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 here with Andy Lebow, also of Commodity Research Group, and we’re here to talk about energy markets.
To learn more about us, you can check out our website www.commodityresearchgroup.com, where we post our podcast and blog.
We’d 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 specific trading system, strategy or recommendation. We’re not responsible for trading decisions taken by anyone. Information is not guaranteed to be accurate. This is not an offer to buy or sell any derivative.
Today is June 14th.
Good morning, Andy.
Good morning, Jim.
I’d like to, uh, kick this off right away by, uh, talking about the LA the most recent OPEC meeting where the Saudis cut back and million barrels. I’m starting to get confused with the, the what’s voluntary, what’s not voluntary, but some countries are, are get, they’re their quotas cut back, but they’re not even after quotas already. So I guess my question is what’s actually happening to, uh, opec, uh, supply? And let’s, let’s talk about without Russia, uh, to start.
Yeah. With, with just, uh, OPEC and not OPEC Plus, cuz Russia’s a, Russia’s a whole nother saga, uh, which I’m sure we will, you know, delve into at, at some point during this, uh, during the podcast. But this was a much more interesting meeting than what the market had thought going, going in, at least for the earlier in the, in the week before the meeting. Most analysts, including this one, I must say, was saying that, uh, OPEC was gonna keep production just about unchanged and, uh, you know, move on in a, you know, move on. However, obviously, the, the Saudis were not happy with the, where the price was, which would’ve been Brent in below 75 and ti you know, below, below 70. So they engineered, uh, they did get into the very thorny problems of, of quotas and, uh, somehow walked around those, uh, those time bombs, uh, of a signing quotas, you know, change changing in quotas and everybody wanting more or less, or de depending on what their, um, individual goals were.
But they did get it passed, and they got it passed with, uh, what the oil minister said was, uh, a lollipop, a lollipop for the dowdy, which was a million barrel a day cut, uh, and an extension of the other cuts, a million barrel a day, unilateral cut from the Saudis, and then an extension of other cuts, um, that they had made a coup a couple of months ago. So, to, to answer your question, you know, yeah, so some, some countries aren’t even gonna be close to where their, um, where their existing quotas are. Some will be right up, right up against it. And, uh, significantly the UAE in, they got an increase quota, so that, for them was a, was a big victory. But, but if you look at, to what total OPEC production is in May after the cuts that they had engineered, uh, in Mar in April, I guess it was OPEC production, at least according to, uh, OPEC secondary sources, which is, uh, like an average of five.
And it’s kind of what a lot of us use as, as official numbers. OPEC production in May was 28 million barrels a day, and that’s down, I mean, they have cut back cuz the December production was 29 million barrels a day. So OPEC is down and in June it’s probably gonna stay right around here, you know, 28, 28 1. And then in July we’ll see the, uh, Saudi cutbacks. But there’s also gonna be some, there’s gonna be some leakage. Uh, I don’t think production’s gonna go from 28, you know, 28 1 to 27 1. You know, our, our numbers, uh, at crg, uh, are, you know, I think OPEC production’s gonna be around 27.4, uh, for the rest of the, more or less for the, for the rest of the year still, you know, that’s gonna be down a million and a half from the December numbers.
So that is, that is a significant number when you, when you, uh, take all the meetings they’ve had and all the discussion they’ve had, it, it turns out to be a million barrels and, and maybe a little bit more as we go. Yeah, I think
For the rest of the year it’s gonna be like 1,000,006, a million, six a million and half million six there. There’s all, there’s still running into, we’ll see what happens. You know, they, they did get a big OPEC got a quote unquote bonus by, uh, the, um, dispute between the Iraqis and Turks, which cut back 450,000 barrels a day of, uh, production. Iraq’s quote is 4.2. They’re pro, they’re somehow producing 4.1 even with that cutback. So they’ve increased elsewhere. Uh, but we’ll see once that, this once, and if that dispute is resolved, where Iraq goes, you know, whether they say, ah, you know what we under produced, right? And we’re gonna overproduce now for a couple of months, you know, again, we’ll see what, we’ll, we’ll we’ll see where, uh, you know, where the market’s at, where they’re at, and, uh, that that could be a, that could be an issue.
