Commodity Research Group (CRG) is an independent research consultancy specializing in base and precious metals, as well energy products. The Group provides research and general price analysis for these markets, along with advice to companies seeking to construct hedging strategies.
In this podcast, oil market experts Andrew Lebow and Jim Colburn discuss key fundamental forces driving oil prices in both the futures and options markets.
About Your Hosts
Andrew Lebow
Andrew Lebow has been involved in the energy derivative area since 1980. He began his career with Shearson Lehman Brothers where he worked in the initial formulation and marketing of the NYMEX WTI crude contract in 1983 as well as the NYMEX gasoline contract in 1985.
Mr. Lebow has appeared before the State Government of Alaska as well as the State Department of Defense to discuss hedging techniques. Mr. Lebow is also well known as a market analyst and is quoted frequently in the financial press. He has appeared on television on CNBC, NBC, CNN, CBS, and PBS. Mr. Lebow holds a BA from Lafayette College and an MBA from the Kellogg School of Management at Northwestern University
James Colburn
Jim Colburn is a futures and options professional with 30 years of wide ranging experience in commodity markets. For much of his career, at Man Financial (1989-2011) and Jefferies LLC (2012-2013), Mr. Colburn worked with major integrated oil companies, hedge funds, pension funds and other entities to develop market hedging and trading strategies.
He has conducted trading, hedging and risk management workshops in energy markets worldwide.
Mr. Colburn is a published author on options trading, hedging, market making and risk management. In 1986, while at the New York Mercantile Exchange, Mr. Colburn helped develop new markets in energy option contracts by educating the oil industry, banks, floor traders and brokers, worldwide.
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Transcription
Good morning.
This is Jim Colburn of Commodity Research Group.
I’m with Andy LeBow, also of Commodity Research Group, and we’re here to talk about energy markets.
To learn more about us, you can check out our website at www.commodityresearchgroup.com where we post our podcasts and blog.
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This podcast should be construed as market commentary, merely observing economic, political and market conditions, and is not intended to refer to or endorse any specific trading system, strategy or recommendation. We are not responsible for trading decisions taken by anyone. Information is not guaranteed to be accurate. This is not an offer to buy or sell any derivative.
It’s the morning of June 20th, and there’s a lot going on, as usual, in the oil market, Andy. But, first of all, why don’t you talk about what’s going on with the oil curve?
Good morning, Jim, and good morning, everybody, or good afternoon whenever you’re listening to this or maybe even good evening. We are seeing a it’s June 20th, the last trading day for July and uh, July, August WTI has uh, rallied very sharply from like $0.30 over to uh, $1 over. And Augie Sep is uh has also rallied very sharply from the same thing from like 20 or $0.30 over to 80 or $0.90 over. They it it did actually July, Aug or June July actually dipped into, uh, contango I think recently I know the Brant market did dip into, uh, contango, but I think there are a number of things going on in the, in the front end of the curve. And it’s not it’s not only WTI, uh, we are seeing, uh, the front end get a little bit stronger globally, but I think WTI has its own uh, internals going for it. One of course is the new pipeline that’s opened in uh, in Canada became operational on May 1st. That is uh, taking oil from Alberta to the west coast of Canada, which should allow which will allow exports for the Canadian producers.
And that and that may remove some of the, uh, marginal barrel from, uh, coming into Cushing. Uh, Cushing. Incidentally, we’ve seen some decent draws in Cushing over the last few weeks. And the other thing, uh, from a fundamental standpoint, is runs. Uh, runs have stayed really strong. And we’ll talk about that when we when we talk about the, uh, the product markets. So there has been, uh, some fundamental justification and, and also, of course, we’re seeing, um, position, you know, whatever is going on, on the, on the position churn. And uh, in terms of positioning, the market went from liquidation to, um, uh, liquidation to short covering, uh, an outright buying over the last couple of weeks. And I think that’s been more concentrated in the front than in the, uh, in the back of the curve. Finally, uh, there is some uncertainty about whether or not whether or not BP is, is, uh, moving their big maintenance up from September to July at their, uh, Mid-Continent factory, at their Mid-Continent refinery. You know, some people may have sold the front based thinking that they were moving it up and then had to cover.
