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.
Commodity Research Group Podcast
EKT Interactive Oil and Gas Training
Short Term Energy Outlook – EIA
This is Jim Colburn of Commodity Research Group. I’m here with Andy Lebow, also Commodity Research Group. You can check us out on our website, www.commodityresearchgroup.com.
We’d like to thank our friends at EKT Interactive oil and gas training for hosting this podcast.
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 be accurate. This is not an offer to buy or sell any derivative. Today is January 12th.
Andy. Good morning.
Good morning, Jim.
I guess our last podcast was before Thanksgiving and that’s when we had the price dump and it’s just, a little while longer. Omicron is still out there with record infections, and yet the market is going wild on the upside. Take us through that.
The, uh, yeah, the market has, has rallied, uh, more than significantly since the, uh, <inaudible> since the, the November, um, collapse we’re up, you know, I’m looking at gasoline where I’m looking at WTI we’re up 20, 30% WTI challenging, um, 2014 numbers over over $80. And the, certainly this type of rally was not in the least, uh, from those who were selling prior to, uh, Thanksgiving, but let’s take a look at, at what’s happened since I think one thing, uh, on the demand side is, uh, the market has clearly taken the view that, uh, <inaudible> is not going, going to, uh, affect demand as significantly as it, as it thought back in, uh, back in November, uh, or, or December. And that <inaudible> will be gone quickly and demand should start improving as we head into, uh, later into the first quarter. And, uh, certainly second and, uh, and third quarters.
So I think that that’s, that’s a big change. The other thing is governments are not, are not doing full scale lockdowns. Like we saw in, um, 2020, uh, certainly China, China has been doing some severe lockdowns, but in Western Europe and in north America, we’re seeing some lockdowns, uh, some travel restrictions, certainly, but we’re not seeing those, uh, wholesale, uh, travel restrictions and lockdowns that, that we saw in, uh, 2020. So demand numbers, you know, they’ve been coming in. Okay. I mean, not we’ll talk about the EIA later, the, the last two weeks were poor, but globally they they’ve been coming in. Okay. And I think, and we’ll talk about our, our expectations for, uh, for later in, in the year. Secondly, certainly has been, uh, production issues throughout the, throughout the globe in, uh, late December and, and in January, uh, actually in December and early January, uh, we saw issues with, uh, a number of non OPEC and, uh, a producers Ecuador had, uh, a force Maur. Uh, Nigeria had a, uh, force Maur, Libya had a force Maur Kazakhstan. There’s been, uh, political turmoil, which led to, uh, production issues frees out in, uh, Canada in, uh, North Dakota, uh, leading this into some production issues in, uh, in north America. And I’ve probably forgotten one or two, but certainly, you know, those were real. And we, we lost, uh, we lost barrels, uh, as a result. And, you know, that’s given a fundamental UN I think to this, uh, to this rally, Jim. Yeah.
So, so OPEC has, uh, suggested they they’re gonna produce 400 OPEC plus produce 400,000 more barrels a day, two months in a row. And they haven’t met those targets, is
That correct? Yeah, they haven’t come close. You know, December OPEC pretty production was probably was up according to, uh, Reuters by about 70,000 barrels a day. And, uh, you know, you, we’re, we’re seeing some producers, the Persian golf producers able to increase production, but the African pro uh, producers certainly Angola being the, uh, you know, one, one of the, the, the one that has really had issues getting anywhere near its, its quote, it’s something, I think it’s something like five or 600,000 barrels a day below where their, uh, target is may maybe a little, maybe a little less than that. Uh, but the African producers have been on able to, to meet their increases. So as a result, you know, OPEC isn’t coming anywhere near, uh, what their, what they’ve been, what their targets are. And, um, certainly the market has, has, uh, stood up here and, and taken note of these, uh, monthly OPEC productions.
And I, and I don’t think of the monthly OPEC production and I, and I don’t think as we head into February and March, they’re, they’re not gonna make another 400 or well, OPEC is, is two 80 increase and OPEC plus is the other one 20. And, uh, certainly OPEC’s not gonna make the, the two 80 increase, uh, and non OPEC is. And the OPEC plus is probably, is not either because Kazakhstan is not increasing production, certainly, uh, in January or February or probably March and Russia too, uh, is having some production issues. Of course it is, uh, it is winter, but, uh, you know, there’s been chatter about, uh, Russia being unable to increase production as we head on later in the year. And certainly again, you know, there’s a bullish underpinning to the, uh, to the market. So
You have, have demand holding up well and supply issues that may or may not be resolved in the short run. So that is telling me that we, we are still looking for stock draws and Q1, cuz it wasn’t too long ago where, you know, the EIA and some of the others were looking for builds.