And we’re also, you know, there, there is some, there have been some gains by Nigeria in November. They were producing 1.18. They’re at one, they’re at 1.27 right now mm-hmm. <affirmative>. Uh, so the, you know, they’re, they’re making some gains slowly but surely, Venezuela also. So I I think from those two countries you may see a little bit more coming out and, and Iran two has been able to increase, increase production. So, you know, as I said, uh, this is why I think it, it’s not gonna go right to 27. There’s gonna be some leakage.
The, um, going into that meeting, you said, was it, was it expected to see what were we expected? Cause the market market rallied up in price, like, uh, from a low number of, I think we were around 68, uh, dollars in, in, um, on that Wednesday. And we, uh, rallied up, uh, almost the, I guess the 72 now, was that, if you recall, is did, was that expect the market here about this 1 million cut?
Or is it just a bounce? I
Think the Friday, the Friday rally, the Thursday of Friday rally, some of it was short covering. And then you remember there was a good jobs number, right. And everything, you know, the whole macro of which, you know, we’ve been trading a lot of in this year, the, you know, the whole macro rally. But then Friday afternoon there were some news reports that, uh, that came out saying, you know what, OPEC is talking about a million to 2 million barrel a day, uh, cutback. Mm-hmm. So, you know, I think the, some of the fri the big Friday afternoon rally was, uh, based on the, either those news items or that news coming, you know, slowly getting into the market. So I, the is, so the news was coming out
Because, uh, I was tracking by Friday, I was tracking the, uh, July 75 call. Cause on Wednesday, uh, we saw 50,000 contracts trade. And, and that’s a, that’s a big number, uh, for one strike. So kind of was eyeopening. And, um, you know, it was accompanied by only, uh, 10,000 increase in open interest. So it wasn’t like new, new buyers meet new sellers. There were some, uh, buyers, uh, some, uh, buyers who probably said, you know, we’re at 68, this option expires in a week and a half. Or is it, no, maybe it was two weeks. That is, uh, it expires today, June, uh, June 14th. So, um, they’re probably thinking we don’t have much time. And, uh, so some people probably dumped out. But we, we, we, um, didn’t get a full 50,000 increase in open interest. But as the next couple of days, um, the, the Thursday and the Friday, the $50 call was the most active, um, option, uh, with 14,000 and almost almost 20,000 on Friday trading.
And on Friday with the rally, the call set, uh, settled it a dollar one after, after settling at 34 cents on Wednesday, it’s now settling a dollar one. And we saw open interest go down, uh, by 6,500 lots. So, so there’s probably some, uh, short call guys getting out and maybe even some of these original call buyers getting out. They probably probably didn’t get out of everything. And then overnight on Sunday night, the market opened, um, right on, right around $75. And we saw some, again, it was the most active option, but not a lot was trading, you know, Sunday night. And then by the morning, the, the market had been coming off. So, um, we, we, uh, uh, and that again, that goes off today. So it was like a, it was like a battle royale being fought on this $75 call, uh, lots of, um, the original 50,000, uh, chunk going, and then, you know, lots of size swinging back and forth, you know, buyers and sellers.
It was like a beautiful market. Oh yes, we’re gonna go past 75. No, we’re not. You know, and, and, um, it looks like, uh, no, you’re not won. There was winning. Uh, I’m, I’m gonna go out on a limb and say they won it. We’re trading $69 right now, so, right. But, um, you, you kind of wonder when you see that volume often, it’s a, I mean, if, if they bought 50,000 around 34 cents, you kind of think that’s a, you know, a hedge fund, uh, taken a shot. And, uh, if, if you, if you want to be, uh, you know, conspiracy theorist, you’d say, well, that’s gotta be somebody with insight information that they know something’s gonna happen. Uh, either way, the beauty about looking at option flow is you get a sense of how somebody, or many people are thinking about a particular price away from today’s price.
