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 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
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.
This is Jim Colburn with Commodity Research Group. I’m 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. We would like to thank our friends at EKT Interactive oil and gas training for hosting this podcast, check out their newsletters, podcasts, 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 particular trading system strategy or recommendation. We are not responsible for trading decisions taken by anyone. Information is not guaranteed to the accurate, this is not an offer to buy or sell any derivative. Today is January 14th.
Good morning, Andy.
Good morning, Jim, and a happy new year to you and all our listeners. We haven’t really, we haven’t done a, uh, and energy markets blog between the two of us, uh, in a while. So, uh, let’s get, let’s get at it. This has been a lot going on in Italy, uh, oil markets since our last podcast,
I feel like it’s already January 14th. This time time is flying. Andy, why don’t we start out with the OPEC meeting, uh, Saudi Arabia, cutting back a million barrels a day for February and March. I mean, that’s just summarize what that means.
Well, yeah, that, that was a, um, obviously a very big surprise to the, uh, to the market. You remember Jim, we were going into that meeting with, uh, Russia talking about wanting to increase production by, uh, another half million barrel a day, uh, in February, March after the a half million barrel a day increase in, uh, in January Kazak Stan also talking about an increase and there had been, you know, Iraq, UAE, Kuwait, uh, all had been, uh, all have been jonesing really to, uh, increase production. So the market was really going into this OPEC meeting, expecting an increase in production coming at the same time that it had expected that demand in, in the first quarter was going to soften. So, as I said, it was, it was, uh, really a great diplomatic move by the Saudi saying, you know what? We are going to cut production by a million barrels a day, thereby allowing a slight increase to, uh, Russia and Kazakhstan.
And we believe looking at the supply demand balances that prices should stay relatively, which may know which, which may prevent increases in the rest of, in the rest of the group. So it really was a great move by the, by the Saudis and the market took it that way, rallying very sharply because it was totally really unexpected. And, um, I think, uh, what it, what it’s done is it’s added some discipline to the group, certainly, uh, seeing Saudi taking a hit or you is probably not going to give you incentive to increase production right now. And, uh, also it takes out some of the loss in demand, you know, Saudi is trying to match production with demand, which brings up another major point here, how well really, uh, OPEC plus has done over the last six months, really since, since the price for six to nine months, Jim, in, um, trying to manage the market, uh, you have to give them kudos. I mean, they’ve really done it. They’ve done a good job
After that. Yeah. After they totally messed up early, like March, March, April of last year, uh, they, they, they they’re doing well now. Yes, Andy, the EIA. So the Saudis are trying to manage this, uh, supply demand thing going forward. And, and, um, the EIA came out with their short-term energy outlook on Tuesday. And this is something we talked about right from the get-go is that it’s, you know, it’s all about the, uh, the virus.
Yeah. Uh, you know, the, the, the difficulty that, uh, producers certainly and refiners, uh, have, are going to have and have had in second half 20, and certainly all through 2021 is, as we look ahead is, uh, trying to figure out, you know, w where, where demand is going to be, you know, are certainly right now in, uh, in first quarter, uh, with, uh, growing lockdowns. And we’ve already seen a URL. We’ll talk about that later on the us gasoline demand, but certainly, you know, first quarter 2021 is, is going to be very difficult. And then, uh, as we move into second quarter and third quarter, obviously, uh, demand that will be very well correlated with economic activity, which will be correlated with how quickly, uh, the vaccine is, is, uh, distributed and how quickly, you know, how, how quickly, uh, we can grow the service sector, jobs, travel, you know, all, all in a, in a big, you know, in a big unknown. And it may be, you know, you look at where these demand estimates are. Uh, you look at the different say just with, with OPEC and the, you know, they’re millions of barrels apart, millions of barrels a day apart. I look at my, I look at doing my own balances and, uh, which, you know, I used to do, I used to do the balances, you know, few times a quarter, you know, and now I’m doing them like almost daily, you know, trying to, trying to figure out, you know, w where these demand numbers.
