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, Andrew Lebow and Marty Stetzer discuss Oil Markets, China and Metals with Ed Meir.
About the Experts
Edward Meir
Edward Meir was named the most accurate price forecaster for base metals in 2011, 2014 and 2015 and finished second for 2013, as ranked by Metal Bulletin, a leading trade publication. Additionally, he obtained the #2 ranking for precious metals in 2014 and was third in 2013. Prior to providing research under the banner of Commodity Research Group (formerly Madison Holdings), Mr. Meir sourced nonferrous metals out of Europe, China, and Russia for a number of clients, utilizing the 9 years of trading experience he had acquired while working with UK-based trading company Trans-World Metals.
Currently, Mr. Meir’s CRG has been retained by INTL FCStone as an independent research consultant for both base and precious metals. CRG provided similar services to MF Global for eight years prior to its demise in late 2011, covering the suite of energy products as well. Mr. Meir obtained his BA in Economics from Montreal’s McGill University and his MBA from New York University. He is a long-standing registered principle with the National Futures Association and his firm is registered with the NFA as an independent introducing broker.
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.
Marty Stetzer
Marty Stetzer is president of EKT Interactive Oil and Gas Training.
Marty has been a consultant to U.S. and international oil and gas
companies since 1986, including 13 years with PriceWaterhouseCoopers.
He brings 18 years management experience with Schlumberger, Superior Oil-Mobile, Wilson Industries and Exxon.
Marty has worked with numerous national and international oil and gas company managements to help improve business performance across upstream, midstream and downstream operations.
Like many of the team, Marty is active in the Society of Petroleum Engineers and often presents at industry forums.
Related Links
Commodity Research Group Podcast
Metal Bulletin – Edward Meir of Commodity Research Group #1 Base Metals Forecast
EKT Interactive Oil and Gas Training
Transcription
Hello everybody.
This is Andy Lebow from commodity research group and today I am joined by Marty Stetzer, the president of EKT Interactive Oil and Gas Training and Ed Meir, the award winning analysts rated number one in in base metals bulletin and also is a colleague, a partner at Commodity Research Group.
Good Morning Gentlemen.
This is our weekly podcast and we’re going to talk about metals and other things for, from Ed and a after that, Marty and I are going to talk about the a weekly stats as well as a the oil markets in general.
Today is Wednesday, April 24th.
Ed. Okay. Thank you very much Andy and Marty. Nice to be with you again. Hope, hope my audio is clear. I just wanted to bring your listeners up to date on base and precious metals and review with you as to what’s going on in a nutshell, not very much.
Base metals have kind of flat lined and are going lower over the past week or so. Unlike the action we’re seeing in crude and gold and silver are also really very weak. With silver hitting a four month, four month low yesterday and gold also breaking below key support at 1,280 and taking out a bunch of stops below there. We’re currently at around 1275 on gold and at that 1490 on silver, not much going on in platinum or palladium, either. Palladium as you know, had a big correction a couple of weeks ago.
It seems to be consolidating now around the $1,400 mark and platinum kind of risen sympathy, but, but seems to have stalled as well. So very little action in base in precious metals in base metals. What’s interesting is that we have been selling off despite growing optimism about the US/Chinese trade talks. I think sentiment in base metals is being influenced by the fact that, that China is not really ramping up a stimulus programs as aggressively as people were thinking. Keep in mind that the Chinese have an enormous amount of debt they need to work with.
So if they, you know, build more bridges and airports and highways, this all entails more debt for the provinces and the regional municipalities that need to issue bonds. So what the government is doing instead is lowering rates, making credit easier, uh, jaw boning there, the banks to lend more money.
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All of this means that, that the bang for the buck they’re getting isn’t as, as concentrated as it would be, where they to, uh, to spend money basically. So I think metals are realizing that the demand side from China is kind of slowing just as supplies beginning to increase and it starting to replenish inventories. So we’re, we’re in a bit of a down move in both a base metals and precious metals, but that’s not to say we’re not seeing action elsewhere. And on that note, I’ll turn it over to addy where we’ve had a lot of developments improved over the last couple of weeks.
