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 of 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’d 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 or endorse any particular trading system, strategy or recommendation. We are not responsible for trading decisions taken by anyone, especially those not intended to listen. Information is not guaranteed to be accurate. This is not an offer to buy or sell any derivative. Today is June 11.
Andy Lebow, how you doing?
Doing good. Thanks. And um, let’s pick up from our last podcast back in May where we came out of that thinking we were going to move, the market price was going to move sideways to higher and uh, we were wrong.
We were wrong. That was a horrendous call. The one thing, I don’t know if you, if you could take solace from the fact that we were not the only ones that were wrong.
That doesn’t work for me, doesn’t work.
Yeah, me neither. But, you know, sometimes it’s like, all right, yeah…not the only guy that messed this up.
I think I would rather be wrong alone you know then wrong in the crowd. Something like that. Anyway, what happened? What did we miss?
What didn’t happen? What didn’t happen? I think what we miss, well, first of all, during the month, the, uh, Chinese, the trade negotiations with China pretty much fell apart. So I think that was certainly a, a bearish factor. And then, uh, Trump decided he was going to slap a 5% tariff on, uh, on Mexico, which, uh, also got, the market’s pretty unhinged or got the equity markets on hinge and didn’t help the, uh, the petroleum markets. But, uh, I think that that, well we saw in our market in particular was the fact that if it Tory’s built by way more, way more than, uh, we had, uh, what we had anticipated and really what the market had anticipated gym, you know, if you, if you had looked at the balances, you know, it looked as though second quarter inventories what we’re going to draw by a hundreds of of barrels a day.
And, uh, the reality was that, uh, that they’ve been building and, uh, at least in the, in the u s which, which we’re going to talk about in detail coming up. So I think that was certainly one bearish factor. Uh, and, um, no doubt, concerns over a over world growth of visa vi the trade world slow down and the market’s trying to figure out what’s that gonna mean for a demand growth going forward. And a actually demanded may was, was a pretty crummy finally the position that the bet was long. And, uh, the commitment of traders showed in, uh, March and April that, uh, longs to shore or double digits and in both Brent and, and uh, and, and Wti and, uh, that, that position was, it was liquidated on a, on a fairly grand scale. Uh, so you, you had long liquidation thrown in and I think that’s just some of those things.
So did Jim yet, may I have another one or two? Yeah, no, I was thinking, um, when you say long the shorts, you’re talking about the, the ratio of long position, a speculative length versus speculative short positions, right, right. Yup. And that got that got stretched a little is what you’re saying.
Yeah, it got, it got stretched a lot. Yeah. I’m pretty in a pretty short period of time. At one point in, uh, April Wti was, uh, 14. The one ramp was 16 to one, so that’s longs to short, which is a definitely on the long side right now. Uh, WTI is a four to one and Brant is seven to one. So as I said, and I mean may made sure liquidation thrown in here.
Now the, um, the correlation with the s and p with crude oil based off the CMIO is a correlation tool. If you go like one month time period plus 0.5 to six months, it’s about the same. You go out a year, it’s only plus a 0.37. So, you know, we’ve been, when the stock market moves, the oil market’s going with it. And I guess the, you know, the connection there is, is a global growth, right? I mean, that’s right, right. Yeah. So, um, uh, the, let’s, let’s talk about these stock levels for just a second here. That the big three organizations that come out with supply demand estimates on a monthly basis. A we that we talk about is the Eia, uh, the IEA and OPEC and the Eia came out today and they still show a draw in the second quarter inventories of a 200,000 barrels despite this weakening demand.