So, you know, again, we were, we were trading in the, um, in, in the, uh, 68 area of wti and somebody’s willing to pay money for a, uh, a $75 call with only couple weeks to go. So you kind of raise an eyebrow and say, you know, what’s going on there? And, uh, and then we get this, we get them a nice move up to 75, couldn’t hold it, you know, I was like, uh, pick its charge. It couldn’t, couldn’t break through. But, um, it did make the move anyway, that, that, that move was kind of disappointing. I mean Yeah. Right. Continue to, so it,
The move was first of all, you know, it wasn’t talking about that Friday or the Thursday, Friday rally. I’m sure it didn’t go unnoticed by the market that somebody was buying, you know, 50,000 Right. 75 calls. I mean, right. Less is probably what you’re, is the evidence because of the open interest, the change in open interest, but nevertheless, that has to be like, whoa. Yeah, what’s Well, what’s going on,
<laugh>? Yeah. The f the first thing you wanna know is who’s doing that? Right.
Who’s doing it, right. Yeah. Yeah. Yeah. Well, yeah, during open outcry, you had a pretty good idea of who was doing it. Yeah. Um, you know, when it’s all electronic, it’s, we can only, we can only guess. Right? Uh, um, but Well,
It’s disappointing. Um, I, I, last time we, we had had a podcast I talked to you about, were you disappointed in the move, uh, when it popped up the last time back in, uh, in early April, and you said, no, that was a, it, it moved probably as much as it should have. I thought, I thought maybe it should have gone higher, maybe not, but, but this time you got a million barrel cut from the Saudis. I, I would think that would be a pretty good price move. But is it, is it, is demand flagging is, uh, is this Russian oil out there? What do, is it? Well,
I think it, I think it could be a combination of, uh, both. Plus, you know, sentiment has been so negative on, on this small, on crude and, and, uh, products, you know, the market’s been talking about a recession for, you know, who knew the whole year. Right. And, uh, you know, they really, you could see by the commitment of traders, which is, you know, has, we’ve seen these big funds getting down to only two to one long crude, you know, that’s really remarkably low. So I think sentiment has definitely been, uh, a factor where people just don’t want to buy it. And then from a fundamental standpoint, finally, finally, Russian production got a lot of press last week, and, you know, we’ve been talking about it and for, you know, a lot of these podcasts, uh, that there’s, there’s really been no evidence that they’re cutting back.
Uh, they, they were supposed to cut back half a million barrels a day in March, and definitely did not. Uh, and probably not in April. There may have been some slight cutbacks in May because of, um, maintenances. There definitely was the, there was less product on the market and rest less Russian product on the market in, um, you know, in May than there was in, uh, April. So total Russian exports were, were down and that the I e A said the same thing that said the same thing today, but let’s, you know, a lot of, some of these numbers, you look at opec, I guess OPEC has to print what they’re told, because in their report, they, they’ve got Russian production, uh, which was just, you know, it was around 11 million barrels day last year, uh, and 11 one in the first quarter, they’ve got it down to like 9.59, 9.6 in the second half of the year.
And you know that, that’s fantasy. They’re not cutting back. Yeah. Uh, they’re going to be, we’re using, we had ten five, uh, we’re now using ten nine. I haven’t seen where the i e A is put, you know, I haven’t seen the detail on, on the, uh, I e a report. And I, I just saw another bank report that had them close, had them where we were ten nine. So if the whole year the market sticky gets ten two, ten three, and all of a sudden it’s ten nine, you know, that’s a big, that’s a big difference. Right. Plus expectations, they’re not cutting back.
Right. There’s no evidence.
There’s no evidence.
Yeah. And I, and I’ve, you know, I see that number from Iran last month, uh, up 61,000 and, and, and I, I, I, I kind of think, well, maybe, maybe the world is, uh, it’s getting a little more, uh, sort of numb to, to sanctions and, and we’re getting more and more leakage as, I mean, they usually, they is the way, usually that’s the way it works. But maybe it’s, it’s happening. Uh, and now, and, and, and, you know, I, I didn’t see much chat at all about Russia, uh, supplies, Russian supplies from the, um, I e a or the eia, uh, reports. So, or
OPEC or the OPEC or
OP or opec. Yeah. It’s just kind of like,
They’re like, all right, you know, for o like I said, for opec, they have to print what they’re told, you know?