That’s still a little bit unclear, but it’s a big volume. So I think that’s also added to the, uh, to the front end strength in the front end. And then, Jim, there’s the big macro. The big, uh, the and the big macro is the front looks okay. You know, if you look at the balances and the back looks bad, next year looks bad, which we will, uh, which we will talk about. And I think that’s probably, uh, also leading to the, um, you know, leading to the spreads tightening up all across the, you know, all across the way, like these red these uh, has, uh, has rallied and, um, so it’s not only the front and I think there’s a real lack of conviction in buying the backs. So, uh, you know, it’s as usual, it’s a very interesting market. It is. And I and I have to say that, you know, last month, um, even up, uh, we’re seeing more activity in the spread options. So there’s, there’s, uh, you know, like, I want to say 25,000 lots a day trading last month. That’s a big number. But the, the number one and spread options. So the number one open interest spread option right now is the Augie Sep.
Uh, plus $2 call. Uh, there’s a there’s about 14,000 or so open interest on that. And, um, it just tells you I, I do like looking at, uh, extremes and in, uh, in, in options. It just gives you a sense of, you know, sometimes it’s it’s crazy people at work, sometimes it’s people with an idea. And, uh, so these like I said, the last month, they’re these things were very active and into this month as well. So some there’s somebody out there, many people, a few people, uh, think that that spread could go even higher. It’s interesting. You would think the runs could continue stronger longer this year because wasn’t didn’t we do a heavy maintenance period in the springtime this year? Yeah, we did the runs number. And I think in talking to, uh, colleagues and to the market, you know, runs went over 17 million crude runs went over 17 million barrels a day. Uh, you know, I don’t think anybody had 17 million barrels a day of crude runs in their forecasts. I mean, that number I was thinking, uh, well, I think this year will be lucky to get up to, like, 16.7 million barrels a day or 16.8 at the very top, and it’s over 17 million barrels a day now.
Um, so refiners came back with with guns blazing out of, um, you know, out of maintenances. So, uh, let’s, let’s, uh, continue with the big fundamental. You’re not talking about Tim Duncan, but you’re talking about the IEA’s, uh, report. Uh, they come out with a monthly report, and then they which is a short term, uh, look, and then they have a medium term report that came out as well. And why don’t you discuss what got the market interested in those? I think the, uh. Well, the market’s always interested in the IEA monthly report. No matter what it tends to, it tends to make headlines, um, as does the OPEC report. And uh, unfortunately the EIA uh, which I think has been pretty close lately. They’ve done a great job. You know, they they never get headlines. Yeah. We we’ve been talking about that for a couple of years now. How underrated the, the, the uh, doe’s uh, EIA uh, monthly supply demand reports. Very good. Yeah. They made some changes over the last few years and it’s pretty good. I mean, they’ve they’ve been close.
They made like everybody else. The price projection may not be perfect, but their numbers have been pretty good. But anyway, getting back to the, uh, IEA report and actually the OPEC report and, and the EIA report. You know both both OPEC I’m sorry. Both the IEA, the IEA and US CRG are not looking for much on the demand side this year. I think we’ve been saying this year is going to be hard pressed to get much over a million barrels a day. Um, you know, maybe 1.2 and the IEA, which somehow ramped up their demand at the beginning of the year to 1.3, 1.4, you know, they recently cut it and said, yeah, you’re right. Or they didn’t say to me, right. But they said demand was going to be around a million barrels a day up. And that’s sort of where the EIA is. They’re up, uh, a million barrels a day. But OPEC still is sticking to their 2.2 million barrel a day increase, uh, for 2024 over 2023, which is just, you know, fantastic, uh, fantasy really, uh, particularly since we already have half the year in, uh, you know, demand the demand. The data isn’t good.
You know, the data is, uh, you know, we’re showing at best a million barrels a day growth and probably less than that. Um, so you’re going to have to have a rock and roll second half to get, uh, anywhere near 2.2 million barrels a day. And then things just aren’t setting up that way, Jim. It’s just not, you know, it doesn’t look like you’re going to get, you know, to get 2.2 million barrel a day growth. You know, they’re going to need something like. You know what? Three and a half to 4 million barrels a day growth in the second half. That’s not going to happen. Yeah. Um, do you do you get the sense these two groups are politicizing their numbers? I mean, that’s. Yeah, I think more, more and more we’re definitely seeing politicization, politicization of, uh, OPEC and, uh, the IEA. And they seem to be, you know, they they seem to be going at each other. You know, the IEA famously said a couple of years ago, we shouldn’t be investing any more in fossil fuels, which is, you know, which is ridiculous. And uh, OPEC called them on it. And now the IEA is saying that demand is going to peak in 2029.