Yeah. I think that what, what we’re gonna, we still do, we can’t just write off that Democrat’s gonna have no effect whatsoever on demand in, in Q1. And you know, I think as we head, as we head into Q2 and Q3 it’ll have much less of an effect, but I think there is still gonna be a, a demand effect, uh, are we’re looking for stocks in the first quarter to be just about unchanged or up 0.2 what’s significant though, is that CRG has been steadily reducing that stock built a month ago. I had the stock bill that maybe one point over a million barrels a day and now it’s 0.2. It could go, you know, it certainly could go negative OPEC is looking for stock build well they’re, they’re probably around unchanged and EIA also around unchanged. The, the big difference again is those are all, as you said, Jim, those are all build, you know, a few weeks ago.
You’re right. Everybody was looking for a build in the first quarter. So, you know, I, I don’t think we’re gonna see that. It’s certainly, you know, it’s possible. They end up as draws, you know, we we’re, and, and what’s interest, not interest we’re, it’s really critical about that is, you know, we ended the year with, uh, very low global, the inventories have, have drawn by globally probably, uh, between a million and a million and a half barrels a day, uh, over the last, um, you know, through 2021. So we’re, we’re do you get to 20, 22 with, uh, low inventory, low inventories and uh, we’re really not gonna get a chance. It doesn’t look like we’re gonna get a chance to rebuild them as much as we thought. Or if at all, uh, in the first quarter, 2022, again, that’s bull, that’s foolish for price. You know, there’s a fundamental bull factor,
Right? So this, this is just not going up on, uh, fund buying. Although the funds have a lot of still have they’ve, they’ve increased their length, but they still have capacity to buy here. It looks, it looks like, uh, at least from the, from the futures chart, the, the, uh, February futures where it looks like we’re breaking out over, um, recent highs, I think from, if you looked at first nearby chart, we’re not quite there yet, but funds, we we’re probably gonna see some funds kicking in that. Um, we’re probably kicking in as we speak.
Oh yeah. I mean, we had a big liquidation. I’m just looking at the numbers here, Jim mm-hmm <affirmative> there, there was a big liquidation, uh, through, throughout October and November to the point where crude got down to something like five to one long from 15 to one long, say, you know, the longs versus shorts, and now we’re rebuilding the length throughout, uh, the first, the first few weeks of, uh, the, the throughout the last five or six weeks, the net length has, uh, rebuilt has rebuilt pretty significantly. Well, net is probably 10,000. So this is still room you’re right. Still room. Yeah. There’s plenty of room for, uh, funds to get in and you’re right. And the other thing, Jim, you’re definitely right as, as we speak, you know, I’m sure they’re just piling in,
Get back to the EIA and, and the stock draws and builds. They they’re looking at for the year, uh, a stock build of about a half a million barrels a day, and they have, um, they have, uh, demand global demand up by about three and a half. I think it’s 3.6 million barrels. And my question to you is that they they’re also are talking about a decline in price. I think they have Brent, you know, going from like 79 to 71 throughout the year, uh, and it’s on an average basis monthly basis. But, um, it seems to me that even though you have a slight build, if demand is growing by that much, you’re actually your, your day supply is declined. So, so basically you’re, it’s a tighter situation, not a easier situation. You, you agree with that?
Uh, that’s such a great point, Jim, and I think we’re seeing that in, you know, you look at the structure, right? The brand structure and the ti structure have both gone, uh, you know, gone vertical towards, uh, more and more backwardation and, uh, yeah, I mean, day supplier are probably gonna stay, you know, unchanged or, or Le or in, or decrease because demand is, is, should grow a lot in the, uh, in, in the second half. So, you know, under that scenario, it’s hard to see like a major, you know, a major price decline of, of course, that that’s certainly possible. Of course. Um, as we know, I think, you know, in the market looking, getting back to our own balances. Yes. I think when, you know, the market looks that balance and you’re saying to yourself, oh, that’s so boring. The market’s balanced, you know, that that’s, it’s not gonna go anywhere, but if it’s that tightly balanced, it means that if there’s an imbalance in any direction, you could see, you know, a really volatile market. And, you know, look, I know, looking at my own numbers, I have a lot of uncertainty and, and so does the market about where OPEC’s gonna produce and of course, demand is never any walk in the park. So even though I, I think it’s gonna be balanced, you know, wrong in either direction could be a, could be a big move up or down.
