react, you know, at least, you know, when, when oil, when, uh, interest rates are really low, they take a long time, you know, to react to things, and then they overreact. It’s Right. So I I, I was, I have to say I was a little impressed by, by that move. Okay.
So we have these three very, when we say difficult to predict entities, China demand Russian supply, OPEC policy. Let’s, let’s look at what came out this month with the, um, e I a, uh, supply demand estimates, i e A and opec. And we talked, we already talked about how they diverge, but you know, it’s, it, it seems to be mainly in the demand numbers. So, so can you kind of, and, and also it shows up in the second half with stock builds and stock draws. Can you just kind of summarize what their, what the differences are?
Yeah, if we look at, you know, if you look at what we just talked about OPEC and what they, what they’re looking for, they ha they have demand up like 2.3 million barrels a day this year. But a huge increase in the, in the second half of, let’s see, they’ve got a, hun, they have about one of a hundred, 2.5 million barrels a day, which is a growth of, uh, you know, over, over two, uh, I think it’s two and a half for the second half. So they, so they have a big, big increase, uh, in the second half. I mean, real really big numbers. I’m not sure. You know, again, the driver is, they’ve got China demand as, uh, very strong, uh, Asian demand as, as as strong, a little bit better, slightly better O E C D demand. But, you know, those numbers are, are eyeopening to say that, to say the least.
And, uh, as I just said, if the Saudis were really using those numbers, there’s no way that they would cut production, you know? Right. Cause it really, you’re, you’re looking at the need for more, like the call on OPEC is, uh, much higher than what they’re gonna produce if they given the, um, you know, given their last, you know, their last a their last agreement. So at, at opec, uh, the OPEC Omr has a draw a to a draw of over 2 million barrels a day, uh, for the second half of the year. Again, that’s enormous. And if we do draw 2 million barrels a day, we’re gonna get really tight. I mean, if you look at inventories, there’s still, um, you know, there’s still about 70 to 80 million barrels, uh, below normal. So the, the, it’s not like they’re really tight right now, but you take 2 million barrels a day, uh, off the market and, um, you know, things will get unbelievably tight.
So, but
Again, but again, you know, that’s based on huge demand. And I might add that they, as I, I think I mentioned earlier, have Russian production way down. So, you know, they’re, they’re singing a, a really bullish tune. Of course. Let’s, let’s not forget who writes this, you know, it is the opec, you know, it’s is it is the OPEC report. So, yes. Um,
But go ahead, you
No, I was gonna move on to the I E a cuz they, they also have eye-opening demand in the second half. Yes. Um, and, you know, their, their draws based on, you know, where where we think OPEC’s gonna produce and where non, you know, not their own nano OPEC increase, their, their draws are about one and a half million barrels a day for the second half, which is a lot, you know, another big draw for mm-hmm. For second half.
So, and, and the EIA has,
Uh, now the EIA A has built builds the second they, they have builds across the board. And why did, why are, why is it such a difference for OPEC and the, and the e i a, uh, i e a is, they have demand running at, you know, like a, I would say 2 million barrel. No, that’s not 2 million. It’s one, it’s, it’s a a million and a half barrels a day lower than OPEC and the i e a in the second half. Mm-hmm. So they’re way more conservative,
But all, all three are showing increasing demand environment. So I guess what, what I feel is missing in this market is, uh, we’re not seeing a, a lot of bullish play. So we, so, you know, I watched the option market, and you can, you know, follow the, uh, paper flow and get a sense of what people are thinking about, uh, prices away from today’s price. So if you see, you know, 10,000 a hundred dollars calls, trade, usually that size is put on initiated by, uh, buyers. Um, and maybe it’s, uh, for December of the next year. So we saw that kind of paper flow before the war, like well before the war. And, and the, and the sort of, the fundamental view was, um, we’re not investing in oil fields anymore. So next year, uh, we’re not gonna have growth in, in supply, but we’re gonna have growth in demand.
So I, I guess my question is now, I, I don’t see that, you know, they got a bonus from the war driving prices up, the people that were expecting high prices. And then after the war, we saw a lot of, not after the war, after the prices started coming down, uh, post-war and Russian oil was not restricted as much as everybody thought we, we did see bullish paper flow. I don’t, I don’t see it. Haven’t seen it, you know, in a big way in a while. And so, so my question to you is, what, what, from these scenarios, what does the market have built into it? Like the i e the, the I e A scenario, the OPEX scenario, which are close, or the e i A scenario?
We’re the, let’s get to the C RRG scenario.