Well, I, you know, I was saying that, uh, to earlier today, the EIA has a forecast of a $53 for a Brent, I guess, uh, starting in the, uh, they said from the second quarter of this year on, through the end of 2022. So it’s, it’s almost like, uh, thrown up their hands and saying, you know, w we have no idea. So let’s just go with this price forever and ever. Right.
So w what they did. So they took the S basically they took the spot price, right. And took it out and say, all right, you know, it’s just going to be 53 through three 22, 22,
Is it, this is their first stop shot at 2022. I thought, you know, you get a, you get an estimate like that. You don’t what they don’t publish as a standard deviation around that. I, uh, I’m, I’m gonna write an article on, uh, getting tripped up on standard deviation. It’s, it’s unbelievable. It’s one of the first statistics you, uh, you learn in this statistics one-on-one is the standard deviation and, and people just everywhere kind of get tripped on it. So including, um, uh, uh, uh, political polls, but anyway, set the brand price of the TEI price. I believe that was Brent, Brent, Brent. Yeah.
If the EIA is right, I think the, uh, I think the Saudi’s and OPEC plus would be delirious because 53 would be, uh, would be a good price for them because it really, um, you know, the revenues will be okay, certainly better than last year, and it will discard, you know, it should discourage a lot of growth in, uh, you know, at least from here from the, the shell producers, you know, works for shale producers, but it’s not going to really, you know, move the needle, like say half a million barrels a day or a million barrels a day. You know, that’s, that’s probably 53 is probably a couple of hundred thousand barrels a day in, uh, in growth. So, um, you know, if that’s, that would be it, that would be a big win if that number’s right. But I think both of us know something.
Yeah. Well, that’s just the rest of the market, right? You don’t want to, you want to sell a $53 straddle as far as out as you can, based on the EIA projection projected. Right. I’m not listening, I’m not putting down them as analysts. I think they’re great, but it’s just that the world we live in right now,
Right. I think they do a job also. It’s, it’s, you know, it’s, it’s really difficult to, uh, to predict price. And all we have to do is look at this look at 2020, right. I don’t, I don’t think anyone, anyone, if anybody said that they saw oil trading negative in 2020, you know, at the, at the, uh, you know, the end of 2019, you know, they’re basically full of it.
Well, it’s, you know, as, as we were, uh, youngsters, back in the eighties, I kind of fell in love with this, uh, options market. And one of the reasons was early on, I think it was 1989 when we had a, uh, prices around $14. We had a very successful OPEC meeting. Um, they agreed on cutting back and quota systems, stuff like that. And the price rallied over 10% out of the meeting, you know, absolute small number and volatility got crushed. And there was, um, there was one trader on the, I think it was on the floor that blew out because volatility imploded. And we said, you know, that’s that usually it’s usually the other way around. She was a people sell vol. They sell strangles and, uh, for, for months and months, and then the market blows up and they blow up. So it was kind of like, wow, this thing is different.
And then Gulf war one, you know, we had a, that was a crazy, crazy time. And, um, you said these, these oil markets are, you know, you’ve, you saw it, you saw it all, you know, and, and then this year I characterize it as the year that people were paying money for the right to sell something for nothing. And I said, I, I never thought I’d see that happen. But like you said, negative prices. We’ll, uh, we’ll do that. So spend an incredible 2020, we don’t expect the same for 2021. And, uh, before we get into the details, I just want to talk about the ear, these, these monthly, we, we look at the, uh, the big three as you call them the EIA, the IEA and OPEC and OPEC released their monthly, uh, oil report today. But the, um, you know, the EIA also shows their changes from last month and it, and it gets kind of confusing because if you look at their inventory, these, these would be the changes from last months estimates.
