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 Coburn 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 podcasts and blog.
We would like to thank our friends at EKT Interactive oil and gas training for hosting this podcast, check out their newsletters, podcasts, and learning modules at www.ektinteractive.com. This podcast should be construed as market commentary, merely observing economic, political and market conditions and is not intended to refer to or endorse any particular trading system, strategy or recommendation. We are not responsible for trading decisions taken by anyone. Information is not guaranteed to be accurate. This is not an offer to buy or sell any derivative. Today is March 28th and Andy it’s been a little while since we had our last podcast. I, I think we should start with the, uh Russian oil in the marketplace. What do you think?
That’s probably a good place to start? I think our last podcast was the day before the invasion. So, uh, a lot has happened since the invasion and, uh, I’m sure our, our listeners have been following, uh, closely, uh, on many fronts, including the oil front, um, oil prices have traded it’s Bel in the last four or five weeks has traded between 92 to, uh, one 30 volatility market is, is just so Jim, what, what was the high on, uh, on Vols in, in March
In the, in the front month, the, um, implied volatility settled over a hundred percent. That was on the, um, March 7th day. You know, when we had that, it was the high, it was the high of the move, but we settled on the lows. So, so probably even it probably traded even higher than that. It was interesting that day, the second month, uh, had, had, had made its high the Friday previous. So on that big day up, we did, we did see, uh, eventually a lot of profit taking in the, uh, call, uh, call side of the market. But yeah, that was, it got over a hundred percent. Compare that to Gulf war, Gulf war I, where the second nearby was over 120%. So that was a, you know, long time ago, different situation. But yeah, it’s a, it’s still around 70, 75% for the first two months. Now those are high numbers when you consider, uh, high prices are, it’s hard to maintain that vow, you know, unless, unless there’s a war going on, which is where we are.
Yeah. Which is where, which right. Which is where, where we are. And I think, uh, we’re recording this on, uh, March 28th and, uh, today was, was a, was a good point to, to look at because on Friday night the market looked so bullish closed on the highs. Uh, a lot of concern about the, uh, who attack, uh, on the Saudis, uh, obviously on, on a lot of supply fronts, uh, which we will go into, uh, in detail and, you know, it, it, it looked as though Monday we’d be a lot higher and, uh, we open five, $6 lower, we get down $8. And, um, you know, if I was a betting man, there’s no, I would not be betting on, uh, the market down $8 today, but I think it it’s part and parcel of the, um, you know, what, what we’re seeing in trade and how difficult it is to, uh, to trade this market, Jim, uh, yeah, in every way. It’s, uh, it’s very difficult.
It’s, uh, it’s, it’s quite untrainable, but, um, Andy, a lot of, uh, I guess the IEA and a lot of other people are looking at 3 million barrels of per day of Russian oil, uh, that will be taken off the market. Can you talk about that number and what you, you think about it and where you come out?
Yeah. You know, one of the reasons why it’s it’s so has become so difficult to trade is these, uh, supply and demand numbers are, um, you know, almost impossible to, to track. Uh, there’s a lot of uncertainty on, on, uh, both sides. You, him, you know, that, uh, my whole career has been spent as a, uh, barrel counter and, uh, and commodity research group. You know, we really pride ourselves on our, uh, on our numbers. And I, I think, you know, I think we’ve been pretty good both at, uh, you know, throughout our, both of our careers, uh, in, in trying to barrel count.
And, uh, I would just say, Andy, I would just say my career has been spent, period. Well, go ahead. Sorry.
You’re still going.
Yeah. Still going, you,
You, we may be wasting assets, but I think we’re still assets.
We’re, we’re, we’re, we’re decent some of your options. Yes. Yeah,
Yeah, yeah. We’re decent. Some we haven’t expired yet.
But, um, getting back to the, the numbers. Yeah. The IEA through, uh, 3 million barrels a day out. I, I, I think they’re high, you know, the numbers that, that we’ve been able to, that I’m, we’ve been able to work for April is I think it’s closer to 2.3 to 2.4 million barrels a day. And, and the IA said from April going forward, because, uh, in March a, a lot of the supply coming out of Russia was still coming because they, they were all, a lot of it was contracted barrels. It’s not to say that none of it had been disrupted, but, uh, there, there was still a good amount of, of supply coming out. So for, uh, April, we’re looking, we’re working at around two, three to two five, and then as we head into may and June, uh, moving into, you know, closer to 2 million barrels a day of, uh, disrupted, and that’s both on crude and refined products, uh, what has to happen here is the flows have to normalize somehow.
