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 is president of EKT Interactive Oil and Gas Training.
He 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
EKT Interactive Oil and Gas Training
Transcription
Hello everybody. This is Andy Lebow of Commodity Research Group.
Today I am joined with Marty Stetzer, the president of EKT Interactive and also my partner Ed Meir, who was recently named the number one base metals analysts in the world. Very impressive by Metals Bulletin.
So, we’re going to do our weekly commentary. We’re going to talk about oil and metals and whatever else. Today is March 7th.
Good morning, Marty. Good morning, Ed. Happy to be with you again this week. So we, we’ve had, we’ve got a lot to talk about this actually a lot going on in, in the oil market, but the market’s not really moving, but there’s plenty, luckily there’s a lot to, a lot to talk about it. The market seems to be just kind of stuck here in a narrow range. But you know, there’s, there’s a lot going on that, that could easily change that range in one way or the other.
EIAs
I think I’m going to start just briefly going through the EIAs, which showed a crude stock build of 7 million barrels. You know, some people were really hand wringing over that build. But the reality is it true 9 million last week and there was fog in the Houston ship channel, which prevented a lot of the imports skinning in fog lifted, imports increase the lo and behold we had, we had to build in stocks. I don’t think it was all that all that much of a surprise.
In fact, Commodity Research Group, we’re looking for a build of a over 5 million barrels and we were on the, we were the highest. So I think we nailed that pretty good. On gasoline draw 4.2 a distillate or drove 2.4 and total inventories were basically unchanged. Two things I want to talk about on the, on the EIAs one, kind of following up from our, our last report, gasoline’s looking a lot better.
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Product Demand
It has drawn consistently the, this over the last few weeks. And, uh, you know, in January it looked as though gasoline could really get into a bad surplus situation and that, and that has not happened in the least. In fact, uh, gasoline has cleaned up, cleaned up nicely, demand is good. And as a result, they supply at 28 versus a a four year average of 27 point of 27 and a half. So gasoline in uh, in very good shape, uh, heading into the driving season, the cracks have rallied.
So the, that is certainly one to watch. Diesel continues to be tenuous, to be tight at 33 and a half days versus a four year average of a 37.3 days. And diesel is definitely, yeah, that’s something we’re going to be watching very, very carefully as the Imo, uh, you know, as I am Oh, 2020, uh, approaches for Marty will be talking about that a lot later in the year and for, and finally on crude stocks at four 53 a day supply or 28 and a half versus 30.
So, so crude stocks are, it are in pretty good shape. Total stocks or 60 days. That’s where they should be this time of year. So I’m looking at the inventory data. Yeah, it looks fine. You know, it’s not, I don’t think it’s in big oversupply. I certainly don’t think it’s tight by any means. So the inventory’s look, um, look fine. Now look, looking ahead, there’s been, there was a lot of talk over the last couple of, well this always a lot of talk Marty about us production and uh, we hit another record of a 12.1 million barrels a day and uh, it looks as though it’s not only in the, you know, on land, but it looks like off shore.
US Oil Production
Exactly. Andy, there was a really good article and the Houston Chronicle that talked about how you, Gulf of Mexico production has really snapped back. The rig count. The offshore rig count is up something like 30% over last year. And like the shale play in the Permian, they hit a new record in the Gulf of Mexico of a little over 2 million barrels a day. And there’s a forecast at that could increase 15% next year on the basis of projects that are already in the development production stage without any new discoveries. The other interesting thing for our listeners is the Gulf of Mexico production is, is generally a heavier crude, which is really needed by some of the US refineries. So it might offset some of that gap that we have with what’s going on with Canada and Venezuela.
Yeah, absolutely. And I think that that, you know, the, the narrative is really been with the shale production, but I think it’s really interesting that, uh, you know, we’ve got to start watching the Gulf coast for the auction. And as you said, it’s real, it’s pretty important that that heavy crude start starts coming out. There was a, there was a very interesting story in the journal this week about production in the shale production in the Permian regarding the, um, wells being drilled, two wells being drilled too tight to each other. And as a result, the efficiencies are and as great as what had been a forecast, uh, as they’re interfering with their so called parent.
Well the parent child problem is, is I think is a good analogy there. And Marty, yes. Of interesting talking about analogies. You had a great analogy earlier on a shale. You know, it would be great if you could share with our listeners, try it on our listeners. By the way, this parent child relationship is not new. I mean it’s, it’s new to the public probably. But I saw one of my first presentations on that problem in 2010 at the Society of Petroleum Engineers meeting when they were talking about, uh, multi-well interference in the, she’ll play in the natural gas side when the Marcellus shale. So I think it’s, it’s a recognized, but now it’s a matter of trying to figure out how to optimize your well spacing as well as the, the number of wells. But people tend to think of the shale is a, uh, is a solid, a continuous reservoir, which it is, but it’s not all the same.