They, they bumped up inventories 1.5% for, I assume, end of 2020. And for 2021, they bumped up their ending inventories at one plus 1.4%. So all the changes that they made in supply and demand turns out the inventory is going up. So that number by itself should be a, you would think, would be a bearish report because, you know, you’re, you’re looking at the changes from last month. However, it does show inventories going down and demand going up. So the report, so it was kind of like, okay, yes, they’re there they’ve increased inventories, but we’re in this crazy situation that they’re, you know, they’re just trying to catch up to the numbers. And, and so w how do you, how you reading the num let’s just take the report overall, the, the EIA report, how you looking at that as sort of new information to the market, and what does it mean for prices? And then we’ll dig down into the,
I was reading the, uh, I was reading the report yesterday when, uh, when a, uh, or two days ago in the market was, uh, up, uh, uh, was unexpectedly up, uh, up a dollar. Uh, the, you know, I reporter called me and he said, you know what, what’s going on? And I said, well, I happen to be reading the, uh, short-term energy outlook right now. And I I’ll tell you what, I wouldn’t be buying it based on the, uh, S the STO, I mean, it wasn’t, you know, it wasn’t overtly bearish or bullish, you know, from, I think what you take away from, from the market, from the EIA numbers. Uh, if we looked at it in, on a macro, you know, just take the very big picture on, on stocks, on global stocks, you know, that they have a fairly, you know, they, they saw global stocks drawing pretty rapidly in second half of 2020, and also into the first quarter of, uh, of 20, 21 over, you know, two, 2 million barrels a day each quarter.
But then they see that stock draw moderating. Uh, the second quarter are only down like half a million, and then second half they, they actually have stocks like, like unchanged. So, you know, I think what it definitely does it help to explain some of the, certainly a lot of the, the recovery we’ve seen in, in, um, you know, in price, if stocks did actually draw that much, uh, in the second half, I don’t my numbers, aren’t quite that big Jim, uh, our numbers of CRG numbers. Aren’t quite that big, but, you know, the OPEC two is showing a draw, uh, the, the OPEC oil market report, which came out today also showing a, a pretty good drawn in, um, second half and also into half 2021. And, you know, th th that’s actually what we’re, you know, that’s what we’re moving on, right? That’s why the market is as has come back this, this, uh, strongly because of that, uh, you know, that Saudi output cut, uh, has now, at least for the first quarter has shown us, you know, ha has, at least is know, one would expect, or analysts myself are expecting, you know, a bigger draw than we had obviously, than, than we had had, uh, into, uh, into December.
You know, the other thing you read, and we could talk about this on the details of, of the EIA report, at least, you know, the one thing people really are laser focused on this EIA report is a U S crude production. I I’d say out of any number in this report that in EIA short-term energy outlook, that is, that is always the bold headline, right. Reported. Yep. That’s the one where, you know, the reporters or the, you know, EIA says us production is going to do this, you know, in 20, 21 or 20, you know, that that’s. So to me, you know, that, that’s the first number that I always look at.
Well, let’s kind of make it the second number we look at. Let’s just take a look, uh, following through with, uh, uh, OPEC production on your balances. What are you working with? Say past the first quarter? I mean, once, once they cut back a million and then another million in February, March, what do you see for the rest of the year? And I, and I know it’s, uh, depends on the vaccine and GDP, but what’s, what’s your, what’s your expectations for the, for the OPEC production?
Yeah, this is, again, this is a, one of the major unknowns in the, in the market where they’re, you know, how they’re going to increase production as the year goes, you know, as a year on faults, uh, first quarter, right now, Peck production, they just came out with their new OPEC, came out with their number and the fourth quarter, well, it was 25. Three is the, um, you know, it was the December number. And the fourth quarter number came out to be, it was 24 nine for October, November and December, but that comes up with a lower, you know, October number was low and November, December they’ve been increasing production in, uh, first quarter. Uh, you know, I, I have a net increase from fourth quarter of 200, because I’m a say that they’re increasing by 500 and w we are going to get some, some added barrels probably out of Libya.