And we think they, we think they will, but we, we think it’s gonna be, you know, later in the, you know, sometime into the third and into the fourth quarter and supplies will probably normalize at a loss for Russia of, uh, about 1.5 million barrels a day. Uh, almost certainly Asia is going to pay, pick up some, uh, extra supply. It looks like unless the, the atrocities grow greater than they already have been. It looks like, uh, the EU, uh, in Germany in particular is going to continue to take barrels out of the, um, friendship pipeline, the, the Jeru of a pipeline, but I’m, I still can’t. I still call it the friendship pipeline. Uh, so that, that oil’s gonna flow Seaborn oil is gonna be disrupted. No question there there’s. As, as we know, there’s a defacto embargo and an official embargo from the United States and from, uh, the UK.
So, you know, working all this out, I is really difficult. You know, we, we, you could look at, uh, where the premiums and the discounts are on the, on the physical market, uh, and try to figure it out. But that’s, uh, basically what our, uh, what our best guesses are. I think that, you know, as we, to the third, some of these barrels will, uh, probably go, go into storage. What’s problematic for the Russians, of course, is as their exports are reduced, their, their production ultimately, you know, storage will ha will get filled and their production is ultimately have, is gonna have to go down. And, uh, they’re just now recovering from the cuts they made in, uh, 20, 20 after the, after the price collapse. So I think the one, the one thing the Russians really don’t want to do is, uh, see their production go down. But I think that that’s gonna be a, uh, inevitable.
So, and that’s, um, you’re talking about, say one and a half down the road, say two and a half more in April. Um, and that’s, and you’re talking about a total market of about a hundred million ish, right. So, um, where, how do you make up those barrels?
Like what it’s, it’s certainly not impossible in the intermediate term, you know, short term, it it’s, you know, it’s gonna be tough making that, that big a, of a supply up, but in the inter in the intermediate term, I, I, I do expect that there’s gonna be another release out of the, uh, out of the reserves. And, uh, the last release was 60. The administration is, uh, indicating it could be even higher, but, uh, let’s say another 60 million barrels are, are released. Uh, I know that some of the banks have been poo pooing that, uh, but 60 million barrels over, uh, a quarter or over four months, you know, that that’s a decent supply number. So there’s certainly that. And let’s look at, uh, and I think that non OPEC in the second quarter, we’ll probably E out, uh, you know, we might be able, again, second quarter might be able to eek out, uh, another 0.3 to maybe 500,000 barrels a day extra.
And finally, there’s a demand side, Jim. Um, certainly it looks as though, as we head later of the second at third quarter, uh, Russia will be in a, in a recession. Ukraine, unfortunately has, has lost its, uh, its demand. And, uh, China, uh, as we know, as of today, they’ve locked down Shanghai for eight days. So we, we are gonna lose demand out out of China. Uh, finally, you know, a lot of, um, a lot of economists, uh, at the banks. And, uh, I think we’ll probably get some new things out, out of the IMF coming out the IMF O E C D. And I suspect they’re going, they’re going to reduce global growth. So we’re gonna, we’re gonna lose some demand just outta, just outta that. So all told, I, I think, you know, you’re, you’re looking at maybe, um, a million and a half being, being reduced, being made up sometime later in the second quarter and possibly in the third quarter, uh, again, we’ve, we make up another million and a half us production is going to grow. So actually, you know, you, you look at these balances going forward into the second half. They’re not so awful. Uh, in fact, you know, they’re pretty well balanced,
Balanced, or which is, or
Yeah, balanced or surplus, you know, we, we could, and let’s not forget the Iranian deal.