Unfortunately. But, and that’s the other thing that I thought was disappointing about the OPEC meeting, and I guess the Saudis just didn’t want to go there, you know? But they have to be furious at that, the Russians, uh, yeah. For not, not cutting back. So the Saudis, in essence, are gonna be, you know, continue to lose market share to the Russians. You know, the Saudis have their own their own issues, uh, with, you know, MBS is, is building a, is building a new city, the neon, uh, which is gonna be costing hundreds of billions of dollars. Um, so, you know, they, they, they still want a high price environment, but, and, and I guess they just didn’t want to go after the Russians at this last, at this last meeting,
It’s, it’s really interesting, you know, the, um, the, the Saudi, uh, minister, uh, prince Abdulaziz has kind of been, uh, slapping the, uh, i e a a little bit with their, um, with their missed call on Russian oil supplies. They originally had them, um, uh, minus 3 million barrels off the market, which obviously never happened. Right. And then, um, going back to the previous statement of, um, you know, I think don’t stop investing in, in fossil fuels, and then we hit a period where we need them very badly, uh, especially like places like Europe. But, um, the, whereas going with this is the I E A came back with their, this was their June report. So they do it, they do a, uh, midterm projection, um, which we, we can talk about, uh, why would you do that when you’re having trouble getting the next six months done. But, um, <laugh>, which you, you’re, you sympathize with Andy. I know. Yeah. I
Totally sympathize with that. I can’t even get this month. Right.
Yeah. So you’re constantly revising. But anyway, they have a, a hu a a steep falloff in demand for, uh, fossil fuels. And, um, by I think 2028, they’re calling for, uh, peak demand. And even before that 2026 for, um, uh, peak demand in transportation fuels, and a lot of, a lot of that space in China. So I wanna talk about China, but I wanna talk about, let’s talk about demand first. That OPEC and the I e a, uh, I think the I e A bumped up their demand number for, for 2023 to 2.4. From 2.3. And, um, you have it much lower in the
Yeah, I have it much lower. I have it, you just increased it a little bit cuz the Chinese numbers have been, you know, have been coming in at, at least the spring numbers have have been coming in pretty good, pretty strong actually. So I, I did increase, um, total demand by, by, uh, a hundred thousand barrels a day. One 50 actually for 2024. But I’m still, you know, I’m still almost a million barrels a day below, below where they are, you know, they’re looking for monster demand in the, in the second half,
Which, which is
From everywhere. But China is the, you know, China and India of course are, are the engines, but, um, you know, they’re, they’re looking for demand to go up like 3 million barrels a day between second quarter and third quarter. You know, that’s, that’s a huge increase. Yeah. But I do think, but I do think, Jim, the market has been, you know, really, uh, I don’t know if it’s, it’s underestimate not, I don’t think underestimating is, is the, is the correct word, but I guess just there’s so much skepticism built in that some of these good numbers that are coming out, you know, the market sort of just doesn’t pay any attention to it, you know? Yeah,
And, you know, I think, I think the second half there’s gonna be a deficit not as big as the I e A or well, OPEC numbers are, you know, way, way off. But yeah, I think there’s gonna be over a million barrels a day deficit cuz demand the, you know, some of the numbers are looking better.
Right. But they, they have a much bigger deficit than you do. Oh,
Yeah. Wait, they, they have, I mean, I could be 1.3, let’s say 1.4 deficit, you know, they’re, they’re like two over two for the, um, i e a, like over three for opec. So, but we know, but part of OPEC’s problem is that is low Russian production. But even if you take that out, you know, there’s still over 2 million barrel a day deficit. That’s a, that’s a big deficit.
Yeah. I th I think, uh, OPAC also has a stronger, um, economic growth forecast than the EIA does. I think their, I think the eia, uh, where are my numbers? I can’t see them right now. I think they’re, one of ’em is like one, one and a half the other’s like two or two and a half, something like that. Yeah. Yeah. So, so yeah, the OPEC is looking for plus 2.6 EIA is looking for 1.3. That’s for, uh, growth. And, you know, that’s, that’s significant as well. And Oh,
Global G D P.
Yeah. Yeah. That, that’s very, yeah.
So is it, I mean, we’re just, it’s just showing you how hard it is to get a handle on these numbers. You have, uh, you know, four esteemed organizations with, you know, two, it’s, it’s like, uh, two on each side. You have the, the, uh, OPEC E I E A on one side, and he have the EIA and Andy Lebo on the other side. Yeah.