And OPEC’s calling them on that to. Right. They they’re, uh, I have to say, what came out of the IEA over the last, uh, was a week or so has been bearish, especially, like you said, for the, like their, their midterm. Report, or rather their. Their monthly report is looking for more of a surplus in a second uh, year out uh 2025 and in the market rallied off of that. So. Right. You know the I remember 2016 came out with a very bearish report. And, uh, you know, I think I’m not sure if they were the ones that said they were swimming in oil, but it was something like that. And the and that was like the bottom. So it either means, you know, they, they have this bias or possibly. That the market that puts so much. Uh, wait on what they say that, you know, OPEC sees that and and changes the supply situation. So and also they we’re all wrong at times. But they, they they can be wrong big time. So the OPEC actions though Andy, seem to be contrary to their OPEC report. So if you’re if you’re looking at, you know, this 2 million barrel plus demand for this year, um you’re considering letting out more barrels.
You know, put it this way, OPEC was like cut started cutting production before anybody had a really softening demand picture. I think people are still plugging in China as a big right increase in demand. So so the OPEC action seems to be more, uh, market realistic than say, uh, the OPEC uh analyst report. Would you say that’s true? Oh, yeah. I think the as you pointed out when we were discussing this, you know, the Saudis see what see demand because they see what their customers are doing. And, uh, you know, I think they tend to rely on both their internal forecasts as well as forecasts of others. Not necessarily, certainly not the IEA. Uh, it looks certainly not like their own OPEC, you know, their, their own group, you know, and um, I think you’re right. And the Saudis were quick to come out after the OPEC meeting on in early June when the market pretty much collapsed, not collapsed, but really sold off, you know, down to $72 basis. Um, the nearby WTI, you know, Saudis had to do some serious damage control.
And why did they have to do serious damage control? Because they printed they put out a road map for the unwind and for, you know, for fourth quarter and into 2025. And if you if you read the roadmap carefully enough, it was a road map to take you right off the cliff because production was going to, you know, they’ve got to unwind 2.2 million barrels a day, uh, over the next from the fourth quarter into the, into the fourth quarter of next year. And looking at where demand is going to be next year, it would mean, uh, surplus of easily, easily a million barrels a day average for uh, 2025. So in other words, there’s no room for an unwind. And, um, you know, unless demand is, is surging next year, which, again, doesn’t look likely. You know, demand would really have to search. So the Saudis had to come out and say, you know, we’re going to we’re going to check the market. We may not necessarily do what we’re printing, what we’ve released, uh, depending on the market. But nevertheless, you know, there’s that fear that, okay, you know, next year’s balances don’t look good even without the big increases.
You know, if we do see big increases next year, it’s going to be really, really challenging. And there are, uh, you know, you’re going to get an increase from non-OPEC producers than an increase from non-OPEC that that’s going to happen no matter what, you know, and that’s going to be about a million and a I have 1,000,006. I think the other guys have like one 5 to 1 seven. But, you know, everybody’s around around the same numbers for, you know, with increases from um, us, Canada for sure. Uh, Brazil and Guyana and others. So, you know, how do you how do you fit into that. Yeah. It’s it’s interesting to me that the OPEC looks more and more like the fed. Now they have a dot plot you know you call it they have a road map and they’re giving guidance. You know it’s like they’re giving forward guidance. And and um I remember like when we when we you got into this analyzing oil way before I did. But OPEC used to be kind of the, the, the price, uh, what do you call it. The dove. You know, they had they had the most oil reserves and they wanted to make sure they maintained, uh, market share amongst, you know, OPEC and non-OPEC, but also maybe alternative.