And it’s really difficult drilling. A friend of mine who was a geologist said, think of shale, having the consistency of the concrete on ice 70 and the permeability and porosity of something that looks exactly like that. This is not a coal bed or a slate bed that has a lot of gaps and holes in it. It’s really difficult rock. So analyzing what’s going on down there as it is extremely difficult. And the long laterals that they’re talking about now, five, six, 7,000 feet, the geology changes along the lateral, even if you’re in the same geological strata that you’d like to be in. So what they’ve been able to do to get the production to its levels already, it has been technologically, you know, really amazing. And I’m sure they’ll figure this other well spacing problem out. Right? I think they’ve proven with the use of technology that they will be able to figure out, you know, they’ve overcome a, as you mentioned, they’ve overcome so much, uh, just to get the production up to where it is.
You know, you’d have to, you’d have to believe they’re going to figure it out. The, the other thing I thought that was very interesting about us production this week is, uh, you know, we’ve heard from the majors and in particular Chevron saying that, uh, they are expecting their production to go up in the Permian from four 50 a day to 900 a day and the next on to looking at gains and in production and you have to believe it’s the majors move in, you know, the things will be calm even increasingly, uh, more efficient in the Permian and they have the longterm view and the capital resources available one like a lot of the independents that are so dependent on outside financing for what they’re trying to do. Exactly.
Global Influencers – India, Iran, Venezuela
Yeah, exactly. It’s a and that they bring, they bring a lot of capital that to the game and uh, you know, the game is going to change. The game is going to shift. I think it in favor of the favor of the majors. Let’s just shift to talking about chef. Let, let’s just shift a little bit to what we can look forward to. Uh, over the next, um, today’s March 7th. So over the next couple of months, what I think the market is going to be watching, um, obviously it’s going to be watching the, uh, what’s going to go, what’s going on with the waivers, uh, with, with Iran.
India is trying to, India’s already said that they’re a looking for 300,000 barrels a day. Iran is exploiting like 1.3 and other Asian refiners or are looking for waiver exemption. So that’s going to, we’ll see what happens there. Obviously we’re watching, uh, Venezuela very closely today that today it was reported that uh, Venezuela is going to lose access to, uh, some of their tankers, which are, are going to be, which are tied up in Europe because the companies have not been paid.
Comfort companies operating those, those tankers and their wells and their storage is filling up. So one would expect Venezuelan production will, will fall. We also will be, um, watching the OPEC meeting next month. So there’s the, and what’s happening in Nigeria and also in Olympia where major, uh, where their major field has a restart. This, there’s a lot going on, a lot to watch, a lot of traps on either side, you know, a lot. So the market may not be moving Marty, but you know, we’ll be watching a lot of things that can influence the market. So it should, it should be, it should be a pretty interesting couple of couple of months. Um, was so many wildcards out there. Andy, everybody is, it looks like they’re standing pat. Is that generally what’s going on right now? Yeah, I think so. Uh, you know, I think people are, are, and you could see it from the commitment of traders, uh, a lot of traders that just, or just loath to place big bets right now.
Metals with Ed Meir
And you can’t blame them. Right. You just, you just can’t blame. So with that, Marty, I’m going to, I’m going to put on Ed Meir, uh, who’s going to talk a little bit about metals and the dollar little and yeah, cause the euro’s making a big move today. So Ed, take it away to talk about metals. Hello. Nice to have you join us again. Thank you very much.
Europe Effect
I will be brief, uh, just to update your listeners on a couple of macro things that are going on today. The ECB came out and really slashed it’s growth forecasts for Europe. I think it’s now down to 1.1% from uh, from 1.7%.
So was it 0.6% drop. They’ve also increased some, uh, some of this easy, easy loans to the banks. They’ve extended some loans out to two years, kind of, uh, you know, uh, easy money for some of the banks to make youself and they’ve extended their QE till the end of the year as opposed to the summer. So they, they’ve basically are admitting that things in Europe are not looking good at all, especially in Germany where growth has really hit the wall.
So a net net of all this is that the dollar is, is surging today and it’s kind of pressuring all the commodity markets except for oil. As you guys discussed that, that seems to be holding up well. But if you look at a base metals, precious metals, gold, silver, platinum, copper, nickel, they’ve, they’ve all kind of had a rough week this week. Not a huge sell off, but they, they’re coming off their highs.