I’m sorry, of course. The crg
Yeah. <laugh> the CRG scenario. Right. We have mod we have, and, and we think, you know, I, like I said, you know, we’re, we’re pretty good at this, despite the fact we don’t have the big staffs of, uh, yeah. You know, these other agencies, uh, we’re looking for a much more modest draw in the second half mm-hmm. <affirmative> of, um, you know, maybe, maybe a million barrels a day, maybe slightly lower than that. Uh, and I think our numbers are, you know, pretty, you know, I think they’re good. And I, I think if that’s the case, uh, I think the market hasn’t quite built that all in. But, you know, I, I think the market, if, if our numbers are are right then, you know, I think we’re looking at a grind, you know, a grind higher from these le from these levels. I mean, it looks like the market’s gonna back and fill a little bit now mm-hmm. <affirmative>. But I, I think ultimately, you know, if, if we’re right, you know, we’ll, we’ll see a grind higher if OPAC and the IA numbers are right, the market’s going to a hundred bo a hundred dollars. So it’s not built in, you know, I don’t, I don’t think it’s built in at, at all. You know, if we’re drawing 2 million barrels a day, we’re going higher.
So I don’t wanna, I’m not, we don’t put out trading recommendations. This is not a trading re recommendation, but if you’re believing the I e A and the, the, um, OPEX scenario, you’re buying this market. And if you’re the E I A C R G, you’re, you know, selling strangles.
Yeah.
Right. So you, I
Think I, I think that’s right. I think those are the right that you just positioned yourself a kind of a, you know, a grind grind, uh, I think it’s gonna be up. Uh, certainly there, there’s a lot of scenarios to play out. Not the least of which is gonna be, you know, where’s the global economy. But yeah, selling, I think selling strangles is probably <laugh>, not that I would do it, but that’s probably the play.
Yeah. It’s, it’s, it’s, um, it’s surprising me cuz we, you know, we, we have, um, seen this, this scenario for these two, the, the divergence have been around for a while and, um, you know, we, we had, um, as I mentioned, we were, I, I didn’t see the bullish paper flow, you know, it, it, there is, I’m not saying it’s zero, I’m just saying it’s not overwhelmingly bearish. But, um, you know, coming outta sira, it, it, uh, uh, they’re, I know producers are often bullish, they’re optimistic on prices, but it seemed like it was an extreme b uh, bullish, uh, meeting. If you talk to people who were there, you know, people were very optimistic about prices down the road. And I’m thinking, I still don’t see where are the plates. And, and I guess what I was missing was that maybe, maybe producers hadn’t hedged at that point.
And, um, you know, when, when we had the, uh, banking, uh, crisis, uh, and, and prices came down, there was, uh, one day, three days after the low was made. So this would, this would’ve been on March 23rd where, uh, put volume was actually higher than call volume. And, and that’s like, uh, you know, man bites dog. It’s, it’s not something that happens in, in it ha in the recent history. It’s not something that that’s been happening a lot. So I made, I made a note of that, that, okay, so we, we bounced a little bit off the lows and produ, some producers are probably saying, you know what, we don’t, we’re not hedge <laugh> and so let’s put some bearish plays on the cover. And then, you know, now we’re, it’s kind of a balance. You’re getting the same amount of volume on both sides, puts calls open interest increases is pretty much the same.
And, um, there’s still some, uh, sort of legacy trades on. So if you look at the big open interest in w t i, it’s, it’s the, uh, June of this year, the, the, uh, 9 1 19 1 20 and 1 21 calls all have a, a pretty good chunk of open interest. Same thing in, in Brent. The, the big numbers are the, uh, June 1 49, 1 50 calls. That’s, that’s, uh, big chunks. Um, but you know, again, that those, those were put on, I don’t, I don’t remember exactly when, but it’s not, it’s not recent. So, so, so in in implied volatility, uh, is around 33%, which is, you know, maybe a little lower now than long-term average, cuz recent, recent, you know, 2020 had record of high 33, used to be the average, it might be like 34 now. So we had some recent high, uh, volatility and, and, and so there does seem to be a grind ahead market despite all the uncertainties, um, people forecasting supply and demand going forward and the uncertainties of how the war in Ukraine will lay out eventually. Um, we’re get, we’re getting back to average vow, which kind of tells me that your grind ideas is kind of in the market.