They were looking at maybe, uh, conservation at the time, not not so much alternative energies, but they wanted to make sure that their, you know, their, their oil reserves had value. Oh, and they didn’t want to kill the economies either. They wanted to keep the economies growing because they felt like, uh, that would increase oil demand, which it did. And now they seem to be more like interested in, uh, they’re more price hawks, not maybe the hawkish hawkish of the Hawks, but they definitely are trying to keep prices above a certain level. And and in the meantime, they’re watching, you know, their market share erode. And so. Right. Any anything you want to say about that. Agreed. Disagree. Yeah I, I think. I agree with you, Jim. The you know, they’re a different regime now. And and the regime, of course, is mbs’s regime because the Saudis have, at least according to the IMF, that they said the IMF said they needed $97 to break even on their, um, you know, for, for their budget, $97 crude. Um, and they’ve got a big, you know, they’re spending money on that Neom city.
Uh, they’re spending money on professional golfers. Uh, now they want to get into boxing and wrestling and, you know, tennis and and who knows what else. But they’re they’re certainly spending you know, there’s big and the social, you know, realistic things is, you know, social expenditures and defense and now defense expenditures. So you know, they they need a high price now. Right. And uh, you know, that’s the I think you’re right. That’s what they’re that’s what they’re pursuing. Their other option, which they, which you and I have lived through, uh, a number of times in our careers. Right. Is the good sweating, right where they just say, you know what? Let’s just open it up. Right? And, uh, you know, take some, take our medicine, you know, next year and try to remove some marginal remove some competition. And, um, you know, we’ve seen that one right as early as recently as 2020. Right. As recently as 20 as 2020 exactly. Exacerbated the, uh, lower prices. So, uh, crude oil, I was mentioning, uh, like, outlandish option trades that kind of raise an eyebrow, but, um, this, this one that happened, uh, within the last week.
Didn’t you know I don’t I’m not going to put a lot of weight into it, but, um, looks like, uh, over 4000. Um, I don’t know if it was done as a straddle strangle, but. August 20th. Dollar puts 4000. August 20th dollar puts 4000. August $200 calls traded at a at a penny each. And so I was mentioning before that spread options. Uh, there was there were some outlier trades, uh, when, when uh, before the prices went way before the prices went negative. And I’m thinking, you know, this is kooky to me. I don’t know what this is about, but, um, I really. I agree with the market. There’s a very, very low, extremely, extremely low probability that one of these options expires. In the market. But you know, when you have that thought experiment, what you know is gold bullish or bearish when when the world’s about to end. You know, maybe they’re playing something like like that I don’t know I have no idea what that’s about. But I just want to point out that there’s crazy stuff happening. Uh, but we’ll we’ll leave that. But in crude oil options, I think the kind of news, if there’s any news is, is that the volatility is, is bouncing around 22, 23%.
So that’s that’s a really low number. Usually the all time low was was set as I was around 12 something 12 point something during the the April I think it was April May June at time period. So it’s the spring time tends to be a low number in vol. But um, you know, it just seems like there’s a lot more going on. But then when you look at the price action, you know, we’ve been between 70 and 90 since, uh, since like 2022. Um, you know, maybe even closer to 75, nine, 90 ish, you know, and so there hasn’t been a lot going on. And I and I think the IEA said this was it late last year, and I, and I chuckled at them that you know, they see a market balance going into the, you know, into 2024. So they they’re right on about that. But I just, uh, I guess being being a commodity guy, I’m always looking for the next, uh, blast and prices one way or the other. Um, so kudos to to them. And, um, yeah, I was wrong. So that’s the news that, you know, volumes have picked up a little bit. The only it’s hard to, you know, not being on a desk and seeing what, why and what people are doing.
Exactly. The only thing I’ll pull out from this is that it seems a little bit like a rate. The option guys are trading ranges as well, so you see the market go up and more open. Interest is being put on the put side and the call side. And then when the price goes to the bottom end of the range, more emphasis is put on or more open. Interest is in the call side and the put side. So it’s kind of counter to what you might, uh, expect in a trending market or a market that’s about to blast One Direction or the other. Yeah. I guess the surprise to me was the price movement up. But so let’s, let’s talk about products for a second. Gasoline. The gasoline season is a little bit underwhelming. To say the least, to say the least, to say the least. The you know, there was a there was. A big hype on Memorial Day. You know, I was going to be a record number of drivers, and maybe it was, but the numbers that first of all, there was the anecdotal stuff coming from the retailers and the wholesalers saying they weren’t really seeing, uh, as big A pulls that as they would expect.