I was gonna say, you, you didn’t mention Iran and you didn’t even mention OPEC so
Well, yeah. OPEC is also, yeah, this, these are also all in my own numbers, right. OPEC is going to, uh, you know, is gonna continue to increase production. I think that was always kind, that was always sort of baked in to the, the numbers, uh, 300,000 barrel a day increase from, uh, from OPEC. And then in, in may some of the allocations of gonna increased based on one of, based on the deal they made last year. So we, we could see even more out of, uh, we could see even more out of OPEC than, you know, than these numbers assume and talking about OPEC, you know, the Iranian deal is being still being negotiated. You know, a lot, all the diplomats are indicating that it is close, but they still have some big stumbling blocks. And whether those are geopolitical well, part of it is geopolitical cuz the Iranians want the us to remove the revolutionary guard from their list of terrorists. And uh, you know, the us is at that. So, you know, I, I think the deal is gonna get done. It’s just a matter of when and, uh, looking at our, you know, balances, given our best guesses for OPEC, no, no incre you know, no Iran deal for now, but you know, the, our balances are actually showing some surpluses, Jim right across the right across the board, um, each for the re for the rest of the year, um, which is kind of surprising when you, uh, when you work them out.
So OPEC is looking at your numbers and they’re saying, you know,
Yeah, they probably are, but you know, I’ve cut demand, I’ve cut non OPEC, right. You know, I’ve added some, uh, reserve battles, uh, barrels and, you know, the, the, the numbers are what they are, but, you know, they could be by, uh, half million million, 2 million on, you know, of course that, and there that’s the dilemma, you know, they could be, they could be way off. And, um, you know, I think, and why it’s so difficult to trade. Uh, also we, you know, we have to note that inventories are really low. So all of this is coming on on the backdrop of, of very low inventories. Um, the IEA is saying that inventories are 300 million barrels below the, the 15 to 19, I think is, is the average. I mean, they’re, they’re much too low. I is far low way too low. Uh, whatever you want to call it. I
Saw a number, um, where, where us inventories are 13% below normal for this time of year. Does that sound right?
Yeah. Us inventories are really low. Globally inventories are, are really low. So I think the key, uh, you know, if we’re wrong and, you know, certainly we could be way wrong as I said on any single number, but the one thing that if, if you’re wrong either way and, and the mark continues to be in, in deficit, you know, we could get some rip roaring squeezes anywhere at any time. Right.
Uh, I mean, you and I have been through some unbelievable squeezes at Cushing, you know, in the, as we head into the summertime. Yes. Um, April may, may Junes, you know, and I think that the key is that the market is dis you know, we’re in dislocation flows, are there flows, changing and will continue to change. So when you’re in this period of massive dislocation, you know, you, you’re gonna, you’re gonna go from, you know, it could go for, from shortage to surplus right back to, uh, shortage. There’s unbelievably, something happened where we, we shipped the middle dist distillates out of, out of the Northeast to Europe. It went from us to them. It never happens.
Yeah. The trade balance is, I mean, uh, trade patterns are shifting all over the place, right? Yeah.
So it means, you know, it means big dislocation and we’ve seen big back gradation. I, I mean, we’ve seen massive back gradation, certainly in the, on the, um, Brent side on the, uh, I mean, gas, oil went hundreds of dollars. Backwardated heating oil, you know, was close to 40 cents a gallon backwardated so we’ve seen these already. And I think, you know, as I’ve tried to explain here that, you know, the next two months look really, you know, continue to be tight. It isn’t gonna be till you later in the second quarter, third quarter that, you know, things have a chance to normalize. So, you know, there’s, there’s still gonna be some, you know, really interesting trading developments.
Yeah. I was, you know, I was looking at, um, demand for, uh, diesel for farmers. And you would, you would think the incentive is for them to plant fence row to fence row, uh, with the, with the prices. But, you know, they’re not sure this is gonna happen in the us, but, um, you know, they talk about a shortage and fertilizer now diesel prices are, uh, through the roof. I’m just wondering, is it’s, is that enough to reduce the amount of acreage planted? You know, again, I don’t, I don’t know what the budgets look like or the, the incentives, maybe, maybe farmers not only hedge their crops, but they hedge diesel as well. I don’t know any, maybe
I don’t remember. I don’t remember us covering a lot of, uh, farmer accounts, Jim.