And then in second and third quarter, one would expect that they’re going to start unwinding this, this production agreement. Uh, assuming prices remain here in the, in the, uh, fifties. Uh, and, you know, I see OPEC production going up up into the, like, by, by third quarter up by 1.2 million barrels a day, and then, you know, a little bit more into the fourth quarter, but that’s all on their own, you know, and that, and that’s, you know, that ad. So obviously it’s a lot of uncertainties as much as they want to try to manage the market, but the uncertainty on the production side, you know, pals, uh, at the uncertainty on the, on the demand side. Right. And, you know, I, I’m showing, you know, my numbers I’m showing roughly from roughly a million barrels a day growth, uh, each quarter and, uh, 2021, which is, you know, it’s close to where the IAA and the I, and the OPEC numbers are. And I have draws Jim, I have draws all year. Right. So, um, you know, w we’re looking for, uh, stocks to draw by, you know, I have an average of around 800 to 900,000 barrels a day for the whole year, you know, that’s constructive, but yes, the thing is, you know, I could easily be off by a million barrels a day anywhere in that. And, uh, I think that’s, you know, that’s, that’s the challenge for OPEC.
Yeah. Th they’re, uh, it’s, I guess they’re going to be following demand, and yet they have this excess supply. That is probably the biggest, I guess 2020 was big, but, uh, 20, 21 they’ll have plenty of excess supply to, uh, to lay on the market. Should it start getting a little frothy, I would guess.
Yeah. The, I think there, um, you know, I, I think they’ve got 5 million barrels a day, uh, in resource in reserve, which is pretty high for OPEC. Right. So, yeah, I mean, you can get production increases from the Saudis, UAE, Iraq, they all have spare capacity and on the non OPEC side, uh, certainly, you know, we’ll see where, you know, how long Russia is going, is going to want to stay where they’re at, because remember, they’ve cut, they’ve cut back by over a million barrels a day. So, you know, they’ve, they’ve more or less, they’ve been close to where they’re supposed to be producing, um, they’re all over what their, what their quote is, but you know how, uh, we don’t know, you know, what price is it going to take for those barrels to, uh, to come out, uh, and, and whether or not, you know, whether they still want to, you know, how the OPEC plus Alliance continuing wants to play out? You know, again, the Saudis took the hit here, right. Uh, you know, so, um, they’ll have some leverage going forward
And their next, uh, you said the next meeting is in March or the next meeting is March and that’s that’s, uh, was that a technical meeting?
That is, uh, yeah, I think it’s a technical meeting. I mean, they’re, they’re basically setting strategy for the next, you know, for the next quarter. So, um,
How their meetings have evolved since the old days where they was just hush, hush, hush, and then they’d go into the ministerial meeting and come out with something. And now, you know, they, they, I don’t know, they talk to the press. They, I guess there’s, you know, they lay the groundwork, you know, it’s pretty, uh, uh, it’s almost like the fed, you know, they have the fed minister, uh, fed governors going around, making speeches, and you’d get up, you’d get all these clues. And then, uh, and then they come out with a meeting and, and, you know, it’s, they’ve done a great job. I think,
Well, this last meeting was, you know, it was a, it was a complete surprise. That’s true. You know, they didn’t think that that cut wasn’t in the list. And then the trial balloons that they usually try to put out. And I think the market was discounting, as I said earlier. Yeah. The market was discounting and increase. Right. It came out with a decrease and we came out and we came up with a nice front, you know, the nice rally
And that, uh, that affected the curve as well. Right. I mean, it’s been moving up,
It’s a moving up, but then it didn’t shoot up. Uh, so it’s, it’s been, it’s been moving up anyway. I think some of that’s the hedging activity in the back of the curve. Right. You know, which is again, getting back to the us production numbers, and that fits into the whole, you know, to the, to the non OPEC story, you know, how us production, the AIA has a space sickly flat here for many months, you know, w right now, according to the last weeklies, we’re at 11 million barrels a day. Uh, and, uh, they are, they’re keeping, they have us in 2021, basically right around 11 million barrels a day until, um, fourth quarter. And even then they only have this increasing by a couple of hundred thousand, I don’t think that’s right. Yeah. I think production is going to be higher than that.