And then came the numbers from the, um, EIA and they were, they were, they were mediocre. It didn’t show it. We were actually behind last year. And, uh, you know, you would have I would have expected and did expect that we’d see at least a little growth. And this is the you know, this is the big problem for gasoline. It’s in a it’s in a no growth environment. And um, the getting back to the IEA, the, um, you know, they’re looking for gasoline demand to decline every not every year, but we’re going to peak like this year or next and then then start declining because of the, uh, fleet efficiency and of course, the, uh, EV competition. And, um, you know, we’re seeing it in the, in the demand numbers now, again, July 4th is supposed to be a record this year. Uh, so we’ll we’ll see what, uh, we’ll see what we get. But I think that the, the other thing that’s happened to gasoline is refiners. You know, they were expecting a big they were expecting a good gasoline driver this season. And it’s certainly not over yet because we still have July and August ahead of us.
But they really as we said before, they cranked it out. And gasoline inventories have been have been building and now they’re in surplus. The cracks really came off hard. They’ve rallied back a little bit. But you know it’s really not a great it’s not a great environment right now. Certainly for for refiners the margins are better than they are historically. But you know again it’s hard to trace where you’re going to see some serious growth on the on gasoline demand. You know, maybe it’ll be on export demand. But that’s probably not going to happen either, because there’s a big new refinery opening up in South America, uh, in Mexico, and there’s a monster refinery that that is underway in Nigeria. So, you know, the Atlantic basin is going to get very long gasoline. And, uh, it’s going to mean that, uh, Asia is really going to have to crank it up. And Asia hasn’t been. So your margins in Asia are, are also, you know, are, are. You know, they’re not a run cut levels yet, but they’re getting there. Us not at run cut levels, but it’s getting there.
It’s getting there too. So, um, yeah, gasoline is is, uh, just not performing as well as what, uh, had been had been expected. Yeah. Uh, just a couple of things, Andy. And what you’re saying the, um, uh, anecdotally as well, that people I know that, uh, including myself, that have bought hybrids are thrilled with them, that they get better mileage. You can go all electric if you want to for a little while, and then you go back to the gasoline to charge it up. Or, you know, I think that’s what the, the, the EV sales have kind of. You know, short just it’s I think it’s just one year where it flattened a little bit, maybe even down. Definitely. But. But the hybrids I think are really, uh, soaring still because, you know, you don’t have to you you can still fill up, fill up your car with gas. You don’t have to wait for the for the charging. And, um, there’s still not, you know, they’re highlighted, but there’s still not a lot of charging stations around. But even people with EVs are happy as well. I shouldn’t, you know, put that down too much. But I think I think the growth potential growth or fast growth is you can feel comfortable buying a hybrid car because you’re still kind of doing the same thing you always did.
You go to the gas station, fill it up. Not not as many times. So I think that’s probably going to, uh, continue the, the, uh, part about new refineries in Mexico and Nigeria. I, you know, living in New York, I have this thing that maintenance is, is underrated. Our our roads are a shambles. We we pay high taxes and and our governments can’t pave the roads for some reason. And I think that’s kind of everywhere where the, the big news is the, the new thing that’s come out and people forget, you gotta, you gotta, you gotta take care of it. And so, um, I hear you about new refining capacity. Um, I’m guessing the, the real important number down the road is going to be effective or or what’s what can be what’s online. We’ll see. Totally. I mean, yeah, we’re not Mexico’s had Mexico’s running at only 60% total refinery capacity and that that’s up. So they they they’re not well known for uh running a good show on their, uh, on their refineries in Nigeria. It is privately owned that 600,000 barrel a day refinery. But, um, you know, they’ve certainly had all kinds of problems in their, um, in their petroleum industry to say, to say the least.