Okay, thanks. We certainly have had a lot of developments over the last couple of weeks. Actually over the last couple of days, we’ve had a lot of, we’ve had a lot of developments as the Trump administration has said that, uh, they are not going to issue waivers to a, the buyers of Iranian crude two, well the buyers of Iranian crude as they try to realize their goal of a moving Iranian exports down to a zero. Now they’re not going to get to zero on the on the wave on the waivers.
The big unknown is what the negotiations are going to be with the Chinese, the Chinese by about a half a million, the 600,000 barrels a day from the Iranians. And of course that’s a complex dance with the trade negotiations with the u s so it, we’ll see what China does. There’s probably about 300,000 barrels a day of leakage coming out of Iran that that will almost certainly increased some through our numbers show that the failure to grant to grant sanctions.
We’ll probably lead to another production or loss of about 750 to 800,000 barrels a day. Goldman yesterday said 900,000 barrels a day. And that certainly that’s certainly possible. Besides what the Chinese do, what the Saudis to is the, is the next is the next step. The Saudis can make up that volume along with the, uh, along with the UAE. The Saudis have said that right now they don’t plan to immediately increase production, but if there customers asked for more barrels that they will provide them a UAE to, we’ll probably be able to increase production. They may be, we may be able to get a little bit more out of uh, out of Iraq. So it is a, it is definitely a dance. But what are the key thing is that right now OPEC is producing about 30.2 million barrels a day, maybe 30 points, three the call for OPEC crude, the demand for oak tech crude in second and third quarter as predicted by OPEC itself is about 30.8 million barrels a day.
So there is a, there is a shortfall. The Saudi minister said that he didn’t think that there was, he thought the markets were balanced than that inventories were ample, they’re not really a inventories are. And in terms of days supplier running like a day behind the a five year average in terms of total supply, there only 7 million barrels above the five year average according OPEC itself. So it looks as though in second and third quarter and less production, unless the Saudis really ramp up production significantly, we’re still going to have, it looks like there’s going to be the deficits despite what the Trump administration is saying. So that’s, you know, obviously why the market has been in the, in the sharp bump trend today where we’re losing some ground owing the EIAs, which, which I’ll talk about in a minute.
And it’s, it’s also one of the reasons why the speculators have poured into this market on WTI is by 60,000 barrels in the last 60,000 contracts at 60 million better. That’s 60 million barrels in just the last two weeks. We’ve seen a big speculative increase in the market. When you look at the fundamentals, at least for the second and third quarter, you know, they look constructive. The definitely look constructive.
How much is already in the market? Unclear. But, um, I think the market, the market looks as if it may have some more upside. Andy, Marty, a quick point for our listeners who are kind of new to the industry to put the numbers in perspective for Ron, a year ago or more, when the sanctions were first put in place, they were cruising almost 3 million barrels a day and now they’re producing in the range of 1.4 to 1.5 million barrels a day. And the target is, you’ve heard from Andy and others is maybe they’ll get done to 500,000 barrels a day. So think of the impact on their budget and two years to go from about 3 million barrels a day to 500,000 or so. The country, he’s really got to be hurting since this is one of their biggest sources of foreign exchange.
Yeah, there’s no doubt it’s having an impact on the, uh, on the Iranian economy and those, those, those numbers were exports. Production was, was, you know, their demand. That’s like an internal demands like a million barrels a day. So you know, they are production is what’s like three, eight, three, nine before the sanctions and now it’s down to two, seven on it’s way lower unless they moved some of the, you know, move some of the supplies into a floating storage. Speaking about floating storage. Marty, yeah, you added interesting point on what’s going on in, on the shipping side.
Exactly. A lot of our training, we talk about the impact of midstream on upstream operations. And we usually talk about pipelines in the Permian, but the Wall Street Journal reported that Clarkson’s who is one of the biggest ship brokers world based in the UK, does an excellent job of forecasting and providing data. Say that ship orders have shrunk to their lowest level in 15 years. And especially in crude and product carriers that used to make up two thirds of all the orders and now it’s down to less than half. So in addition to sanctions and, and a demand slowing down, there’s been a huge shift in the amount of crude that needs to be moved. And I think that’ll be reflected even more as time goes by.