Yeah. I see the, I see the number 11 one for the whole year, so that’s, yeah. What’s what are you coming out with? What do you do?
I think it’s going to be closed and that 11 one, right. And that gets November. They have 11 three in December. They have 11 three also. So I mean, that, that’s where the real growth is. I think, I think it’s going to be clear. I think it’s going to be, um, closer to 11 to, or, or maybe even 11, three OPEC has 11 four in the, in this last report, but they’re, they’re, they’ve, they’ve been higher than, than what the, uh, the EIA has been, you know, Jim w w th we’re getting a lot of, um, there’s been a lot of preaching out of the, uh, shale producers about their discipline and capital capital constraints, you know, maybe that saw, you know, I mean, maybe, maybe that’s so, but I’m sure that, you know, that we could see the hedging activity, uh, in, in the back of the, in the back of the curve, which now, now we see 20, 21 over $50.
I don’t know if you remember, we, we have talked over our careers. We talked to many, uh, oil producers and, you know, they would sit, they would describe themselves if you, if you lock them in a room with, you know, turn the lights out, no stimulus at all, they just start getting more bullish. Right. You know, it’s just their nature.
That’s their nature. And certainly, yeah, they have not, they certainly have been, uh, you know, they, haven’t been a great investment, you know, for years here, but maybe there will, maybe there will be some capital constraints would certainly, uh, there are capital constraints, but certainly, you know, we see the, um, you know, the rate count has, uh, increased significantly from the August slows ducks of comment have come off costs, continue to come down, making break even slower. So, um, you know, I, I think, uh, a hundred, at least a hundred a day more than what the CIA has here is, is
Jim, I don’t know, you know, I don’t know.
Yeah. I mean, I think the, uh, EIA is talking about the, uh, the, uh, production curves. They’re pretty, uh, steep,
Depletion. Yeah. So, uh, offsets, you know, even if you get more rigs out there, it’s, it’s not going to be enough to offset the declines. So I think that’s where they’re coming from, but right.
But we’re also going to see growth in, uh, offshore. Um, certainly the spring and fall we’ll see growth off shore, you know, assuming that we’re not going to have hurricanes with, uh, Greek letters, you know, next year, because we lost, we lost a lot of production, uh, in, um, you know, during hurricane season, right. Uh, you know, the, um, in July we were producing almost 11 million barrels a day, uh, at the height of hurricane season in October, we were down to 10.4 and now we’ve recovered two 11.
So, um, why don’t we kind of, do you want to say anything else more about us oil production?
No, I think, I think that, I think we’ve covered that.
Yeah. So why don’t we talk about demand and what do you, what are you looking at again? We’ve, we’ve talked about the uncertainty, but, uh, let’s, let’s why don’t we just talk about where you see, uh, oil demand going over the next year, the graduate, you said gradual increase. Yeah,
I haven’t, yeah. A gradual increase. It could be, maybe it’ll be more than a gradual increase or less, again, a lot of that, because the lost in demand for last year was, you know, transport fuels, uh, you know, diesel has done diesel hung in there because the manufacturing sector has been so strong. So the diesel demand last year was that, I don’t know. I think it, it ended up being, uh, on change a little bit higher in the, in the U S globally, probably a little bit lower, but it wasn’t horrendous. I mean, the big losses were gasoline and jet fuel and, um, you know, their, their recovery is based on, you know, how quickly we can, you know, space is going to be based on how quickly the vaccine is distributed. Uh, jet is going to take off. I think jet is going to take a while, Joe.