So I think you’re right. And and talking about, uh, maintenance, you know, we are expected to have a big hurricane season and that, that may, you know, if that takes out some refinery capacity that may help, that may help margins may not do well, do much for demand. But you know, could that could that could help margins in the in the short term. And then there’s diesel. Then this diesel. Well, that was you. That’s. I was going to say. What about diesel? That was my. Yeah. What about diesel? Let’s talk about diesel. Diesel. Diesel leads had a rough start to the first half of the year. Uh, diesels really had a rough start. Diesel demand in the US is down 5% from, uh, from last year, which is, um, you know, that obviously is a is a big number. You know, I think it’s like 200,000 a day, 150 to 200 a day. And, uh, we certainly had a warm winter, which took out some demand. And, uh, manufacturing has been, uh, a real, a real problem for, you know, for years now. And, uh, there are some green shoots on the manufacturing side. So, you know, maybe diesel will maybe demand will pick up some, uh, in the second half, but it’s really been, uh, you know, it’s been a big drag and cracks have gotten hammered all over the world, uh, on, uh, on diesel.
And the other thing that is that’s hurting us. Refiners. Petroleum refiners is the big boom in renewable diesel demand. Renewable diesel is not petroleum based, and um can be used as a substitute for uh for diesel on at least, you know, it’s basically manufactured and used on the West Coast. So what’s happening is, um, refiners are cranking it out on not refiners, but I should say a lot of them are refiners that are making the renewable diesel. Um hum. Um, but. You know, what they’re doing is, is manufacturing the renewable diesel banking, the credits that they’re getting for manufacturing it and then exporting the petroleum diesel. So, you know, as long as there’s demand for petroleum diesel. But that’s got to be, you know, there’s competition for that because it’s exported to the to Asia. Right. So, um, you know, another government program that looks like it’s going awry. Maybe. But the bottom line is, is demand and, you know, production and demand for renewable diesel and biodiesel, you know, continues to continues to grow.
And that that also is hurting diesel demand. I haven’t, so I haven’t heard you talk about the possibility of run cuts. Is it way too early for. Yeah, way too early. It’s way too early. I think the, um, you know, again, we’ll see what’s going on with that big, uh, Indiana plant, whether whether there’s maintenance there or not. But the margins are still. Good enough that you’re going to run. So and there’s still enough export demand. And you know, I don’t think I think it’s too early here to talk about run cuts. You know, again, maybe, maybe, maybe in Asia, Europe, their margins have also improved a little bit. So I think it’s a little you know, it’s it’s a little too early. Yeah. I wonder, uh, if it would be a a play to, you know, do your maintenance early and be prepared for the, uh, hurricane season. You know, it would be. It would be if you could, you know, again. Uh, not again. But to schedule a maintenance is not that easy, you know, to move your maintenance around. You got to get everything, you know, people to say nothing of the labor. Right?
As you say. Yeah, that’s the hard. That’s really the hard part. Yeah. So, you know diesel, I guess if you’re bullish on the global economy and you think that. Manufacturing is going to pick up. You know, there may be there may be room for diesel cracks to increase some. So, um, a little bit of anecdotal evidence. The people I talked to, they seem to the Memorial Day seemed to be a, uh, more of a flying. Holiday this year, then a driving holiday. And, um, one one bright spot in demand is, uh, is jet fuel, right? Yeah. Jet fuel demand is up, uh, like 50,000 barrels a day so far this year over last year. But remember, jet fuel demand is only like 7 or 8% of the barrel, right, of, um, total, uh, of total demand, not of the barrel of, of, uh, of total demand. So it’s great that it’s up. And the other big winners have been the NHL’s and Eagles. You know, they’re they’re up there. Demand is up as well. But really for demand surge you need you need um gasoline and diesel. You know, to show some signs of life, particularly US gasoline. It’s so important you know, US gasoline demand is so important.
It’s 10%. You know, it’s it’s like 10% of total demand. The global demand is our is our gasoline demand. Yeah. So a crummy gasoline season is not is certainly you know doesn’t fit into the OPEC. The whole OPEC demand boom. So before I ask you about your price forecast, you just want to talk about this. The stock levels again we you have it tightening staying. I do yeah yeah I have it tightening a little. Although I now you know we had a slight we thought may with the second quarter was going to draw. And now it looks like second quarter globally stocks are going to build because US stocks US stocks were up. Let me think. It’s up like 50 million barrels since the first quarter. A lot a lot of that is, you know refined products because the crude is flat refined products. The uh propane um. You know, the NHL’s are up a lot. The gasoline and diesel are up as well because demand wasn’t wasn’t quite as strong. But globally it does look like and the IEA mentioned this, that there were big, big stock builds in uh, April and, and uh, into May.