So, is that a number of you you’re with, are you, I was with, uh, I definitely was with, um, you know, I felt the draw in the second quarter would be something like two to 400,000. So, uh, you know, I, I definitely was with that, but I, uh, you know, in, uh, April and in May, uh, US total inventories built by a million barrels a day, so we’ll probably, we’ll should draw in in June to get that million barrels a day number down to maybe five to 600. But for us to have a global stock draw, clearly it’s got a draw elsewhere in the globe. And, you know, I’m, I’m, I’m not sure that, oh, that could be happening because the, uh, you know, while the Western Hemisphere, we, we’ve moved into a carry market and so contango the east, the prep market still is pretty tight. Uh, you know, that’s still, that’s still backward dated. So you know that that would indicate that a stocks have have drawn, but you know, we’re going to have to see some kind of us stock drudge him to, to get that down, to get that, to draw 200, was it some of that, uh, us and then some of the u s build is, is due to the weather and the pipelines. Um, getting out of Cushing, we’re, we’re, I guess what some of the pipelines going to the refineries were down and some of them get, you’re basically moving out of Cushing were down so that that caused some of the build.
Right, right. I think, uh, you know, but not all of it. No, not, not even close to all of it. The big reason for the accrued is, makes up for a fairly significant share of the total stock build. And you know, one of the reasons why crude has built so much during April and May is that the demand for crude as evidence in crude runs. What we actually run through a refinery has really been soft because these refiners have had all kinds of trouble getting their refineries to, to operate at a anywhere near peak capacity. Part of that is whether, you know, they’ve been flooded, the Midwest has been inundated, the, there’ve been floods in Louisiana. So as a result, and refiners are taking some prolonged turnarounds to get ready for the IMO. But you know, we’re running, we’re running a good half a million barrels a day below where we should. So, um, you know, there’s, there’s half of it right there and the Crime Bill Jim is what’s happened. The, on the refinery side,the, another piece of this weakness is it could it be that people were buying ahead of the, the sanctions are the expert of the waivers and out. And so they bought a bunch before that and then now they don’t need so much.
I think that’s, I think that’s also a factor on crude demand. China had a, had a massive important number in April and Lo and behold, there may, numbers were down, uh, you know, total total crude imports. And that’s not a big surprise. We’ll see where, where, you know, June and July comes through, comes in. But I suspect that, uh, we definitely, you know, that we’ve seen some of that on a, uh, on a global basis and they’re there in, you know, lies, demand for crude. But the thing that is really kind of worrying is that despite the fact that US crude runs have, you know, a running well below where they should be or what the market had forecast them to be refinery margin. So particularly in the Gulf coast, there are horrendous now whether that’s demand related or real, you know, related to flow, you know, product flow because of what’s going on in the, on the rivers in the Midwest or that’s hard to say, but the, the, you know, margins are weak here and the weekend in Asia, you know, and that, and that, you know, that is on the end user side, you know.
Yeah. That’s like where are I, you know, may maybe demand really is, you know, really is soft.
Yeah. Cause we were thinking there weren’t too many signs of global demand. A weakening too much. And, um, you know, if you look at, again, going to the eas release earlier today, uh, they shaved a couple of hundred thousand barrels off of, um, it looks like off of a 2019 demand, right? Right. Yeah. So there 1.2 now, right? That’s that sort of shape, 200,000 from the last forecast. They also shaved supply as well, but, um, but the global demand is, uh, looks like it’s not as strong as they thought.
Right. And then these main numbers in the u s came in real soft, uh, at least the unrevised numbers, uh, came and soft and diesel, Eh, this still, it’s the, you know, really came in soft. And that could, that also, you know, it’s hard to say because the, the, the planting oh into these floods is, is running way behind normal, you know, in the Midwest. And, you know, as we know, you, you need diesel for the, uh, for the farm equipment. So, um, you know, the, the, the weather may, you know, may or may not have played havoc with some of these, with some of these numbers. Uh, or you could be response to an economics to some, to an economic slow down. We don’t know yet. It has to. We have, we need more numbers. We need more numbers. We need more data. It’s interesting because I’m on, on the move down. You know, I was watching the um, the options market and um, I put this on our blog as, uh, but the, the, the flow, everything that you would expect to happen in the options market on these big moves down, you know, volume was up more puts than calls, traded volatility blew out, all that stuff you’d expect happened. And yet you saw more open interest show up increase in the call side than the put side. So I was kinda thinking, well, you know, if you’re, if you are a barrel counter view, if you’d listened to our podcast, it’s this kind of what you would be doing, you’d be putting on and you don’t know for sure whether they’re bullish or bearish positions.