That sounds like we serve up a podcast on what’s going on in shipping and maybe what’s going on in the Imo 2020, which is going to be very key for a third and fourth quarter and into first quarter, uh, next year, uh, commodity research group points that lead as an expert on shipping Gary Bush. And, uh, I think we’ll, uh, maybe feature Gary in a, in an upcoming podcast on, uh, on shipping and what’s going on in the, uh, in the tank or markets.
I think our listeners would really appreciate that. Andy, great idea. Yeah.
Let’s see if I could do the EIAs in 90 seconds. The EIA numbers were somewhat bearish, at least for crude showing a build of a 5.4 million, although a lot of that was the so called the adjustment or the fudge factor was a made up 4.5 million of it. But no, it did, it was enough to get the market to take some profits. Gasoline continues to be bullish. Drew by 2.2 million. A demand is strong and inventories are very low going into the teeth of the driving season. So, uh, we’ll see what goes. Definitely it looks bullish. Diesel distillate, it’s a drug 0.7. That’s around what the market was looking for. Uh, it stays, supplies are catching up to normal at 33.6 versus 35.1. And total inventory is built by 9 million. Mostly crude. They supply, there are 61 seven, the four year average is 64, so they supply is, I would say a total inventories are adequate to a little bit below adequate.
Again, a contrasting to what the Trump administration has been talking about. Cushing stocks rose by a half a million barrels and the market which has been basically going straight up just took that building. It took that rides in crude and uh, I think it was a, it was a sign or a signal to just take profits this morning. I do think that crude stocks are still have some upside, but obviously there’s is a lot on the plate here coming up. There’s a OPEC and non OPEC ministerial meeting on May 19th, followed by an OPEC meeting on June 25th. And we’ve got the geopolitical minuet with the Russians, the Americans, the Saudis and the, and the Chinese. So it, it’s going to be an interesting a couple of weeks coming up here, a couple of months coming up here in the oil market. That’s it for me, Marty or add anything to anything to add?
I have a question for Ed and this is again, it’s been really helpful for me to learn more about the metals markets as we’ve been expanding our horizons on our podcast. Is there any relationship in the financial community, the investors who invest in commodities between crude oil, which is often treated it as an investment commodity and precious metals. Is there any kind of relationship that you’ve observed over time or are they kind of independent markets with their own behavior?
That’s a good question. Actually. You know, we ran a bunch of correlations for gold, various commodities and currencies, crude being one of them. And the correlation with crude was very high, strikingly high. It was something like a 75%, if I remember correctly. But of course that has broken down over the last few months as, as, as your listeners know, but you know, going back 30 years or so, there is, there is a pretty high correlation between the two.
Interesting. So they look at it as a portfolio investment, not just a crude oil being moved into a gasoline market.
Correct. Yeah, yeah. Dangerous. They do. Especially these index funds, the index, the indices are very heavily weighted in crude oil plus plus all the corresponding products as well as as gold. So when the index is get, get active, you see both of those commodities move higher in tandem.
Thanks Ed. That was a big help.
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Let’s, let’s wrap it up if you’re interested in correlations, if you’re interested more. Do you want to hear more on the correlations, more on metals, more on oil,where we think the price is going.
We do a monthly podcast features options by with Jim Colburn as well as these weekly comments. Please feel free to go to our commodityresearchgroup.com. And if you want it to get ahold of us try alebow@commodityresearchgroup.com.
As usual. I learned something every time I do this. If any of your listeners on the trading side are interested in learning more about the physical aspects of the business, why do we talk about pipelines? Why do we talk about tankers? Why do we talk about refineries and the impact on both price, supply, demand movements, et Cetera?
They might enjoy taking a look at our free mobile ready oil 101 series that discusses upstream, midstream, and downstream www.ektinteractive.com.
I’d like to thank everyone for listening.
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