Yeah. I, the other thing is, um, in the EIA they have surplus, uh, capacity for OPEC, almost 4 million barrels in 2022. So I guess that would put a little sort of cap on a how PRI how high prices could go, would you say, or, or,
Uh, yeah, uh, um, you know, a lot that, that, that capacity may get tested. You know, I mean, as, as we’ve known from the past, <laugh> as, uh, you know, as, as the spare capacity, uh, declines, you know, prices tend, tend to, uh, increase. So, you know, we’ll, we’ll, we’ll see where, you know, we’ll see whether the, the spare capacity, you know, there’s also spare capacity in the us and Iran, you know, there’s plenty of, there’s a million barrels a day, at least, or a million and a half barrels a day of capacity in, uh, Iran. I don’t, I don’t know if that 4 million includes Iran, Jim, I don’t think it
Yeah. Um, yeah, but you know, there’s fair capacity. Not that Iran is coming on anytime soon. And in fact, the, uh, EIA just said, we don’t see them coming on in, in 20, 22.
Right. And yeah, so, so that’s, that’s kind of a wildcard and, and, uh, I guess when, when you’re, when you have a position on you always, if you, if you, if you wanna say, uh, if you don’t believe the 3.9 number, you think it’s tighter, you say, you just don’t agree with the assumptions and
But I guess, uh, the question is would, would, would Saudi would Sodi Arabia be willing to see prices get up to the hundred dollars, you know, area before they released more oil than the 400,000 a month,
I guess is what, yeah, that’s another good, good, uh, geopolitical question because, um, you know, certainly as both of us though, and you get over a hundred dollars, that it sets off all kinds of alarm arms, you know, that’s front page, big front page news in the wall street journal, and, you know, the financial times and, uh, you know, obviously gas prices would be gasoline prices would be much higher than what they are now. And, uh, you know, and I don’t think it would be really good for Saudi relations, uh, us relations to see, uh, crude prices up over, over a hundred dollars or near, near a hundred dollars. So, um, but again, you know, if their capacity is tested or OPEC capacities tested, you know, that that’s, that’s a big issue.
Yeah. Well, we certainly can’t threaten anybody with release of SPR again, we see, we see what happened with that.
Yeah. That didn’t, uh, that, that didn’t really stem the stem the tide.
No. Okay. So since we’re talking about production, let’s talk about us productions, uh, response. Can you just kind of briefly go through the EIA and, and basically what you’re are looking at?