But typically when open interest in calls on a decline happen, it’s somebody built, you know, buying them, not selling them. So, so I was, I was reading that as, you know, somebody buying a, or the market as a whole buying dips in a, in a way. And then, um, the market made, you know, went up for a couple of days after that. Then they made bigger law, you know, new lows. Right. But at the same pattern, the same option patterns that people were. So, so basically, you know, you have to say maybe it was adding more fodder for the, for the bears to, uh, to destroy that could definitely be outside. We see that before. That’s right. So it was a little, a little like a counter. Uh, so maybe it’s happening that, we’ll see it’s, but it’s still the market that collapsed also since I brought up options.
You know, I had talked about earlier in the year how, how the volume was a kind of low and it ticked up, uh, last month to 150, 3000 a day. But still, that was down like 14% from last year and the year to dates running around one 20 to 32% down from last year. And I, I, you know, I just have to think that there’s a lot of speculative activity that’s, uh, that’s gone. You know, it’s just, maybe they just haven’t been able to make money in this noisy market. And then you have the usual noise of oil and then you have our president who’s, um, you know, sending tweets out that, that move the market. So it’s really a, so, I don’t know, but it just seems like there’s less, uh, less option activity out there these days. So I think that’s true, Jim. And, uh, yeah, I talked to a love of traders this, this week and last week you don’t talk you about tweet risk. I never thought that we’d, I’d have a serious discussion, you know, with a oil trader about tweet risks, but, uh, but we did, you know, his, his conclusion was, you know, really shaving their positions because, you know, they’ve done the fundamental analysis and, you know, something like the Mexican tariffs can, you know, comes out, which will be about China. Um, you know, I think this, this move seems more, you know, more than to just tweet risks. But yeah. Trump, Trump has become a big factor in our markets.
Yeah, I have to, I have to say, um, I also, uh, you know, I talk about it, it’s an Oh my God world that I, I wrote up one of my pet peeves, and I’m sure I talked about this on previous podcasts, when for some reason when the market goes down by 20%, the financial press media has to say, you know, we’ve, we’ve entered into a bear market. It’s, I don’t know. I don’t know where that came from. The 20. I mean, you know, if I, if I buy oil today, it goes down tomorrow. I feel like we’re in a bear market. Right. And then think about, you know, when, when we’re 2014 when we went from 100 down to, you know, 60 or even, you know, eventually got down into the below 30 bucks. Can you imagine telling a producer, a producer, reading this in one of the leading financial papers? We’ve, we go from a the low and we go up 20% and now we’re in a bull market, but we’ve only gone up by maybe $6. It just, it’s, it’s nonsense. I don’t know why, why, you know, you find that kind of talk, but that’s, that’s just me. I have a lot of pet peeves.
Yeah. That 20% is, is, you know, has become almost institutional. Yeah.
Wise. I know it’s, it’s almost, uh, when they tell you you’re entering a bear market, I’m guessing it’s probably more likely than not a time to be buying it. Not to be thinking of, Oh, we’re in a bear market. We should be selling. Right. It’s so misleading. That’s, that’s all I’m saying.