Right. And so,
The other side
You’ve done, you’ve done well against these guys.
I know. I think we’ve beaten these guys.
I think you’ve done, yeah. Over the last, you know, through covid, I think you were, I think the
Last few years we’ve, we’ve really beaten these guys. Yeah. I wish that I had the, the budget that they, that they had where they were paying me, what they, they paying those guys. Cause I think we’ve been <laugh> I think we’ve been doing better <laugh>,
Uh, we, uh, used to call those, uh, shade tree mechanics. You know, the other thing that came out of this, or there’s many things in this, um, short term, not short term, uh, medium term outlook by the, uh, I e a and that was the, the idea that we are going to have enough investment in fossil fuels to handle the demand changes out through 2028. And, um, they have, I think they had like a 11 point, 11% increase in CapEx, uh, for this year. And, um, there it is like the highest since 2015. But they’re just saying that it should be enough. And, and the reason, one of the reasons is cuz they have a sharp, sharp fall off in demand growth up to 2028, which is where they, and I think I mentioned that that’s their peak, uh, oil demand. So, which is interesting to me because that’s a, that CapEx issue has been a reason that many people had been buying back month calls for the last, I don’t know, four or five, I mean, 2020, uh, excluded. But people have gotten really bullish on this oil market in, you know, in the following year because they’re saying nobody’s gonna be investing in finding new oil. And I just wanna throw that at you and, and give me your comments.
It’s really interesting. You know, you see, I think the I e A and OPEC are still going at it in a, in a big way, <laugh>. It’s like Exactly. You know, I I’m sure the ia, you know, that, that, that the comments by <laugh> by, uh, the Saudi oil minister had to have rankled the, uh, the ipa.
It felt like a return slap to me. <laugh>.
Really? Yeah. Cause if you look at opec, what OPEC is saying, and of course they’re talking their book, but you know, what OPEC is saying is that there’s under investment by hundreds of billions of dollars, uh, that, you know, the, the world needs to invest much more in, uh, in fossil fuels. And, uh, it’s interesting that the I e A said that there’s, uh, there’s adequate in investment, but certainly, you know, there’s, there definitely looks like there’s, there’s a pivot going on amongst the, the majors. And I thought, you know, shell was a, is a really interesting example. You know, they had, they had tried to, they had already, they had, I guess this is the reverse pivot, Jim. Yep. Uh, because they had invested heavily and talked and talked about the fuels of the future and becoming green. You know, that was a big theme of theirs earlier in this, in this decade. But now the ch the chat has been more about investing in, uh, in fossil fuels. Uh, and going back to their, going back to their knitting, I don’t think they’re giving up by any means. No,
Talking about, uh, fuels of the future. But, you know, and you, and I think you’re getting this chat out of, out of some of the other majors as well, you know, Exxon never really did the first pivot. So they don’t even have to reverse pivot and we’ll see, you know, we’ll, we’ll see where Chevron goes. So, yeah. So I think that what the IA is saying has some merit, but I, I don’t know if, if adequate is, is the right, is the right description. My own belief is, is is still an investment and, you know, is it the end of, is it, is 2028 gonna be the end of fossil fuel demand? As, as, as we know it? I, I don’t know. I have, I doubt I have doubts about that. That’s only five years from now. Well,
Growth. They’re talking about
Growth’s. Right? Right. They’ll tell about growth. I mean, there’s still gonna be, they’re
Not gonna turn into buggy whips overnight.
Right, right. There’s still gonna be very strong demand for, for fossil fuels, particularly in Africa. And, uh, Asia, maybe, uh, the growth will be less so in, uh, o o e, um, O E
Thank you, Jim. O c d easy for you to say O E C D. Wow. Uh, countries. But, you know, I, I think we’re still gonna be growing out through the end of the end of the decade, but,
Well, it’s also in that report. Um, it’s interesting. They, I mean, they, they mention, um, the, uh, growth of EVs in China, and they also talk about how the transportation fuels will peak from fossil fuel standpoint from in 2026. But some of that, some of the decline will be offset by petrochemical demand. Right. And so that’s, especially like in China, especially, China’s like a big growth driver going forward. Exactly. Exactly. Yeah. Yeah. And then of course, the, uh, developing countries are still gonna be heavily dependent on, uh, fossil fuels, and they’ll be growing, uh, as well. So, you know.