It looks like China built some stocks. So I think second quarter we probably you know we were unchanged to build. And in third quarter I think we’re going to see a little, you know, a bit of a draw, uh, particularly since OPEC did not increase as they, as was you know, they had said so they’re going to keep production steady. And then in fourth quarter they’re going to increase. And I think that we’re still going to see a slight draw. And then we’ll see what. You know, we’ll see what next year. You know, what’s going to happen with next year. Uh, one thing we haven’t talked about in this podcast is, uh, geopolitics, which, you know, the market has, uh, as it does, you know, when things are, when things are calm or it looks like they’re calm, even though they may be bubbling like crazy under the surface, you know, like in Lebanon, right? You know, like, it’s like, oh, there’s no, you know, there’s no risk, but. Right, right. That’s actually. Yeah. You know, you mentioned the you mentioned the Vols. Yeah. Come on. It’s crazy. Yeah. It’s crazy. Yeah.
Right. We have we have a potential war breaking out. Yep. And and one being fought still. And the more you look at the charts, the more you see you get this long, longer and longer term, uh, trading range market. You feel comfortable with that trading range market. And that’s how a lot of people oh I can see where it breaks out. So I’m going to sell that call and that put and right. And that brings it down even more. So it’s interesting. Well, let’s let’s talk about price levels. Well, let’s talk about. I’m, I’m it’s hard to get. You know, I just talked about I think we’re going to see some modest stock draws in the second half, which will be you know that’ll be bullish. It’s hard to say what’s been priced in already. You know I was thinking after the OPEC meeting that 70 to 80 would be the range. And then you know the market came back some. Uh and I got WTI. Yeah WTI yeah a little the market came back some. And you know I’m thinking all right 7282 now you know maybe maybe we have a shot at 85. You know maybe maybe if if demand can pick up in the second half and you know, I guess in terms of the flow, you know, that’s all.
What’s, what’s, you know, what’s the fed going to do. And you know, risk assets and you know, that’s that’s flow. But I think from fundamentals you know. May may be an outside shot at 85. As I said, the big problem is is looking ahead at next year. You know the big fundamental. It looks it looks gruesome right now just using that road map. And you know they’re not going to be able to increase. But nevertheless, you know is the market going to roll up. To where we are now, or is it going to roll down to where we are in the backs and that’s, you know, that’s that’s a big question because things could really things could really unravel badly if, um, you know, if they pursue the unwind. I think the, uh, the IMF is looking at like over 3% growth for 2024 and 2025. You know, you would expect that to be positive for oil demand overall. Uh, but we do have these, you know, these these, you know, clean tech things coming in. Well, I should say EVs. Hybrid stuff. We talked about biofuels, things like that. So it’s kind of a. Be an interesting, uh.
You know, kind of tracking this peak demand. And then in the background you also have increasing demand for that. The plastics, uh, petrol, uh, petrochemicals and things like that. So, um, what’s what do you think if we’re going to break out the you look kind of looking at a little, uh, a grinding range, and you’ve been right. Grinding range, like. Yeah, maybe. Maybe it tipped out of a little bit for a little while on on the bottom side this time. But if, if there was a breakout one way or the other, what which way would you say it would go? And would you be, uh, would you be worried more about the bottom side of your range? Uh, not holding or the top side of your range? I guess because there’s a because there’s a, you know, a geopolitical brushfire still going on. Yeah. I guess it would be the, the top end. But, you know, depending on where, you know, where the Saudis want to go next year, you know, as I said, it could easily it could easily be the bottom end. If they if they decide to pursue the, um, you know, the scorched earth strategy, which again, doesn’t look like they they want to do that given what their needs are.
But, you know, given what their fiscal needs are. But. You know, again, you and I have seen them, you know, change. Change course. Yeah. I was always thinking, like a few years ago when I’m trying to figure out the adoption of, uh, electric vehicles, I felt like it was going to be a zig zag where, you know, you start getting, uh, critical mass and electric vehicles, and that reduces the demand for gasoline prices come down, and then prices are cheap, so people are fine buying gasoline, you know, just like they’ve always done buy gasoline cars and and then, um, demand goes up again. You know, there’s this ratchet, but there’s also, there’s also this issue of, uh, you know, kind of a mandate where, you know, the since it’s hard to raise taxes, uh, our governments are, you know, passing these, uh, you know, laws like, like in California, I think they don’t they they’re trying to get rid of internal combustion engines and, um, so it’s it my point is that a lot of, a lot of the, um, adoption of these non-fossil fuel uses is, is a mandate. It’s not even a market.