Yeah. That, that makes, that makes a lot of sense, Jim. Yeah. Um,
And that’s what, you know, that’s what it looks like. Of course, as we know, there are, you know, there’s always event risk, risk and geopolitical risk. I, you know, we were, we were pretty confident in our trading range over the, you know, for the last few months. And, uh, you know, the banking crisis just took, took $70 right out, you know, and uh, we got down to 64 and the flow was just incredible of, uh, sh of, um, long liquidation and uh, you know, actually increasing and shorts increasing the market. And then on the way up, they, that was, that was the shorts were covered. I mean, I’m not, I don’t think I’ve very, I’ve ever seen swings like that in the commitment of traders report.
Yeah. That, that was pretty amazing. It was crazy.
Yeah. It was amazing.
Did, did you think that, um, the price action from the opec, uh, uh, decision was impressive? Or did you think it should have gone, should have been higher than that?
No, I thought it was impressive. I thought it was pretty impressive. I mean, now, you know, get it, there was a big gap, gap up and uh, then it cons, you know, we’ve consolidated these last couple of weeks and then now it looks like some of the recent length is, is exiting the market. And as I said, maybe to use a, a classic, uh, commodity term, you know, back in fill. Yes. Uh, maybe, maybe we end up filling that gap and, you know, again, just, just doing a grind. Sure. Um,
So, so back when you were the, uh, only analyst covering heating oil, were you a technician or a fundamental
<laugh> guy? <laugh>,
Because you, cuz you slip in a few technical, like fill, we gotta fill a gap. Yeah, it’s,
Well, you know, Jim <laugh>, you know, you know my game, I talked a really good fundamental, or I talked a fundamental story, but, you know, I was, I was studying the charts.
Yeah. Charts have
To, so that was so <laugh>, I was a closet technician. What’s that? Um, and I got called a few ti called out a few times.
Yeah,
I did say a few times over, over the years.
Well, I think if, if there’s one data point that’s pure, it’s the price. Those, those, you know, people actually bought and sold at this, there’s, you know, as always said, there’s a lot of information in that price and that, that’s why I think a lot of what, what was really good, what I like about your analysis is that you, you kind of plug in, you know, what’s what’s in the market already or you know, this the, like you, you’re, you’re seeing the Chinese oil being, uh, refined and exported and it’s showing up in diesel cracks, declining things. Like, you know, that where the fundamental stuff that you’re hearing about is, is actually showing up.
Yeah, it makes sense. Yeah. It actually, sometimes the markets make sense,
Sometimes they make sense. Yes. So front uh, front to back crude curve makes sense or doesn’t make sense. It’s,
Well, you know, it’s slipping into contango now. Yeah. So front too, the Brent, the Brent market is getting a, a little bit softer now, Brent, I could, I could see, you know, there are some refinery maintenances that are gonna be going on over the next month or two. China’s state also taking a maintenance. So you sorta, you know, you could sort of see that also these, and the the also, you know, it’s, it’s unclear whether when the barrels are gonna flow out of, uh, you know, through Iraq, cuz that’s been down 150 a day, uh, on the dispute. They keep saying any ev any day. And, um, you, you know, I don’t know if the market’s pricing, pricing that in or, or not, but the, the curves are, the curves are softening. D shred de was 50 cents a month, a couple of, um, uh, just a few days ago, you know, looking for the market to get tighter and tighter. And that’s given, you know, that’s given like a dollar back. It’s back to like 40 cents a month, something like that. And again, that may be just, you know, that may be just flow and profit taking, you know, to me it does look like globally things will tighten whether they get crazy tight like the OPEC and the I E A says, you know, as I said, I don’t, I don’t, I don’t see that, but you, you know, you would think that the backwardation is gonna hold.
Right. And, um, the, we talked about the diesel cracks, uh, coming off for a while now. Even, even before the, uh, opec uh, announced that news cuts, um, how, what are you thinking about gas cracks? They’re they’re holding up,
Yeah. They’re really holding up. And gasoline is a little skinny going into the driving season here on, on inventory. The last one just came out and we’re at like 223.5 million barrels. Um, and that’s 12 million behind the, the five year average and day supply is like a half a day below the five year average. The other thing, demand in the first quarter is, was way better than I thought it was gonna be. Now tho the, those aren’t, you know, those with the weeklys, so you don’t know where, whether that’s right or or not, but you know, us gasoline demand looked, it looked okay, but it looked, it was, it was up like, I think it was 200,000 barrels a day, which is miraculous. So that, that at least there’s something, you know, there’s, there’s something out there that gasoline demand may not be totally dead.