Yeah. I, I was really surprised by the EIA numbers they’re, they’re looking for on, on production. I, I think they’re much too low. Uh, the reason is that they have us production for next year, at 11.8 million barrels a day. Uh, well, we’re at 11 seven already. So what that’s where the exit is, you know, the, the actually the end of December was 11 eight, and this last weekly for January 4th was 11 7, 11 0.7. So they don’t, they have us basically with no growth for the first half of the year, uh, of next year. And then, you know, we, we struggle up to over 12 million by the, by, uh, November of next year, which would be a growth of only like two or 300,000 barrels a day that I, I think the it’s way too low. And we look at where prices were, uh, where prices are now and the rig count. Uh, I certainly think that production’s gonna be higher next year than, uh, than 11 eight, as a, as an average, we’re, we’re looking for about 12.15, which would be a growth of, uh, from exit, you know, that’s 0.35, but, uh, you know, we, we basically have growth on production just about every quarter. First quarter could be problematic on, uh, if there are any weather problems. And of course you can’t forecast, you know, it’s hard to forecast the hurricanes, uh, you know, any, any hurricane issues. So I think they’re, I think they’re way too
Low. Yeah. I’m thinking maybe you might be a little low Andy to,
I could be low. I could be low at 12, uh, at 1215. I
Mean, in the year, if you think about discipline, I mean, you keep, you keep waving candy in front of a kid who, who might have the best discipline in the world at some point is gonna grab for that. And I, and I think if these prices stay high, I mean, is there, do you think there’s a bottleneck of being able to hire people to in more order to get to those produ? Is that, is that, is there a bottleneck there or is it, yeah,
Uh, well, discipline, we, we have to give
Credit where credit is due because the, the, you know, the Permian producers and the shell producers did exercise, amazing discipline capital discipline, uh, in, in 2021 much more than I think, many in the market thought that they were capable of. And, uh, you know, like you said, we’ll, we’ll see if there, you know, where they’re gonna go in, uh, in 20, 22. Uh, but yeah, I mean, there, there’s definitely, there’s, they’re definitely having problems on, uh, labors. A problem, certainly cost inflation is a, uh, is a problem. You know, there were some reports that costs could be up as much as 10 to 20% this year. There’s really given where, you know, where we, you see, well, material costs that’s certainly possible. Right? Um, you, you could definitely see that, uh, which would eat into, uh, profit margines, but, you know, down the curve, we’re in the mid seventies and mid seventies is, is a pretty good, you know, you’re still making money, even with the 10%, you’re still making good money, even with the 10% increase you in, in, in costs. So maybe you’re right. Maybe I am too
Low. I think, I think that’s gonna be the surprise of the year, how these guys come roaring back, but that’s, I was wrong. I was wrong for a couple years already. So, um, I get one more year and
Then I have to start. Yeah, me too. I thought we’d be way higher than, than, uh, than where we’re at.
Maybe some of the anti fossil fuel rhetoric gets toned down after what’s been happening around the world, especially in Europe where they, you know, they, natural gas was, seemed to be as an evil, you know, carbon spewing gas. And now it seems that it’s much more acceptable and even nukes are being much more accepted, uh, in, in Europe. So, so maybe there’s less sort of pounding of by politicians of oil companies this year when, uh, you know, we, we kind of need the need, the barrels. I don’t know.
Yeah. That’s hard to say. I mean, if prices, you know, gas prices start moving towards, uh, you know, close to $4, you know, the, the one, you know, who the, uh, you know, who the boogieman is, it’s always the oil companies.
I, yeah. Price gouging. Yep.
Yeah. Price gouging. Yep. They’re making too much money, et cetera, et cetera. So I, I don’t know if that, you know, if the haters are gonna let you know, gonna let the oil companies off the, off the hook. Yeah.
Um, produce more oil drill, baby drill. What else? Sandy, a gasoline demand. How’s that? You said, you said demand’s holding up. I assume you mean gasoline. It was holding up
The last two weeks have been horrendous. Yeah. Uh, for, for gasoline demand, it’s, you know, that we’re, we’re into the end of the year, and it’s hard to, you know, that you had like an eight one and the seven, nine, you know, it’s really low numbers. And the week before it was like, think nine, seven, the four week average is low at, uh, eight, seven versus a five years, like nine one that’s million barrels a day, 9.05. But again, you have two squirrly weeks in there which showed gasoline stocks up to 18 million barrels over the last two weeks. So I, I, it’s hard to get a picture December ended up being pretty good, uh, on demand for, uh, on gasoline demand. You know, we’ll see it, it generally weakens in, uh, January and February that that’s seasonal, but bigger try end. You know, I think that, uh, we’re, we’re not seeing, I think we’re gonna see miles travel increase this year as, uh, more people take vacations.