You know what I think is, um, you know, talk it, talking about the producers, you know, hopeful. They, they had a nice window where the calendar 2020 was over $60 or very close to $60. And uh, you know, hopefully they took advantage of it by a, by sell hatching. I mean there’s, you know, I, I, and I think they did, I think, um, you know, the open interest has, has been pretty robust and like the DCE 20th, and that these 21 futures has been, there’s been a lot of negative press this last week or two on, on the, uh, emp companies. But, you know, one thing, one thing to their benefit was that the market was there to put on the, to put on some sell hedges for the balance of, uh, 2019, 20, 20, you know, 2021 didn’t quite get up to 60 on the, uh, when we, when the front was 66 60. But, you know, it was up to like 58 59 close. Right? Yeah. It, uh, we probably don’t have time to talk about this, but it’s another, another issue is, you know, do you, do you hedge your business by, you know, buying puts, selling futures, or do you do it by, um, strengthening your balance sheet? So, you know, I’ve just see, I’m just hearing or seeing more people talk about how, you know, especially in the fracking world, as much more disciplined now, uh, to think about cash flow and not so much just drill, drill, drill, borrow, borrow, borrow, drill, drill. So I’m wondering if, you know, there’s more of a focus on, you know, cleaning up the balance sheet as opposed to doing lots of hedging.
So I don’t know, I don’t know if they caught it or not, but um, you know, I think this should be focused on both. Yeah. It’s probably, yes, yes. I mean it’s, the more that you’re, you’re a revenues are based on the price of oil, the more you need to hedge. Right. We’ve seen that any of your, if you’re an integrated oil company, um, maybe, maybe you don’t need so much of Europe are producer. Um, you probably need to be thinking about it for sure. I mean, everyday we, yeah. Yeah. But then my, my comments are a are, I was thinking about the, I think the EIA puts something out that I put on the blog about where the revenues were coming from and they’re just, it just wasn’t a lot coming from the hedging, uh, over, you know, over the past few years in up markets and down markets.
Obviously more would come from the down markets, but it was still the small percent of, uh, of the total. But, um, we probably should get a, uh, a hedge around here, uh, in a future podcast. Oh, I think we, I think we will. I mean, we had Andy affirming on which was, uh, which was, uh, a great podcast. Yes. Cause he, he talks to these folks all the time and that’s his business. Yeah. Yeah. Uh, you know, may, maybe we’ll, maybe we’ll rerelease that one, Jim. Yeah. You know, it’s still very relevant. Yeah. Tell, Yeah. Some market comes off, you know, obviously it’s easy to look back and, uh, in hindsight, but you know, when you’re, when you’ve got a hedging program, you need, you need the supply and you need foresight. Yes. And you need to know, you know, what price is going to work for you and do it right when it hits your, uh, at your target, I suspect that, that they may get another chance. Yeah. Yeah. As I was going ask you, um, you know, some people are talking about how, yes, it’s a little, the market’s a sloppy now, but very soon we’re going to tighten up again and we’ll be off to the races. It should the, as I, as I mentioned that the, you know, the Brent market is still pretty tight. Part of that is the, the Russian, the Russian problem, uh, on the, um, contaminated crude. So there’s been alternative demand for, uh, for North Sea crudes, uh, and although lighter type crudes, and part of that is there, there is some maintenance in the North Sea and we don’t know if the, if the, if their stock draws are or not, because that data’s not, you know, it’s not available yet. But I think our market is, I think the, the u s market could tighten up as soon as these runs, we need to get these runs going. Uh, and that they should, as we headed to June and into July, you know, w w we should start seeing our runs get from, uh, you know, under 17 million barrels a day up to like 17 and a half, a 17. The IAA has some up to 17.8, I think, something in either July or August. So that demand for crude, it’s about to really is about to really explode a prude runs. But you know, again, we’ll see what happens. You know, we’re also gonna need to see petroleum product demand, you know, still still carrying it because you know, the, these margins have to improve.
I was gonna ask you, can you kind of see that in the crude curve that that uh, runs are going to start picking up? No, no.