Yeah, I it’s a, it’s a good, uh, you know, um, I have to say I live in New York and, um, I was just able to sign up for a vaccine appointment, which was, which is March 3rd. And I’m thinking, you know, I think of that old Seinfeld episode where he tries to rent a car, you, you know, they know how to make the reservations. They don’t know how to keep the reservation. So I don’t, you know, I don’t, I don’t, I’m not confident that I’m going to get back a vaccine then, but if I do, and I get the, you know, the second one I’m going to be, I got some pent up demand to do some traveling, so,
But I had, you know, I kind of have to wait for my wife. So, you know, it was kind of like, is it, when is it it’s not going to be like a switch going off, it’s going to, I don’t think it’s going to be more like a, a ROHO rolling thunder. I don’t know.
Yeah. It, it’s hard. It’s hard to predict. Um, you know, I think it’s, yeah, it’s definitely it’s going to happen, but are we going to get back to, you know, pre 2019 levels while the EIA says we won’t, you know, or does OPEC until 20, 22. Right. Uh, and I think that that’s probably right. I mean, we’re, we’re, you know, business travel. Yeah. There’s certainly a lot of pent up demand, but is that, you know, is that, is behavior gonna change? Uh, we definitely will. Yes, it will. Right.
No, he’s just got it out. So many, you know, hospitality type jobs that, um, you know, there’s a major hole in our economy that has to be sort of, uh, uh, addressed and, uh, and, uh, um, I, you know, that leads us to all this, uh, infrastructure spending or just spending in general. That’s, uh, you know, we used to worry about, uh, billions of dollars now, it’s now we’re up to trillions and, and it’s not a problem.
Yeah. And that’s another factor, you know, how will the, uh, this fiscal stimulus that’s definitely coming, or if I shouldn’t say definite, right.
Yeah. I think everybody’s a Keynsian now. Right.
But how will that, you know, how will the, um, you know, how will this new stimulus package, you know, affect petroleum demand that should help. Right. But, you know, we need, we certainly need jobs. I mean, that’s a key component for, uh, for gasoline, right. Um,
Gasoline it, but the cracks have been doing well. And I don’t, I don’t,
Yeah. That’s been a, that’s been a hard one to explain that the cracks, I think, you know, particularly the diesel cracks, you know, one thing that’s really worrying about this market is distillate, uh, stocks built, built by us. Stocks are built by 15 million barrels over the last three weeks. We’re not in horrendous shape on this slip, but, you know, we’re 10 million now over the five-year average. And they supplier like three and a half over the, for the three over the five-year average. So, but yet, you know, w we, the cracks have been pretty hung in there for rallied gasoline cracks to, uh, have rallied. And I think, you know, the, the main, I think what’s happened and that refiners are really, um, kept runs, uh, well below year, year ago levels, you know, they’re, they’ve, they’ve exercised some, some, uh, incredible discipline, um, on, uh, their crude runs, uh, because, you know, margins were crummy and now margins are increasing. So we’ll see, you know, and runs it beginning to creep up, um, gasoline productions, beginning nicotine increase. So what we’ll see, but, um,
Have having some of the refineries, uh, been mothballed. Yeah,
Yeah. Refineries have been mothballed,
And that’s just not in the U S that’s around the world
Globally. Yeah. Globally, but, you know, we’re, we’re still getting, um, you know, refinery capacity is probably there being the, these, you know, what’s happening is we’re seeing, um, some of these old inefficient plants here in the U S and then Europe, you replaced by a new, new capacity in Asia. Uh, that way more, you know, way more efficient and, uh, you know, the diesel machines really, and petrochemical machines. That’s another story altogether as petrochemical demand last year was pretty good. And I think next year is going to be, you know, continue to be, uh, continue to be pretty strong, got some new, you know, there’s some new pet cam plants and, uh, in China, uh, that, you know, that’s all, that’s replaced. Some of these, you know, some of these really
Done a mid