Uh, the job numbers are still, you know, are still very strong. So there there’s, you know, there’s still job creation. And you know, that, that from a macro standpoint, obviously is gonna be constructive for, uh, for gasoline demand on the bear side is, is the pump prices really didn’t come down all that much. And, uh, there, there could be a slight demand effect on the, on the downside, but I, I, I think overall we’ll see a decent year of, of growth for, uh, for gasoline demand this year globally. I think that Asia is gonna see a really good year for, uh, for gasoline, uh, demand growth, because the, you know, there were lockdowns, uh, in third or fourth quarter throughout Asia. Maybe not again, maybe not so much in for China, but I think Asia’s gonna be, uh, is gonna be pretty, is gonna see some decent demand this year and Europe too, uh, demand should be, uh, should be okay. Uh, so gasoline demand, I, I think we’re in for a good year this year,
Jim. And what about dist distillates? I mean, it dis
Distillates dis distillates too, for, for diesel well heating oil. I mean, diesel’s going crazy right now. The, you know, the big, the big story is it finally got called here. You know, the dealers in new England where demand is where demand is just about the strongest. There, there there’s stockouts going on. So, um, you know, inventories for, uh, diesel and for, for diesel are, are low in pad one, uh, and pretty low in, uh, in Europe as well. You know, we’re, we’re seeing, we’re seeing pretty strong demand and, and at least right now, and, and certainly diesel is a, is, is very, uh, car is highly correlated to the, um, you know, to the economy. The G D P has been marked down. I think, I think the world bank just marked it down to, I think it was 4.1 from 4.4 gym, if I’m not mistaken, but, you know, the 4% growth is still, it’s not as much as, as last year, uh, which, which will probably end up being close to the six, but, you know, it’s still a pretty good growth, uh, diesel should, uh, you know, that that’s gonna help, that’s gonna help diesel, uh, distillate demand, uh, globally.
So, you know, we should see decent demand for, for distillate and petrochemicals. Also, I think we’re gonna have a good, another good demand, particularly in the us where we’ve got some, uh, new crackers getting ready to, uh, you know, get getting ready to, um, yeah, wanna crack the cracker’s gonna crack. So I think there’s gonna be, you know, there’s gonna be, at least Theia is saying, and I do agree. I, I think ethane demand is gonna be off the charts in, uh, in 2022 in the us and global believe it should be petrochemical demand should be, uh, very strong if the economy’s up 4%, maybe not as strong as, as this year, but still, you know, at least by a growth standpoint, it’ll, it’ll still grow, but not, not, but not what we did, uh, what we did this
Year. Oh, is, uh, looking at that other, other oils indicator in the, or, or category in, um, the weekly numbers that came out this morning. And, uh, it shows the four week average is up 11.6% from, um, from last year. That’s a pretty good jump. Yeah. And it’s, you know, it’s 5.7 million barrels a day of they call product supplied, maybe implied demand. That’s, that’s becoming a bigger and bigger part.
Oh my goodness. Definitely. Right. That’s
Right. Second to gasoline now. Yeah.
That’s all the, all the aims, well, not propane, but, uh, you know, a lot the NGLs except yep. Uh, except for propane and, uh, propylene. Well, the hydro, yeah. That’s a bigger and bigger
Number. Yeah. And that’s, uh, seems to be booming in demand. So Jim,
Let let’s talk some options. Yeah. Uh, what, uh, you know, what, what are we seeing in the, in the options world? Are you still seeing that, uh, bull sentiment you’ve been talking about? Uh,
Yes and no. It seems to, um, I’d say on this rally, obviously, I don’t know the minds of people who are trading this stuff, but just taking it from a macro, you know, view. We, we had a pretty, we finally had a decent volume day yesterday. And, uh, so you had, you had more calls than puts trade and I’m talking about Brent plus WTI. So figure about 180,000 calls traded for both of them. And about 150 puts. So a little bit more calls and they’re balance pretty much on new open interest. And so you had in Brent, you had 20,000 new calls, about 20,000 new puts in WTI. You only had 11,000 new calls in 24,000 new puts. So it’s kind of, you know, I’m looking for, I always look for like extreme situations. Um, yesterday was kind of interest thing because we had, you know, the call volume was around 53,000 for Brent and open interest actually declined.
So, so in that case, what was, I think it was happening is you saw some June calls being sold out and maybe rolling into December. So I think there’s a lot of people with position on, in, on the upside calls. And as this market moves, they start kind of rolling up and down and out. And, um, that’s, that’s what it looks like, uh, to me, but there is, we’re seeing at these levels increased open interest on the puts and that’s tells you that, you know, that’s probably obviously speculators are in there, but also probably some producers are coming into hedge, uh, going, going out, uh, for this year and seeing good prices. So, uh, we’ll see if that continues. Um, like I said, the volume hasn’t been that great over the holidays, the implied vow is it, it got up to 67 and a half, uh, and end of November on that price dump and now, uh, for WTI and now it’s around, uh, 37 and a half for F 35 for March.