I know, but we did talk, we did talk about, you know, planting and harvest demand. I mean
Oh yeah. All the time. Oh, it wasn’t the, I mean, it wasn’t the farmer accounts. I mean, it was the, it was the dealer accounts, right? Yeah. Those we did have, so yeah. I, I, um, yeah, it’s certainly possible that it may, uh, impact demand. And then, you know, the question on refined products is, you know, what the elasticity is, is really all about, you know, particularly for gasoline,
Right? Could you talk about producer response in the us? I mean, you would think, you know, now’s the time they’re gonna be growing like crazy, and I guess there’s some constraints to that.
Well, they say there are constraints to that, but you know, there there’s been, the, the, some of the producers have been, some of the larger producers have been bellyaching about, uh, labor crews, you know, getting enough labor crews and sand and, um, you know, and the inputs are, you know, their input because of inflation, their input input prices are way up, but my good, this, I mean, you look at the, you look at the prices and even the back of the curve, you know, I think there’s plenty of incentive for them to, uh, increase production. And I, I, you know, we we’ve been saying even before the OV that we thought the EIA numbers were, were too low, you know, and that, and that production was gonna be higher than, than what they said. I mean, currently production is, uh, 11, six. Let’s say they have us I’m look, they have us getting up to around 12 million in June or July.
So that that’s pretty healthy. I mean, that’s 400,000 barrels a day by midyear. And then by, uh, the end of the year, uh, November and December, they’ve got us up to 12.5, 12.6. So that’s a million barrels a day by the, by the end of the year. Okay. Um, I think we could do, I think we’re gonna do better than that. You know, I think it’s gonna be a, of the two or 300 better. I also think, you know, Canada’s talking about increased production. I mean, all of non OPEC, you know, if you, if you’re a producer, you’re, you’re, this is, this is your environment, um, you know, to, to try to increase production despite the inflation, you know, you’ve got some massive margins here.
Yeah. I, it kind of in a way it looks like we’re settling into the old oil cycle where, you know, prices run up. Um, or there’s some, some, you know, either, either OPECs keeping oil off the market or there’s some shock to the system, prices run up, they stay up for a while we conserve, you know, using it. And then there’s this massive incentive for producers to produce more. And then we start heading down the downside. Now that that takes, you can think that through in a couple minutes, but it takes a long time for all that to happen. So you, do you think that’s kind of what is hap what we’re seeing unfold right now?
Yeah, we’ve lived it. I mean, I think, yeah. You know, it’s hard to, it’s hard to say lot, you know, cuz it, it, it oils since the 18 six, these, when we have pricing, you know, it’s highly cyclical. Um, you know, just this last decade, last decade, last two years, we’ve seen minus 40, you know, minus 40 to plus one 30. Uh, now those are obviously extreme parts of, uh, any, any type of so cycle. Right. But, um, sure. We we’ll probably be setting up for, uh, you know, some, some weaknesses, some weakness ahead, but if we go back almost, you know, if we go back two years from now, you know, you had a lot of producers worrying about exist, you know, existential risks and a lot went under, unfortunately.
Right? Yeah. Again, you,
You can’t. Yeah. I, I,
You can’t flick a switch and say, okay, oil prices are back. Let’s just start producing like crazy again. It’s there, there is. There’s still, uh, what would you call it? PTs D from 2020 where, you know, there’s still cautious.
Right. But you can, you know, the, the one good thing about shale is you, you know, it, it, it, the cycle’s pretty fast to, from the time you put a, you know, you, you put the shovel in the ground. Yeah. You know, it’s quick. Um, you know, it, it, it, it it’s months, you know, it shorter than, you know, some could be even shorter than months. It’s not like a longer term project where, um,
Yep. And I, you know,
Andy, I recall it’s a good, good points. I recall just a few years ago, how that shale oil production was gonna dampen volatility in the oil markets, because they could react so quickly. So shut down when the prices get low and start up when the prices get high. And, um, I, I just kind of Googled that and found some interesting studies and interesting titles of studies about how, you know, oil, oil, volatility is, uh, is, is going away. And, um, you know, I think you and I have been through enough cycles, as we just mentioned that, uh, we wouldn’t, we wouldn’t sell straddles and strangles on those studies based on those studies.