Um, I think, well, what’s happened in the crude curve is, I guess so Jim, I mean the, the, you know, the backwardation was pretty severe and that that’s soften because of the infrastructure problems. So it’s hard to, you know, it’s now contango so it’s, it’s sort of hard to, it’s hard to see right in the, uh, in the curve, but, you know, you could definitely see the curve flattening out or getting less backwardated, you know, it’s definitely a function of these stocks growing way more than what the market had anticipated. So one would think that as the runs increase and stock straw that the curve should, should tighten up. Now there was a big trade right Jim on, on in the CSOC. Uh, except, yeah, the are set Bach, I mean there’s some, yeah.
You know, I don’t have the specific trade in front of me, but I have, um, I have the, uh, the top 20 open interest and, and um, if you look at on the put side, it’s, it seems to be the minus 25 put going out. It may be the, the, uh, the big open interest is, is, uh, you know, the Auc Novi DCE 15,000, you know, if you’re talking about August the minus 25, put as 11,000 open and the flat put has 8,000. So, I’m not sure which one of those was a one you’re talking about. Um, and then on the, on the call side, the set arc plus 25 calls got 26,000, 25,000 and that’s, yeah, that’s a, that’s like 8,000 more. Lots of open interest more than anything. And he has a little bit of volume yesterday look like us and liquidation. But yeah, so the [inaudible] plus 25 and then this, you know, if you could use a strip on a No v Ds, the Plus 25 is a, is the most, it has got the most open interest. So yeah, those have been, those have been pretty busy, uh, active, uh, over the, over the last month or so. But yeah, so that, that, that’s, I guess that wasn’t my question is, you know, are we, are we moving? So, so there’s a delay in having these refiners come back to full capacity. Does that push everything out a couple of months? Are we going to see, uh, we’re going to see them go back into a turnarounds that their usual time, where are they going to push that out more because of a, I don’t think they’re going to push it out. You have this imo coming up, you know, they want in a lot of this delay is getting ready for the, um, you know, the new specs on the, on the shipping for, for shipping. So, you know, I think in October and November there’ll be, you know, there’ll be taken their turnarounds. They will be, they will probably be probably be shallower than, you know, what they’ve taken this, uh, spring and, and at the same time they’re not gonna because it is, they haven’t come back so quickly now. You don’t think so you think is scheduled maintenance we’ll meet at the usual times.
Yeah. I think it would be the usual times, you know, the, they’re coming back at a poor margin environment. So, but again, it’s unclear, you know exactly why these margins are, or as you know, as poor as they are. Unless, you know, demand really enough demand is really horrendous. Then, yeah, but you know, they’re all, they’re all kinds of infrastructure problems. So it’s really the Gulf coast that, uh, demand, uh, the margins are okay up here in the northeast, but the Gulf coast there, they’re pathetic. So it’ll be interesting to see how everything clears out over the next few weeks. And we also, let’s not forget, we have an OPEC meeting coming up this either this one third of the early July. So the market will start, you know, turning, it’s turning, it’s lonely eyes to do. Uh, it’s all pack it, it’s scheduled for the 25th and the 26th. Right, right. Uh, they were talking about maybe moving it back to the first week in July. I think it’s, uh, I think it’s still scheduled for the 25th and 26th.
So the, um, the Saudis were about, I think 500,000 barrels under there. Um, commitment.
Ah, right now are they, do you have them as what, well, the last, the last numbers for, from May or more like their commitments, like 10, three, I think it is. And the main numbers were a little closer to 10. Um, so you know, that they’ve said, if, you know, if the market needs those extra 300, you know, that they provide it. But obviously, you know, clearly given where the prices, you know, the, they, they’re not going to, I don’t, I don’t see them increasing at a 10, 10, three, you know, they may even dial it back on it, you know, dial it back some they’re there, you know, they were, they were very happy, you know, at the 70 to 75 I think. I think they’d be okay. A brand 65 to a to 70, but you know, down here, down Brent near 60. Nah, I mean they, they need, they need some higher prices, you know, for, for all their fiscal commitments.
So, so, so what are the, uh, the issues going into this meeting?