Right. And we still have, you know, the major, the, you know, the charging issue. Oh, yeah. You know, that’s a ma that’s still gonna be a major issue. And the grid, you know, the grid is still God, is the grid gonna be able to handle all this growth in EVs over the next few years? I, I don’t see it, but yeah,
I, I saw a disturbing chart. I, I was, um, in 2021, we had that bad hurricane. I ended up, uh, my, my, uh, furnace was ruined and they had a, a major incentive system to put a heat pump in the house. I put a heat pump in. And so I’ve had a, you know, a good couple years to look at the, uh, use and the heat pump, even though it’s efficient and my bill is lower than, say, heating oil you had before, it uses a lot of electricity, especially during those cold days. It works fine. Keeps, I’m, I’m in New York, so I don’t have, you know, even the extreme days we had, it couldn’t get to its number. Like if I wanted, if I wanted 70 degrees, it could only get to 68. Um, but it was that, that was when the temperature got below zero.
But, um, so it was very, it’s, it’s pretty good. It’s very good. But it uses, I looked at the summertime during the time where we use use electricity, and the, the, the use was like, like more than double in the wintertime. So if you get, you have a major push to get people on the grid during, you know, using heat pumps and then everything else, that’s, that’s a big stress. Now one thing is, one thing good about it is the, the heat pump in the wintertime is stressed, mostly the coldest time of the day, which is at night, early morning. So that’s, there’s not a lot of demand for power then. And then when during the summertime, uh, when I’m using electric, uh, electricity for cooling, you know, it’s a, it’s a big peak, uh, demand part of the day, so that there’s that issue. But, um, still it’s, we’re, we’re, we’re, we’re not ready for, uh, electric electrifying everything’s,
No, I don’t think, I mean, the permitting process alone, which is, I think if you, you know, talk to people who are, who are very active in that world. Yeah. You know, they’ll, they’ll almost invariably say, well, the number one hurdle is the permitting process.
So, right. Look, look what, in order to get the budget ceiling lifted, uh, mansion got a pipeline out of it. That’s how, that’s how bad it is. You know, <laugh>, how, you know, why are you putting that in the bill? Well, how else am I gonna get, you know, how long I get this thing done? You know? I mean, it’s, yeah, that’s a big problem. I think in New York state where I live, uh, they’ve been trying to get some hydropower, uh, or Quebec hydro’s been trying to, is saying, listen, you wanna go green? We have all the green power you want. We have hydro, but we can’t, we, we, New York state couldn’t build transmission lines, and I think they finally have one coming in from Canada down to New York City, but I’m told from, from the beginning of the process took 17 years.
Because you have, you have all these stakeholders along the way, and they, they don’t, they don’t want new lines. You know, why would you want a major transmission line coming through your area that’s coming from Canada, going into New York City? I mean, what, what’s, how’s that help you? I mean, that, that’s part of it, right? I mean, so yeah. That’s
All part of it.
Yeah. It would say not my backyard. Right. I understand. I understand that. So anyway, um, moving along, uh, let’s talk about pricing. Andy, I think two months ago, and I’m, I’m not gonna ho you were looking for a grinding sideways moving market to hire, and it kind of went, I wanna say it was like grinding lower.
Yeah. Grind it. Did it ground lower?
Yeah. So let’s, let’s refresh that idea. Going forward. What do you, what do you think?
Well, I happened to still, you know, looking at where we are, uh, in terms of, uh, what I expect for the balances. I, I can’t say that I’ve changed my outlook from a grinding, grinding higher. The, I think what has to change though, you know, sentiment clearly has to change. We have to start seeing stock draws today. The, uh, today, the weekly petroleum report, uh, had a bit, uh, you know, a build of 8 million barrels in, in crude, which was not, not good. And they, another 12 million in total supplies. I think the market doesn’t want to, the market wants to see the opposite of that, Jim, you know, we, we need to start seeing stock straw. We need to start seeing the physical market to get, to get stronger where the curves are actually softening here. So, you know, if you look at, if you look at the physical market, that would indicate that the demand may not be, you know, as strong as some of the numbers that are, are being reported.