And you are seeing critical mass in EVs when you, when you do your gasoline demand
Yeah. It looks like, oh, it’s definitely a factor. Yeah, yeah, yeah. It’s definitely becoming a factor. And that’s, and I, I think obviously with, you know, with some of these new, um, regulations that the Biden administration is putting out, you know, they’re, they’re hoping that, what was it, by 20 32, 2 thirds of the sales are gonna be EVs Hmm. Either 2030 or 2032. And right now only six, only 6% are EVs. So there, there’s, there’s certainly, they think there’s gonna be a big, you know, there’s certainly room for ev ev demand to increase exponentially.
Wow.
But right now, I think it’s having a, it’s definitely having a factor on the, on the apparent demand numbers. Yes.
Now this is, this is a conversation I had with somebody and I, I, I don’t know the person really well and I don’t know how well informed they were, but they were talking about possibility of a, a rinse market for hydrogen. And I, and I think of myself, uh, God <laugh>, that’s <laugh>. Oh boy. Oh boy. Did they
<laugh>
They learned nothing.
<laugh>, they learned nothing. Yeah. Anyway, that was one bad product, but that’s
<laugh>
That, that’s an aside. Yeah.
Soap. Well, anyway, that’s, yeah, that’s an aside. Any, uh, what do we miss? Andy? What do you wanna talk about that
I think we have. Yeah, I think we, we’ve hit a lot. I mean, diesel, we talked about the cracks coming off. You know, it’s interesting that they’re coming off here in the US because diesel stocks, this stocks are pretty low. Right. Um, you know, the, they’re 112 million and the five year average is like 134 million day supply is, is is five days. So, you know, may, may
Seasonally is it, is diesel strong right now with, uh, planting
Usually is planting.
Yeah.
You know that you’re an old AD guy.
U S D A, definitely U
S D A
Help helped with the WA reports world agricultural supply demand estimates.
Right. You’re, you’re a, uh, alumnus, A U S D A alumnus.
By the way, just one more aside. When I, when I joined the U S D A in 1981, uh, one of the significant numbers that we were forecasting was the Soviet Union, uh, wheat demand number. Cuz it was just, you know, uh, the, the great grain robbery where the, uh, the Russians came in and bought a whole bunch of wheat very quietly in the US only to see, uh, prices spike after it came out that they bought so much. Um, this, this wa world agricultural Outlook board was set up and that’s, that’s where I, where I was an assistant grains analyst. So we were put, so it wasn’t till, I don’t know, five or I stopped after I left the U S D A, I didn’t follow the grain markets that closely cuz I eventually got into energy. And it wasn’t till about maybe five, six years ago where I, I saw that Russia and Ukraine were huge exporters of wheat. And I go, whoa, when did, when did that happen? You know? So yeah. It was a big, these markets change. Right. Andy this’s, the, they’re constantly changing.
They’re co thank, thank goodness.
Yes. Well,
This one, this one’s always changing. So, yep. Diesel. Yeah, I mean, let, let, the, the planet acreage was pretty bullish. And in fact, uh, at least for diesel demand, not for pri not for eggs, let’s just say for diesel demand. So, you know, may maybe, maybe the, maybe the, let’s we’ll keep watching the, the diesel market obviously, cuz they’re also maintenances coming on. So diesel could make a, you know, could make a nice, uh, comeback. It is interesting that if you, if you looked at Midwest diesel prices, naturally they spiked like right after that planet acreage came out.
Yes.
And now they’re getting hammered. Yeah. <laugh>.
So its funny supply around her as, as needed.
Yeah. I guess.
Or interesting. So, um, what are we keeping an eye on? We, we wanna look at how, how are we gonna know when, well, I guess we’ll look at diesel exports from China. How are we gonna know when China starts, demand starts using, demand starts surging versus them buying, uh, crude oil to run in export?
Yeah. I think, uh, again, we’ll keep looking at the, the import numbers, which were heavy for, you know, heavy, heavy for March. Maybe they’ll be less exports, uh, available because domestic demand is, uh, is stronger. You know, we’ll watch, uh, the Singapore market, uh, to get it, to get a handle on, um, you know, what, what’s going on in, in South Asia and China. So, and that’s, you know, like as I, as both of us have said, you know, that that’s a, that’s big, that’s big for this market. Mm-hmm.
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Okay. Thanks Andy. We’ll, uh, pick it up next month.
Okay. And just, if anybody wants to get a hold of me, alebow@commodityresearchgroup.com, and you could probably, you can definitely find both Jim Colburn and myself on LinkedIn.
Yeah. As I mentioned, I do, um, I’ll, I’ll try to post something when I, as, as I see it inter, you know, if it’s interesting to me, I post it on LinkedIn and I have a, um, you know, I, I I interact with people more, more there than anywhere else.
Okay. See you next month, Andy.
Okay, Jim, thanks.
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