China Deal?
I think another thing that’s happening across the markets is the fact, you know, the classic buy the rumor, sell the news with regard to the trade agreement. You know, we’d been rallying for weeks now on the back of of an imminent agreement. We seem to have gotten an uh, uh, the rudimentary outlines of a deal in place and there isn’t much more upside, especially in equities.
They seem to be struggling today and they’ve had a, uh, I think this is the fourth down day in a row, although again, the declines are fairly limited, but the trade deal I think will come together. Uh, I’m not, you know, that’s not a very out of the way position. Most people are thinking we will have some sort of a deal, but I think it will be so watered down and so, so full of loopholes that it really won’t be that robust.
And I think the markets are sensing that as well. In fact, the Financial Times had a really nice checklist of items that, that the two sides are negotiating on. And I’ll just go over them very quickly. Uh, the trade deficits component, you know, buying more US goods, the Chinese will, will give on that. You know, they’ll buy more soy beans, more natural gas. So that’s, that’s an easy one, low hanging fruit so to speak. The next one is intellectual property rights.
The FT is saying that, uh, they think the Chinese will play ball on that because they’re already introducing some, uh, uh, courts to adjudicate these matters. They’re trying to protect trademarks and patents. So I think there’ll be some agreement there. Subsidies is the third area. This is a real sticking point because, uh, the Chinese will probably not budge on removing subsidies. You know, subsidies are, are part and parcel of their economic fabric.
A lot of their industries are subsidy dependent. So I, uh, that’s going to be a bone of contention. Cyber, cyber intrusions, cyber attacks, China’s denying it’s engaged in any hacking. So you know, acknowledging something that you are denying doing is also going to be quite difficult. That that’s also sticky. The requirement to transfer technology kind of open up your books when you come to China. That’s also something the US is very concerned about. I think the Chinese will allow companies to come in without divulging their technologies, but I think they’ll do it on the, in industries where, where China already has a big advantage like the banks, you know, no, no, US bank is going to be able to compete with the Bank of China, which I understand that something like 100 million customers. So you know, it’s, they’re just too far ahead in some fields and if they allow competition, it’s going to be in a, in field, in sectors that they are already way ahead.
And of course, last but not least, or the snapback provisions on the tariffs, I think that’s also a big sticking point. You know, China doesn’t want to enter a deal and then, uh, you find out a month later, two months later that, uh, it’s not to the liking of, of the Americans and, uh, tariffs are going to be snapped back. So I think that that’s a big, uh, Achilles heel in the agreement. You know, I think for businesses they want to see clarity. They want to see a tariff free environment for three years or five years. They don’t want to operate under a, under a cloud of, of terrorists kind of being snapped back a willy nilly. So I have a lot of issues with the agreement, but, but the markets expect something to be done, um, it likely will get done, but it’s not going to be a foolproof.
European Car Tariffs
And lastly, we have the European car tariffs. This is, this is really not on anyone’s radar, but I think, uh, you know, if we impose tariffs on Europe, I think the markets will really have a sharp, a sharp fall. And, uh, that’s about it. I’m available for questions if a, if you have any Marty, otherwise happy to wrap up. Thanks very much. That rundown from ft was was really valuable because a lot of us as you know, get bits and pieces, but this seemed like a very good checklist. Yes, I thought so too. And in fact we, we reproduced it in our monthly report which is on your website. Uh, I think it’s on page a three so your readers can check it out. Thank you. Thank you very much. Good talking to you.
Okay, thanks for that. And thanks Marty.
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As always you can find us on our website which is commodityresearchgroup.com. My email is alebow@commodityresearchgroup.com. We have a brand new website which is terrific and we’re getting a lot of great feedback on it.
Andy really enjoyed being on the podcast with you. As I listened to Ed maybe in one of our future sessions, we can talk about the oil and gas demand forecasts. Now with this new really low ECB economic forecast, I think our listeners would be very interested in how that’s going to translate to barrels. But I appreciate being part of the podcast.
I’m Marty Stetzer, president of EKT Interactive Oil and Gas Training in Houston. If you’re interested, if you’re new to the industry and interested in learning more about the vagaries of the shale play, or what happens in offshore production, take a look at our website, www.ektinteractive.com. We have three examples of our digital training that you can watch and listen on your phone. Thanks for the opportunity to participate, Andy.
Okay. Thank you. Marty.
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