No, no. And we, you know, and we kind of lean towards no, that would be enough. No. And you know, the other, um, the other interesting thing we’ve seen, you know, if you think about hedging 1 0 1, you know, you sell forward. If the price goes down, you’re covered. If it goes higher, you, you sold, you already contracted at a price lower than the market, but you’re gonna get that higher price in the cash market. So, so it’s a, it’s an offset. Um, only that’s nice in theory, but when you go out say a year and you have to sell, you sell crude forward and a price shoots up, you’ve got major margin and calls on that position. And you’re, and you’re CA you’re not gonna get that cash offset for another year. So we’ve, we’ve seen this happen with, you know, power companies in Europe, even pre-war.
And I think, you know, some of the oil companies, I would guess are looking at in the, this rally are looking more at, uh, buying puts as a strategy rather than selling futures because of the, you know, the known, uh, you, you, you buy a, put, you know, exactly how much you’re paying for it. Uh, no matter what happens to the price. And, um, you get, you get down site protections, not as good as protection as a futures contract, but you don’t have to worry about making, uh, margin calls. So I think, I think, um, when I, when I look at the pattern in options world, you know, the, the, uh, market seemed to be prepared, you know, overall in general, for a rally and price, we had talked about all the bullish, uh, option flow we’d been seeing since the first quarter of last year, 2021, uh, especially with those Des, uh, 100 calls.
And, um, when this war broke out and you got a spike, uh, you saw, uh, heavy volume and calls, uh, but, uh, on, on that, my March 7th day, you actually saw open interest, go down in calls. If you take Brent and WTI, there was 394,000 calls trading open interest, went down by 9,000. And on the put side, there was 190, 2000. So a lot less and 41,000 and new contracts opened up. So, so you, it, you can kind of see that, you know, a market that was prepared for, for fundamental reasons, uh, for the market to go up, and then they got the spike and say, okay, we’ll take that. And they got out. And at the same time, I think producers are seeing these really nice prices out on a curve, and they wanna protect, uh, uh, their expansion plans. And so instead of selling futures way out there, they’re buying, uh, buying puts. So it, it, you know, again, it’s, I’m looking at it from a macro, you know, uh, bird’s eye view, not the, uh, uh, I’m sure there’s individual stories that are opposite of that, but that’s in general what it looks like.
And what, what about the speculators, Jim, the large funds you think that they’re actively participating right now? You think that they just to shut it down?
Well, we know as you know, we, we have been, um, when we worked at, uh, EDF man, we were, you know, one of the biggest, uh, funds around starting with the mint fund later on as well. And a lot of those funds had volatility kickers, um, that would kick him out of the Mar. So, so didn’t matter which way price was going. Um, but when the markets got too volatile, they would kick out. And, and one of the reasons for that was they, some of ’em felt they, their edge was in the, uh, ability to manage risks. So it was this, uh, uh, uncorrelated asset idea where their, you know, their flipping coins buy and sell signal in many, many different markets. And so they’re, you know, they’re, if, if they’re uncorrelated, if they keep that UNC correlation, uh, assumption intact, then they can manage, uh, risk better.
But when you get these hyper volatility markets, uh, all that goes away. And so, um, they tend to, some of ’em will tend to move out. Um, having said that, uh, we did see say first quarter of last year, uh, an accumulation of a huge position in the D 22 calls, a hundred calls, open interest got over 70,000 at its peak, I believe. And now it’s down to 49. So, um, that, that could have, that could have been just one speculator, but, um, there’s still, that’s still the number one open interest contract. I’m pretty sure it’s a speculator, at least one speculator. And, um, there’s been some liquidation in that, but not, not a lot. I mean, there’s still a lot, a lot of, uh, open interest out there. So, um, so basically to answer your question, I think, I think the speculators have backed out. I just put a LinkedIn store, uh, it was a Bloomberg story. Uh, uh, I put it up on LinkedIn where they quote our friend Ilia, who said the only people trading hour, the ones that have to trade and, you know, and he said that that’s adding to the volatility. And I think, I think that’s right.
I think that, yeah, I think that’s right too, going back to the initial point that, uh, we were talking about, you know, you look like a, a day like today, you know, you down $8 at, it’s not a out of nowhere. I mean, there were, there were developments, but nevertheless, you know, quite unexpected, uh, after, uh, after Friday’s close.