And that’s more of a, you know, long term average. We, I use like 33% for the long term average, you know, the market’s rallying, which tends to put a damper on Val, but out in December of 22 vows up to 39.2, which is, which is kind of high to see in a market that’s rallying. So, so it’s probably put buying and call buying in a, uh, December of, um, of this year. But, uh, again, there’s just, it, I wouldn’t say there’s a lot going on in the world of options, except for maybe yesterday. We’ll see if it’s a trend pick up and volume.
I, I suspect that, uh, yeah. I mean, it’s interesting, you say that you, you see interest on both. Yeah. You, you would think that producers, as we get up here that, that this is a, you know, that they’re gonna want to look at, at least down the curve, you know? Yeah.
Kinda look for things that are, uh, unusual. So if the market let’s say the market trades down sharply, like it did in November, you would expect implied volatility to go up. But what happens if the price trades down and volatility goes down, that’s, that’s something that’s sort of odd. And, um, the, the thing that would be odd is kind of odd now is if the market goes up and you begin to see, uh, open interest in like good volume and calls and open interest goes down. Now that, that wouldn’t be odd as if you’re coming up to expiration. You see a lot of that go, you know, people liquidating, uh, front month options. But, but, um, on Monday we saw June options being liquidated in, in Brent. And, you know, it’s just something different than what you normally see. So that’s, that’s the kind of stuff I look for
And volumes the volume in second month, March
Is 35 1. So it’s not, not much different than say I would call that average volume. And if you want to go a little deeper, we’ve seen a rally. So what would you expect to happen with the skew? That’s, that’s looking at the, say, uh, an out money put valve versus an outta money call valve. You would expect that to come in. And, uh, and that’s, what’s happened. We’ve gone from, uh, like minus 14, a week ago to like minus eight and that’s, that’s on a, on the June contract. So that, so that’s kind
Right. Yeah. That meant, that makes
Sense. Yeah. It’s like, uh, you know, um, dog, dog bites, man. Cause it’s not, not news. If, if it’s man bites dog, then it’s news. Well, yeah.
You know, one thing that just to add from the conversation is you’re getting a lot of analysts coming out with, uh, pretty, pretty high numbers. You know, I think you you’re getting analysts who are, you know, not universal, but getting a lot of hundreds, you know, out, out into the market. And, and one analyst yesterday, uh, started talking about a hundred fourteen, one, one, four for, uh, 20, 23. So you know that that’s out, you know, that’s out there. Yeah. It’s to the market’s consciousness,
I think. Uh, yes. It’s, um, it’s interesting. These aren’t people that you’re pulling off the floor who are looking at their point and figure charts. These are, these are real like, uh, they’re, they’re they’re barrel counters. Not, not that that’s a better way to predict price than point figure charts. I’m just saying these, these folks, you know, they, they count like you, they count every single, single barrel. They’re not, uh, they’re not crazy people that
No, in fact, there, you know, a lot, there’s two of ’em in particular that I, that I highly respect. Yes. Uh, that do it’s good. Exactly. Jim they’re barrel counters, you know, it’s not outta nowhere that they’re coming out this number.
We do have some permeables
It’s not a permeable. No. Right. There’s definitely not comparables. So, you know, that’s in that, that I think is another factor, you know, that’s out there. Well, I
Tell you what makes, what makes me nervous, Andy is my, my view is, is kind of rolled into the consensus that this thing is moving higher. And I that’s what makes me nervous. So yeah. That’s when I start looking up, I puts <laugh>.
That is exactly right. I think you’ve been very good over the years from pointing out some great contrary indicators, you know, besides, uh, besides sentiment. Yeah. You know, certain when certain sectors of the market decide it’s time to hedge <laugh> inevitably it’s, it’s the wrong way hedge.