20th century, maybe even earlier 20th century refineries, you know, here, here in the, here in the U S
Well, the process of distilling has been around a long time. That’s for sure. It’s not always for oil, but, uh, anyway, um, so the, the bottom line that I’m getting from listening to you and the bottom line that I’m getting from the EIA and I haven’t looked at OPAC yet, is that even though we’re, you know, we have a vaccine it’s starting to roll out, we are facing increasing cases, but the, again, the bottom line is tremendous uncertainty ahead as to when demand starts picking up and we come out of this,
Right. And you know, where are we, you know, looking at, uh, global stocks, you know, again, as I mentioned, how quickly are we going to draw them? Uh, we built earlier in this year, we probably built close to a billion barrels of, uh, global stocks. And we’re slowly but surely drawing them off, but we still probably have four or 500 million excess. Maybe it’s less, that’s the thing with these numbers. You don’t even don’t know, but I think your item, the, the big, the big story is where we don’t, you know, we’re trying to anticipate that where this demand is going to go is, is going to be, you know, it’s going to be a moving target. And, uh, you know, maybe it may be difficult for, well, maybe it won’t be they’ve done, or they’re done. All right. So far for OPEC to try to manage going forward,
Um, uh, just throwing some options stuff here. It’s almost like I’m not getting really good clues as to what’s going on. I, uh, or what people are thinking in general, just maybe the last couple of days on, on, into these, uh, rallies, I’m starting to see more, um, open interest gains in the puts than the calls, but not a big way. I’ve had volumes over a hundred thousand and that’s so much yesterday, but it has gotten over a hundred thousand, which is become, uh, you know, it’s, it’s a good, you know, it’s not dead, but it’s, I wouldn’t say the market’s going crazy, seen a little bit of a, uh, spread options trade. Um, the, the, uh, April, may, June plus 50 calls, those are kind of like, I think they’re kind of like lottery tickets for these things. And people buying those looking for obviously more backwardation and people selling them, probably saying no way. I think you, if you, if I had to coax some, uh, something out of you, you might, we’d rather be on the sell side of those Andy in terms of backward day, you don’t see backwardation April, may, June getting up to plus 50.
Well, of course anything’s possible, but, you know, I, I don’t, I’m, I’m, you know, at least first quarter, I think, um, crude stocks are gonna continue, are going to grow here. So, uh, you know, I don’t, I don’t see a big backwardation.
Yeah. And the, you know, the, the biggest, uh, CSO, uh, spread option is, is the April minus 50 put with 20,029,000 openers, but those traded awhile ago. So again, I’m not, you know, I don’t want to spend much time on this up implied vol for the second month is around 30 to 33%, which is the long-term average. And, um, that’s kind of, that’s what happens when the market rallies, we see up, you know, viles come in the, you know, market more imbalanced. And I think it’s too early, you know, to see any kind of option play ahead of these, uh, OPEC meetings in, um, you know, March and April, maybe we’ll keep an eye on those because sometimes you’ll see, uh, an option that’s not allied for a meeting, get crushed and vol, and the one behind it gets bid up, but, uh, not seeing that at all, but yeah. So vowels are down around the long-term average. That’s about it.
Well, um, I guess it’s not surprising that files moved came off, as you said, the market’s rallied. I mean, we have a lot of uncertainty ahead on these, you know, as, as, as we’ve mentioned on, on where we’re going on, on both sides, you know, and supply and demand, but, you know, it doesn’t seem like there is, you know, that, that, that uncertainty is so great that it could lead to, to the market, you know, really coming off heart, you know, that, that at this point, looking at these balances, you know, I, I don’t see like a real market unraveling, uh, you know, unless, you know, unless Russia comes out and so we want to go back to, you know, we want it, we want our million barrels a day, but it doesn’t seem like they will because the strategies worked.