But I, uh, but I think, you know, for this to, for the market to get out of its lethargy, uh, on the upside, those, those are gonna be two important factors. Let’s start seeing, you know, actual stock draws and let’s really start seeing the physical market pick up. I think it will, but it, it may take, you know, it may take time and it’s, you know, for the fundamentalists, maybe this will be, you know, something that, or for the market, you know, we’ve been trading, we’ve been trading everything, but crude, actually <laugh>, you know, all these reports come out and, you know, e even on things that have nothing to do with petroleum, and people will trade it, which is, um, you know, a li a little, a little disheartening, but that’s, that’s the market, uh, today. But I, I would say, let’s watch, you know, let’s watch inventories and let’s watch the physical market for, uh, clues that this is beginning to, to turn around.
Yeah. If you’re, if you’re looking for demand increase, say in the second half of the year, or going forward, it’s not gonna help help you with your long to front crude contract <laugh>. Yeah. Necessarily, you know?
Right. And you’re not gonna be Ha and you don’t want to see contango, you know? Right,
D shred these. And, um, w t i is has, um, you know, earlier this year was 50 cents a month. Now it’s only 25 cents a month. Still backwardated. But, you know, the, the backwardation has really, has really come off. So we want to, you wanna see the backwardation increase, and, you know, I’d be watching these red Ds, I’d be watching the front, uh, and I’d been wa I’d be watching all the physical, you know, differentials.
Hmm. There’s been a lot of talk in the news about how, you know, the people, people who are looking at a recession, imminent recession probably are looking at the PMI numbers, you know, manufacturing pmi, and then the people who are looking at, no, we’re not going into recession, are probably looking at the, uh, uh, service pmmi and it’s the manufacturing PMI that are correlated to diesel demand. And so what’s, what’s your feeling? Let’s, let’s break it out. Uh, gas, gasoline, diesel, uh, diesel’s taking it on the chin lately. Is it? We bottomed out here, do you think? Uh,
Yeah. Diesels, well, we just had a, a big stock build on, uh, diesel, although the crack actually held together and rallied a little bit on the diesel crack global diesels. E even though we’ve had to spill global diesel supplies are relatively low. Uh, demand is sort of, you know, lack it is lackluster us demand the EIA on the, you know, their last report, you know, is looking for flat right around 4 million barrels a day for the third or fourth year in a row. Uh, so, you know, until manufacturing really turns around, I think, uh, growth may be, may be hard to come by on, uh, on diesel. And obviously everybody’s been watching the manufacturing reports, you know, the isms. Now, those Jim, those are important, right? Yes. The, yes, the ism is really, really has something to do with, with oil demand. Yes. So that’s something, you know, that’s definitely something to, uh, watch.
But I, I think this year it looks like diesel demand’s gonna be flat, maybe, you know, globally up or down at just a, just a little bit us flat gasoline demand. One thing, the mar that is definitely, you know, one thing we’re seeing is gasoline demands a lot better than have been forecasts US gasoline demand much better than forecast. I think if you look at, you know, originally right after the Memorial Day weekend, you know, it came out that, oh, I, uh, I think it was gas Buddy was saying that the demand was down 1.11% when it should have been up. But if you look at the EIA weeklys, it’s pretty, it was good. These three weeks around Memorial Day was really good. Uhhuh <affirmative>. And I think it’s one of the reasons why the, you know, the gasoline crack’s been on a a, you know, it’s been on a roll. It’s really been very strong. And we’ve also had refinery issues. So at least, at least in the us you know, we’ll keep watching the gasoline demand’s coming in a lot, a lot higher than, um, you know, than, than what was, than I thought. Frankly, you know, <laugh>, I, I thought be unchange this year. And it’s, you know, I think we’re gonna see some, uh, I think we’re gonna see growth.