The a price a price generated movement. So it’s like the Saudis are probably saying this is inevitable. Like we’re you look around the world, it’s inevitable that we reach a peak demand. I’m not saying that, obviously, but. Right. And then now what do we do? And and you know, yeah, they’re investing in they got they got the sovereign wealth fund going on high that you know issuing stock for Aramco doing all kinds of sort of risk mitigating uh, type things I guess trying to build a city with, to draw like a high tech, high, high tech, uh, city maybe to draw. You know, more people over there. More investment, that kind of thing. But clearly have changed the way and I. But OPEC policy, you know when you go back it’s only successful in in demand increasing periods when when we see demand contracting they have a hard time. Yeah that’s a great point. It’s a really that’s a great point. They really have a hard time. There’s one one thing I do I want to add before we end this. Let’s also not forget there’s a war in Europe going on. Uh, you know that we still have no, you know, trying to get a handle on on some of the Russian numbers, uh, continues to be pretty difficult, but we’ll see, you know, where where you know that they’ve promised to cut back.
They they said they were going to get down to 9 million barrels a day of, um, crude production. I think they got down to like, 915. Uh, but we’ll see where they, you know, where they want to go in terms of their exports and their policy and how tight, you know, the, um, the West wants to get on, uh, on their exports, uh, you know, on the sanctions, on whether or not or whether or not they’re going to enforce them. Right. And, uh, same thing for Iran. I mean, there’s right, same for Iran. But in, in, uh, Ukraine is getting more, uh, capabilities to strike within Russia. And, you know, Biden has kind of asked them not to not to bomb refineries. I wonder how much refinery capacity will be bombed after the election if depending on. So that’s another good point because yeah, they all spring they, they were all over those refineries and they just took out a, um, storage facility. So, um. So let’s not forget that that is still going on.
And as we always say. Where the disruption is, is not where you think it. It’s not where you would plant. Right? There’s always something happens that you had, you know, were not thinking about. Are you trying to say unknown unknowns? I am trying to say there are a lot of unknowns. We still have a lot of unknown. There are known unknowns, right? Those that the known unknowns and the unknown unknowns. Donald Rumsfeld, I thought I you know, I thought that was brilliant when he said that. I mean, you know, um, anyway, uh, it’s a good, good way to manage risk. Um, I mean, getting into this market. Just a quick, you know, history. Andy, when we we came in for this market through commodities. I mean, you were looking at cocoa, I was looking at grains. And we kind of had a different sort of take on, on what prices could do than say, uh, when we started getting into, you know, brushing or talking with people who are all came in from the equity markets. I mean, they kind of had a different, you know, sense of, or I should say, lack of sense.
I just thought that the commodity coming in from the commodity markets gave you a much more healthy respect for risk than, um, than from the equity markets. But yeah, definitely, you know, we’re all we all have these twitches. You know, we have these nervous tics that doesn’t go away getting slapped around. Yeah, right. Even many decades later, it still doesn’t go away. It doesn’t. And as much as I tease, you know, other organizations about their, uh. Their price, their bad price calls. It’s it’s what I’m really poking at is, is the arrogance that they come out with and say with confidence. And we know it’s it’s it’s a hard thing to do. Right. Yeah. Tell tell us about it. Tell us about it. Uh. Anything else? Uh, no, I think that’s it.
If you want to reach me, it’s alebow@commodityresearchgroup.com.
Thank you Jim.
You’re welcome. Andy. I’ll catch you next month. And I’m on LinkedIn, I post, I’m about to post this podcast, but then I’ll post the updated chart of implied vol just to show how where we are.
Uh, like the 22% is, is a is a quite a low number; one one of the best charts of all times is your implied vol chart.
Going back to the beginning, time immemorial, I should I should be in the what is it, the world record book? Um, I think I’m the only person who has.
The implied volatility going back to November 14th, 1986. No question. And that’s you know, I’m not being treated for OCD either, but I should be.
Okay. On that note.
All right.
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