Right. And I, and I think on days like that, Andy, when you were on a desk and a, and a press would call you, you were careful that like, if the market was down $5, rather, you know, you can try to explain why it was down $5, but you didn’t want to get too, too crazy because by the end of the day, it could been unchanged or, you know, heading higher, you know? So, so it was kinda like, okay, we can find some reasons, but, um, is that really what’s going on? But sometimes it’s just crazy volatility and we don’t, we don’t know, you know?
Yeah. And could the market be up $8 tomorrow? Yeah. You know, certainly certainly could. I mean, as we mentioned, we, we’re looking at a 90 to $130 range over the last month. Now, as you said, Jim, that’s, that’s, that’s unsustainable and these valves are, are high. I mean, the market, uh, almost by nature has to, you know, does have to calm down, uh, or doesn’t, I mean, I guess, but that would be, I could, I could, you know, yeah. I mean, things would really have to worsen or something change.
Yeah, I agree. Yeah. I, I, I think markets, you know, despite all the, uh, algos, I think they’re still run by people and people get tired and, and you we’re seeing that in, in options volume it’s um, you know, some of the days that we’ve had re like post, you know, last, last week, or so you would say, oh, is this a day, day be day before a holiday they’re they’re really low volume days. And I think people would just say, you know, uh, they don’t know what to do here. Um, I’m, I’m, my positions are, uh, flat, so I don’t have to do anything here, so I’m not gonna do anything here. And, uh, yeah, so, but, but again, we
See that we see that in the commitment of traders, you know, those positions have really been trimmed. And I, I think there was, uh, I think John Kemp at, at Reuters had written an article that, uh, open interest in, in petroleum, all the petroleum contracts was the lowest since 2015. And, you know, you would think, oh, wow, oil’s really hot. You know, that open interest would be soaring and it’s, uh, you know, it’s been quite the opposite.
Yeah. I think, uh, John Kemp, uh, writes for Reuters and he puts out a, uh, an excellent summary of what’s going on in the commitment of, and I, I look for that often and, uh, just to give him a shout out, but, um,
He does. Yeah, he does a good job.
So, um, I guess the next question is Andy is where do we go from here? And so we, we talked about through COVID how hard it was to get a handle on numbers. And, you know, we still have COVID out there with China, and now we have this Russian, you know, basically how much Russian oil is gonna be taken off the market. Um, what, is there a number out there that you do have confidence in,
On, on a price basis
Or just, yeah, give APRI, gimme a price. Give me a
To, to be quickly honest. No, I mean, I look at the balances that I, I would think, you know, some of the, some of the more premium or volatility premium should, should come out of it and, you know, the market should start moving, uh, lower, you know, under maybe even, you know, under a hundred that could, that could happen. But as I mentioned, you know, there’s so many, you know, there’s so many moving pieces that are, that are large, that it it’s really it’s, you know, it, you could be wrong, you know, all everywhere. Right. So what I think, however, is that there’s certainly, could we make new highs? Yeah. We couldn’t make new highs cuz as I, I mentioned, you know, that with, with this dislocate over the continuing into April and then into may, um, you know, there could be, there could be squeezes in certain products, certain futures, we already had one, you know, sort of had one in heating oil and uh, in gas oil and you know, uh, uh, I’d really be that, not surprise me to see something like that. It might be a short term event, but you know, globally, it could, it could happen anywhere.