The issue is, yeah, I mean the, the, well, the main issue is whether or not they’re going to renew their, a production deal, which expires on Shah on June 30th and given the fact that no matter what they say about inventories and supply demand and everything else going forward, the pretty price responsive. And how at the end of the day, you know, it’s going to be, it’s, you know, what the Brent prices and wasn’t the memorial is our number one on the hip parade, you know.
Yeah. Do you, you remember when the OPEC ministers didn’t believe future’s prices that yes. Yeah. And you remember one minister said to the press, don’t believe those numbers you see on your screens. Do you remember that? But that’s where we realized that they, oh, these guys are watching the price very closely, closely.
Um, so having said all that, yeah, I mean the, with Brent, you know, closer to 60 to 70, you know, I don’t see, I don’t see any particular rush to increase to end the deal. And I think the Russians are now on board, you know, that they need higher prices as well, particularly after this catastrophe with the, uh, friendship pipeline. So, you know, I, I it looks as though, you know, the deal is going to be extended, you know, maybe through the end of probably, you know, probably through the end of the year and you know, there, there may be some pressure on, you know, rack is probably a little, the Iraqis taken a lot of the Uranian market share, you know, we’ll, we’ll see what they, what they, you know, they pressure a rack at all. But I’ll OPEC productions around 30 million barrels a day. You know, I, I think it could go a little bit lower but not, but not too much.
I think it’s going to be 30 plus or minus a couple of hundred thousand barrels a day at least through the third quarter and maybe into the forest order. And what’s, what do you, what do you have is the call? Well the call, assuming that demand is down two to 300 barrels a day, I third quarter looks like it’s about 30.5 30.6 maybe and fourth quarter looks like it’s about 29, eight 29 nine. So the, you know, third looks like we’re going to draw forth, looks balanced and then first and second year you’re depending on how, how much us production increases. Uh, in the first half, you know, we’re looking at a stock bills for particularly the second quarter according to the Eia looks ugly, you know, big, big stock belt. So, um, you know, Wa is that, is that what you’re looking at two for second quarter?
Well you tell him to say we haven’t gotten a, yeah, yeah. Second Quarter, 2020. It looks like I’m talking about second quarter of 22 right? That’s right. Um, and we were later this week, we’ll go, we’ll see what the IEA is that they’ll have their first look at 2020 and I think OPEC does is as well not, I’m not sure, you know, whether, whether OPEC gives you a 2020 look, but the IAA definitely has given you a 2020 look this in a couple of days. I think it, I think that, yeah, I mean it’s certainly possible that we get, you know, somewhere near a 500,000 barrel a day stock build in the, in the second quarter. We have a long way to get, we have a long way to go there tomorrow. Right. We were, we were pretty certain that we’d see, you know, fourth quarter 2018 the whole world of spying hundred dollars calls.
Right. That’s right. We are good at drawing. Vitori like there’s no tomorrow. Yes. Uh, you know, that that certainly didn’t happen. Came crashing down. Um, just a couple of things. The, we mentioned this, the big three, the Eia, that’s the, the arm of the US doe that came out today, earlier this afternoon. The opex report, the monthly report comes out on Thursday, the IAA on Friday. Now the OPEC report in the IAEA report get well reported in the financial news. Nobody seems to care about the Eia and it’s a good report. Yeah. I mean they’re all good, but it’s, yeah, but the, uh, I’m, I’m not sure why, you know, cause um, yeah, Yay. Is the gold standard, you know, then all the OPEC and then all the bank reports. So I, the EIA, the short term energy outlook, maybe it’s because you know, the EIA puts out so much information. The short term energy outlook, which came out today does get a lot of press on what they think about the u s oh, right, right. The man, the, the global stuff, I think they leave, you know, doesn’t, doesn’t carry as much weight as a, the, the, what the IEA is saying and, and OPEC.