Right. So, Andy, let me last question for you that I have is, um, there’s talk, started seeing a press about, uh, talk about a commodity Supercycle and, uh, who’s the speaking of Russia that as it co Condra Contra Kev, I forget the guy’s name, that his wave theory that, uh, you know, they’re, they’re looking at the, you know, commodities haven’t done well, GDP, uh, is way over where, where to commodity indexes are on historical basis. Um, what, what’s your, what do you think of those kinds of arguments that were in some kind of soup we’re entering a Supercycle,
Jim, you know what, I think we’ve gotten caught on this, on this one before, right on the, uh, you know, on the Supercycle. And I guess, you know, and, and we’ve certainly over the last three or four years, you know, certainly been looking for the inflation, right. And then that hasn’t happened. Although certainly metals have, have had a, uh, you know, had had a major rally. I mean, you look at, um, it’s just starred our part of the world. You know, you look at, you look at petroleum and I, you know, I, I, because there’s still spare capacity, you know, within, uh, OPEC and certainly here in the U S you know, we can ramp and we certainly have shown that we’re able to, to ramp it up, uh, and, you know, look going forward into the, into the 2020s. You know, the demand outlook is certainly uncertain as we head into the second half of the second half of the decade. So I, um, yeah, I, I, I’m not sure petroleum is, is going to participate in, uh, Supercycle UJ.
Um, yeah, I, I, you know, I agree it’s, uh, I think each, each individual commodity has its own, uh, fundamentals. There could be some kind of, I mean, obviously economic activity has a lot to do with their correlations. You know, my, my feeling is, if you think, you know, if you think the dollar is going to be weak, why, why would you buy commodities? Why not sell the dollar? You know? So when they, when they do correlate, it’s usually some third factor that going on. So, so, yeah, I agree. I think, I think, uh, you know, there, there are reasons there are sort of macro reasons and then there’s individual stories. And I think oil’s got a little bit of both, as, as you say, in that, that excess OPEC capacity would, would have me, if you, if you see, if you’re getting a route of your bullets, you get, you, you play it, you get the market go up, I’d say, you know, there’s, there’s, uh, OPEX going to release some oil at the next meeting. So, you know, be careful that’s all right.
Right. Exactly. Yeah. I mean, yeah.
So, so basically I could see the market moving up. I’m not looking for, uh, some kind of super blast,
No something would have to, uh, you know, they’d have to be a geopolitical upset or right. Uh, you know, so something like that. And that’s certainly, yeah. If you, if you’ve looked at the history of petroleum, that’s certainly a definitely fine.
And who knows later in the year, you know, as, as, as Iran starts grabbing the headlines, we’ll, we’ll see what happens there, but I think that’s for another podcast champ,
Do you want, do you want to make a couple quick comments on the Biden administration, the energy transition, what it means for oil? Do you want to hold that off til next month?
I think, why don’t we, why don’t we hold that off til next month? Um, you know, we’ll have some clear glue, you know, we’ll have something clear from the bind administration, you know, as, as I was trying to allude to, I think the, obviously the saran nuclear deal is going to be, uh, moving to the forefront, you know, as, as we head into 2021. Um, and certainly there’s going to be a lot of green elements to the, uh, binder administration’s view, but let’s not forget that some of the biggest increases in crude oil production ever, uh, came under the Obama Biden administration. Of course. So, um, yeah.
Yeah. And I, if you think about, if I just throw out at you infrastructure, do you, do you in your head, do you vision all these wonderful, beautiful lit up, or do you, do you think of the big dig in Boston or across over on, so yeah, we’ll take it, we’ll take it step by step and take it step by step.
But I think the [inaudible] a lot of the infrastructure spending is probably going to move towards more, you know, carbon capture type stuff and green, green, or stuff then drilling, which we need. We need it right.
Very good. Uh, Andy Lebow, anything else I’m going to sign off?
Uh, now, if you want, if you have any questions, uh, you feel free to get ahold of me at email@example.com
Go to our website, www.commodityresearchgroup.com, Jim posts a couple of times a week, uh, on the blog. And that that’s always interesting.
And, we will see you next month.
Great. Thanks Andy.