Yeah. I, I listen, you know, you know, if you listen to these, uh, podcasts, how I, I am biased towards the buy side of options. I like being able to take a position in a commodity mark, you know, commodity market with a no own quantifiable risk after Gulf war. I, when Naval was up 120 at 120% on the second nearby and the, uh, the initial bombs dropped and there was not a significant response from Iraq, sort of a, as it related to this Saudi oil fields, volatility collapsed to about 85 sent and we got our customers, uh, to sell options. We said, this is, you know, very little response. This is a market that hasn’t, you know, should be, should Val should be lower. And so we got, uh, a few customers aggressively short and they wrote it down to 85 to about, uh, like 20, 25%. So it was a huge year. I gave out a lot of, uh, option trade of the year awards that year. But, um, the point is, I, you know, I don’t feel, I don’t feel comfortable suggesting something like that here, cuz it’s, you know, it hasn’t, there’s not this one event type thing that’s gonna stop, uh, the volatility. It may, it probably will dampen as we go on. But again, like you said, there’s gonna be very possible of these intermittent spikes along the way. That’s uh, could be deadly hazardous to
You, you know, what Jim,
To your health, to trading health. Yeah. I mean,
I mean, you know, we’re obviously, you know, we’re in the middle of, of a storm right now, uh, you know, every now and then if the, if the storm is, is bad enough, you get the, these rogue waves that come in and, you know, amidst the other big waves, you know? So, you know, I think it’s certainly possible that, uh, we see one of these rogue waves come, come into and, and, you know, be hard to predict exactly where it could be. I guess you could see it coming. You know, you can see that that wave come if you study hard enough. But, uh, so you don’t want to be on the wrong side of that,
But uh, going forward, what, what would be the most bearish case you could make, say going in, you know, say four or five months from now? I mean, Irans back on the market economy slows down, what else? P you know, quote unquote peace and Ukraine. Yeah.
Peace sanctions are, uh, sanctions are lifted, which I don’t think is gonna happen anytime soon. You know, I don’t see that happening. You know, I guess if sanctions are lifted and Iran is back on the market and OPEC is increasing production, you, you know, the market could be, yeah, it could easily be under 70, maybe even under, under 60, but those are, you know, those are pretty extreme circumstances, Jim. Yeah.
I, I, cuz I, what, I’m, what I’m thinking of Andy is that a lot of times in these backwardated markets where you’ll see people, uh, start to sell, puts, say a few months out and as the, as long as the market stays, backwardated, you know, those puts are expiring worthless. And then, you know, they’re, I don’t want to compare traders to rats, but it’s like the rat experiment where they, you know, they hit the sugar, they hit the lever and a sugar cube comes out. And then with, within a short time, they’re banging on that lever to get all the sugar cubes out, you get a trade like that, that works one month, then it works two months. Then it works three months and people start loading up on selling, puts into this backwardated market. And then all of a sudden it collapse. So I I’m just trying to get a sense of, you know, what, what it might take to get something like that happen, but it’s down the road,
Down the road. Yeah. So we, we will continue to have a lot to talk about over the, of the rest of the year. I mean another incredible year.
Another one. Yeah. We thought, yeah, we thought we were getting back to normal barrel counting, but it’s not. Yeah.
21 got us a little, little bit back to normal after 20, which was also one for the books. And now we’ve got another one for the books two years later.
1, 1, 1 last question for you, Andy. Um, before we, uh, cut out and that is we, we do these podcasts oftentimes after the, uh, EIA monthly report. And then sometimes after the I IEA and OPEC report this time, we’re doing it a little earlier, you know, they’re, they’re out in a couple weeks, I guess, or next week maybe. And, um, what do you think the revisions, what kind of revisions are they gonna make to demand in their reports? Would you, would you,
Well, the IEA already took demand down by, uh, million barrels a day, which we’re, we’re pretty close. Our numbers are pretty close, uh, to that.
And that’s for this year
OPEC didn’t OPEC. Yeah. For us the year OPEC didn’t, but they’re gonna have to, so I think we’re gonna see, you know, OPEC makes serious downward revisions and probably the EIA who did make some revisions on production on non OPEC production because O Russia is clearly not growing this year. Like everyone had it expected. Right. Uh, um, so, you know, they’ll probably, I can’t remember if they made downward revisions on demand or not Jim in the last report, but yeah,
I think they did
Almost certainly. They’re gonna have to
Probably catch up if they didn’t.
Okay. I think we’ve gotta wrap it up, sum it up.
We run through a lot. So I, the only thing I have to add is if you wanna get, uh, a hold of me, uh, it’s A Lebow at commodityresearchgroup.com.
Yes. We’ll be posting this podcast on the, our website commodityresearchgroup.com and also Andy and I post on our LinkedIn pages as well, which, uh, seems to get a lot of, uh, a lot of interest.
Yeah. Look for us on LinkedIn.
Terrific. Thanks Andy.
All right, Jim.