So, so I mentioned the, um, the, the EIA, which came out today, the second quarter, they have a draw of 200,000 barrels a day for the second quarter. This is worldwide. And for the third quarter, they have a draw of 600,000. Right. And then within a, um, there was a, um, a Reuters story that kind of summarized what people are looking at in 2020, the surplus. And they had, um, anywhere from 100,000 barrels up to 800,000 barrels of surplus for 20, 20. So you know, a thing about this, well how it do you, do you trade this, you know, decline that, I mean, if it’s, if it’s a draw the tea trade that or do you drive trade the build that’s coming on it, how do, how do you play that?
I mean, that’s, that’s, that’s the game, right? That’s the game. Yeah. Yeah. That, that’s definitely the get that, that’s the game. So,
so, so what do you think’s going to happen going forward?
What, what I think is going to happen, I mean, clearly the market has moved into a lower range than what we thought, you know, frankly, you know, I thought we’d see new highs in, uh, may, may or June and clearly didn’t happen. Uh, I think there’s still a lot of, uh, you know, as we just spoke about, you know, the, despite the fact that, you know, demand may be, may be softer. We know that crude demand is going to be going to increase because these runs are going to go up and there’s going to be a, and in both us and in Asia where there’s some new refinery capacity coming up. So I do think we are going to see these straws. I think that OPEC is going to renew their, at their price deal. And I, I think the market is, uh, you know, going to settle into a kind of settle into a range.
It’s, you know, it’s unlikely to get up to 60. I shouldn’t, well, I, you know, right now it’s hard to say, say it’s going to exceed Wti 60, 60, which was the old, which was the, uh, old high, but could it get into some kind of like, you know, 50 to 60 range or 52 to 58, you know, something like that. I thought, I think, you know, W W we’ll start seeing the market, your biases that we’re at. We’re at the lower end of arrange. Yeah, yeah, yeah, yeah. My bias definitely. Where the, yeah. Like you wouldn’t expect to see a four handle in this market I think is possible. No, I know. No, I wouldn’t, I really wouldn’t expect to see it less. We, you know, like these for finery, he’s never come back, you know, and, and run, stay really low and demand continues to, you know, continues to soften it. It’s certainly possible, you know, if we’re in more than an economic slow down, you know, it’s, it’s certainly, you know, it’s, it’s certainly possible, right? Yes. But third quarter looks pretty good, you know, third quarter looks okay. Third Quarter looks, you know, it looks constructive.
Yeah. That’s probably what’s behind all that. A call trading right in the plus 25. SEPAC. Yeah. Yeah. It’s, somebody thinks a, somebody is putting money down thinking that the refineries come back situations a much tighter. And um, we go into, uh, you know, we, we go backward dated above 25 cents right now. Where that could fall apart is refineries come back, margins continue to, you know, demand continues to weaken and all of a sudden their economic run cuts. So that’s, that’s something to watch.
So again, we’re coming out of this podcast similar to where we were in the May podcast looking for things to tighten up, just not quite as explosive as, uh, as May. I’ve never had that can cause it because of this stock build. You know, right now we’re working on a much higher inventory number then, you know, we had, we had imagined, you know, we’re in the four eighties on crude. Yeah. I didn’t have 480. I had maybe four 70 something as, as a outside peak.
Okay. Yeah. Um, what did we miss anything? Uh, we need to add before we sign off this month, Andy?
I think we, I think we have everything. We went through a lot of stuff. That’s, that’s for sure. We even threw in those, you know, our hedging conversation.
Yeah. I think, you know, I think, uh, there’s, there’s so much stuff going on as always in these oil markets, it’s hard to cover everything, but, um, you know, you start hitting a, uh, I think, I think we hit the bulk of it.
Yeah. But as usual, you can find this on the, uh, find us on the web at www.commodityresearchgroup.com
Thank you very much, Andy. We’ll, uh, we’ll do this next month.
Yes, we will. Thanks Jim.