I see the, uh, the runs this week. We’re at 16 586, I believe, if I, if you need that, right? That’s, that’s, is that like a million over last year? No, that’s not, not, no, no, it’s, I’m sorry. That’s a, it’s a, no,
It’s still low. It’s still low. Uh, relative to like the five year average. It’s like, I don’t know, 500 below, uh, the, yeah, the five year type average. We, you know, there too, there’s been, there’ve been issues, uh, you know, there’s a big issue here in the Northeast and that’s one of the reasons why, you know, gasoline took off, but it was tight last year. Last month too. And what’s surprising me is that, you know, these, you know, we should be getting armadas coming in into New York Harbor. Imports are picking up, and maybe we will be getting a lot of supply and that’ll, that’ll be it for, you know, for the backwardation and gasoline. But, um, you know, again, the demands, the demands better than thought. And, um, you know, on the supply side, refiners haven’t really fully cranked it out yet.
Or I guess that, I guess my question is, what’s, what do you, where are these things gonna max out the, the runs? Cuz they, they’re um,
Oh, we have, we have a, wait, we can, I think we could get up. I think we can, let’s see, last week was
16, 16 6,
Uh, 16. 586.
Yeah. 16 5 86. Right? That’s right. 16.6. So I think we’ve got another two to 300 we can get out.
Oh, 16, nine, I originally the, i a was talking 17 two for this summer. And that would, I don’t know, that would be like a miracle cuz you, you also have pro, you know, there’s still these, still these pro, you know, these refinery problems all over the place.
Mm-hmm. So gas crack, it’s been firm what, going forward, we stay in this range. We, any, any feel on that?
My feel is I’m a little, I’m a little bit bearish cuz I thought that, uh, production, you know, I just, as I just said, I think we have room to go on the upside on, on production, but you know, these again, demands coming in a little, a little higher. Uh, would I buy it up here? No, I wouldn’t, I wouldn’t buy it up here. Uh, you know, if I’m a refiner, I have to look at this to be a seller for sure. Right. Um, you know, to lock, to lock something in, it’s a
Um, yeah, it’s a graph. It’s an awesome problem for a gasoline crack. And again, you know, if you’re, if you’re hedging, you know, you’re, you’re not locking in your whole, you know, you’re just doing a portion here for the refiners.
So I’m gonna throw this little curve ball at you. We, we asked the guy, you and I were on a phone call, I don’t know, maybe a year and a half ago, and we asked the guy what old oil guy had done everything, asked him what part of the business he would like to be in over the next couple years. He said refining and, um, I think he walked right smack into some record profits along the way. I
Know he nailed
It. He nailed it. What do, what do you think going forward next year, year and a half, what part of the business would you like to be in?
Well, it could, it wouldn’t be refining because we’ve got all this new refinery capacity coming on, but I, I, I think I’d like to be in the, um, I’d like to be in the production side. You know, I do think that there is an underinvestment, maybe not as big as OPEC has said. So I, I think that, I think the production side would be, um, you know, I’d, I’d rather be on that side than on the, uh, refining side right now.
So you see some rallies ahead. And, and so last question, Andy, and then I’ll end it, or you, you know, unless you have things we need to cover, your oil price forecast. Are we grinding, you said grinding forward to higher?
Yeah, I think we, I, you know, I like the market to be higher in the, in the second half. So far, Brent, this year has averaged, I think it was $81 in ti, like 76, close to 77. You know, I, I, I think ti could, I think we could be at those numbers for the, for the, at those numbers are higher for the second half
And then, well
The 90, you know, the 90 to a hundred that, that may be, you know, that, that may be hard pressed, but less, you know, the I e A and OPEC are right on their, uh, on their demand forecast.
Then we get there. Yeah,
We could get, yeah, mid eighties. 90, 90 wouldn’t be out of the question if they’re right.
Well, that’s a, the, um, the two option strikes with the most open interest are the DE twenty three one hundred call in wti. It’s like 42,000. And in Brent it’s the DE 2300 call with about 44,000 open interest. So, yeah, so, uh, there’s people, I’m sure they’re hoping that happened already, but, um, yeah, that I’m, they’re gonna, I’m, I think they’re gonna hang on for the, uh, I’m, I’m sure they’re reading the I e A and the, and the OPEC demand numbers and looking at ’em very closely.
I’ve, I’d hold onto ’em.
Andy, anything else you wanna talk about that we didn’t cover?
No, I just wanna say that you could reach me at email@example.com
And I’m also on LinkedIn. If you have any questions about our podcast or any questions at all, feel free to reach out to me.
Great. Thank you very much, Andy. I’ll see you next month.
All right. See you next month, Jim.