Well, we, we had one customer a long time ago said, uh, you know, I don’t know where prices are going, but I know where they’re not going. And they, then they sold a, a boatload of out the money calls. And, uh, I wanted to call up my, and he said, they’re ne they’re never going above that price. And I said, oh boy, I want to call my grandmother and take some money on her account and buy those calls. But, um, anyway, yeah, you get those, when you hear those, you know, when, when everybody’s on the same side of a market, you you’d beware and I’m not quite, you know, it’s a degree here cuz some people are bullish, but some people aren’t, aren’t those folks you just
Talked about. Right, right, right. And there are certain, there are
Bears. Um, and there are some bears out there. Yep. Yep. I mean, and like you said, Andy, you’re the good point about OCN it’s it’s not done yet. And then we don’t know what’s behind OCN. What’s the next variant that’s poking its head up. Is it gonna be deadlier? I mean, it, we just get lucky with ALN and it not, when I say lucky, I mean that it’s not as, um, as vicious as Delta and um, although it’s, you can catch it easier. You know, we don’t know what’s what’s behind there. And then also, uh, things like the fed, we don’t know if, uh, Russia’s gonna move into Ukraine. We, you know, there’s, there’s all these things that are in the background. We don’t know what Iran’s gonna do, you know, that’s, that’s why we like watching this thing.
Yeah. And, and as we’ve learned over our long and uh, somewhat dis distinguished careers, the, the big surprise is something that you’re not, you’re not focusing on. Right, right. That it just comes out of, out of nowhere, you know, whether it’s infrastructure or something, you know, you could say geopolitical infrastructure, you know, but it’s always something that you really hadn’t, you know, hadn’t anticipated would happen. Well, I, and
Uh, I do believe I knew you Andy, before you knew where car island was.
Yeah. Right. I think you did. Yeah.
Take stuff takes you around the world. Right.
It comes back. Right. It comes back every decade or so. Well actually we’ve never stopped talking about it, but uh, yeah,
Just, uh, maybe, uh, finishing up here, Andy, what, what’s your price projection? What are you, what are you, what kind of range are you working with or what are you, what are you seeing for just next month or two?
I think the market, uh, I, I don’t see it going to, uh, a hundred by, you know, by, in at least this, this quarter, uh, or, you know, I’m not really looking for it for this year. This rally frankly has, uh, you know, it has, it has surprised me and it, it does look as, you know, we have a chance to, well, we’re in the mid eighties, you know, we’re moving into the mid eighties right now. Yep. Uh, which would’ve, which really was my projected eye with Jim right. Was, was mid eighties. So we’ll have to, we’ll have to raise that a little, maybe, maybe, you know, maybe down the, maybe up 90 for the, for the next couple months, cause we’re pretty close. Yep. Here. And uh, certainly we get a, you know, any type of, uh, surge on, on production or, uh, we, we start seeing some of the, some of the non OPEC and OPEC producers, uh, able to, to increase more than we thought or us production in particular, uh, to increase more than, than we thought. You know, I, I think the market could certainly get, uh, back into the lower, lower seventies, you know, lower to mid seventies, something, something like that, which is a wide range. But I, I think that that fits with, uh, some of the uncertainties coming up. And as you mentioned, you know, from, from a macro standpoint, the, the, the non oil, you know, and non oil standpoint, there’s certainly any number of things that could, uh, you know, that could derail this rally.
So, um, if I, to say to you, let’s, let’s say the current prices around 85, we’re at 83 actually, um, what’s higher probability over this year or, or, or which price comes first, put it that way, $60 or one 10.
I would, that’s a good, that is, I probably bet on the, on the lower price rather than the higher price. And, and I think the reason is there’s too much, you know, the, the, as you said, Jim, you know, the crowd is on that one 10, right? Yeah. So, you know, hardly anyone is talking about $60. Do I really think it’s gonna get down to 60? You know, that that could be a, that could be a macro, you know, some, something that something would’ve happened as you were saying that be another virus that’s worse than <inaudible>, you know, another variant worse than, than Al Macron or something like, you know, something like that on the, on the end use.
Very good. Let’s wrap it up. Andy, anything else you wanna talk about that we missed?
I think, well, there’s plenty that we missed.
I’m sure Jim.
Yeah. You know, and there plenty people probably want to hear. And I think, you know, as we move into this year, you know, I think what we’re gonna try to talk more, we’re going to definitely get somebody to talk about LNG and another natural gas.
Last year, we talked to Steven about natural gas and oh yeah. We’ll try to get another, you know, another analyst to talk about natural gas and LNG. And we will definitely be talking more about the transition, you know, as it, as it begins to unfold.
Okay. You can find me at www.commodityresearchgroup.com or I’m on LinkedIn as well. Look me up.
Leave a Reply