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, global events 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 of Commodity Research Group. Today I’m joined by Marty Stetzer, the president of EKT Interactive and my colleague and partner, a top rated metals analyst, Ed Meir. We’re going to be talking about energy, metals and trade amongst other things on our weekly report, a weekly podcast.
Good morning, Marty.
Good morning Andy. Nice to meet you again.
Likewise and good morning Ed.
Good morning guys.
I think I’m going to start and talk a little bit about oil. The market today is getting hit pretty hard, actually. The last two or three days has been under some severe pressure falling today by two $2 and 50 cents. Today’s May 23rd. We’re down by $2.50 and down significantly from the highs of 66.60 made earlier in the month or uh, last month. I think there are a couple of factors behind this unexpected decline. The first one, for many of you who have followed the commodity markets for years or not even for years is probably the fact that the market was lined up very much on, on the bull side.
Almost everybody was bullish on crude, including us, frankly, looking at a tightening fundamental picture, we saw a huge buildup in the speculative interests in, um, on the commitment of traders, net length just exploding over the last couple of weeks to get a WTI at least to the point where it was something like 14 to one longs to short. And just a few weeks ago it had been three to one long to short, so big speculative interests, big bullish view by us and some of the banks throwing out numbers like $90. I saw one, one bank talk about 250.
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Problems in the Persian Gulf, which, which we’ll talk about. And uh, the market’s seemingly was set up for a move to new highs and, uh, it just didn’t happen obviously. Uh, I think, uh, we’ve seen a big boy. I know we see the big risk off move in a lot of the market. So to the failure of the um, Chinese US talks are on trade, uh, which has broad, somewhat of a negative bias to it too. A lot of the commodity markets. And I know Ed’s going to talk about what’s what’s happened in, uh, in copper and some of the metals, you know, owing in part to the, uh, to the trade talk failure and concerns about, uh, concerns about demand. Now, what sparked our particular selloff in crude was a undoubtedly a, a fourth or fifth in a row bearish EIA report, which showed crude stocks for the week building by five, 6 million barrels and crude stocks. Now US crude stocks have built 40 million barrels over the last nine weeks. Uh, we’ve gone from being, yeah, a little tight on crude to now being more or less average. The, the day’s supply, which is a inventories divided by demand or a 28.5, a four year average is 28.9, which still where we’re at average levels, but not really tight by any means.
And we’re seeing that in the least in the mid continent, we’re seeing a contango or the, the first month is below the, uh, below the second month in the market search. Certainly did not expect that type of, uh, that type of a build. And the reason we built so much, and we’ve talked about this in other podcasts, is that demand for crude through crude runs has been, has been really soft. The okay, one’s a running like the crude runs. So 16.5 million barrels a day right now for you, four week average, we should be closer to 17. The government thought that by now they’d be 17.4. So that’s a million barrels a day of a refinery capacity, but that hasn’t come on. Uh, owing to problems in the mid continent, in a west coast, in the Gulf coast, prolonged maintenances. So demand for crude really hasn’t been as strong as it ought to be.
And as a result, that’s one of the main reasons we’ve seen. We’ve seen a big built, we knew production was going to be high. Uh, we knew imports. We’re going to be relatively low and exports relatively high. The big number where many of us, Scott wrong, uh, has been on crude runs snap. The good news about that is that over the next couple of weeks, crude runs are going to increase and a crude stocks are going to go, are going to begin to draw finally at long last, but they’ve built way higher than, uh, you know, what many of us have thought. Now the good news about crude runs being not where they should be. Gasoline stocks are in good shape below that. They’re below the four year average. And, um, just to let stocks just let socks are okay. They’re there a day below, uh, the, the four year average, so, so at least light products are in okay shape.
In fact, gasoline’s a little bit low going into the, uh, going into the driving season. So, you know, I think that’s the good news. The bad news is that because crude, uh, at least on the Gulf coast, uh, only to the strength and brand, uh, some of the offshore crudes have gotten very strong and a pad three refinery margins are not good. Asian refinery margins actually aren’t that good either. And that’s yet another bearish factor for the, uh, for the market is his refinery margins globally are probably not as good as they should be because the premiums on some of these crews I have gotten, I’ve gotten pretty high. Now let’s take a, let’s move away from the, you know, from the u s s and d and then just take a broader view and we continue to think, looking at the s the supply demand balances for the, the second and into the third quarter, particularly the third quarter looks as though owing to the loss of Iranian crude, the continuing gloss of Venezuelan crude and the Saudis not yet increasing production, although they said they would, uh, if if needed.
Uh, it does look like as we head into the third quarter and runs and runs grow globally, we are going to draw stocks and there is there looks like there’s going to be a short fall. Which a, what was the, uh, was the bullish scenario I think. I think it still is the bullish scenario. So despite this, you know, this despite the sell off here, you know, we still, we still liked them. We still do like the market, you know, we still, we think the market will find some stability and um, yeah has every chance in the world to turn up and we do have the geopolitical problems also.
Andy, a quick question for our listeners who may not be familiar with it. With all of the uncertainties and the recent attacks in Saudi Arabia, how come there’s not a lot of risk premium associated? You know, the crude price drop, you explained some of the factors, but could some of the geopolitical factors really take over and we start to see more of a risk premium associated with the crude. So maybe talk to our, our listeners what that means.
And that is of course the, you know, one of the amazing questions as is s and also was probably a bearish Hugh for the market. Uh, with all the attacks in the Persian Gulf, the Saudi oil facilities in the past. You know, the market would go crazy on that and it wasn’t really, it wasn’t really going up. Now we made a new interim high and the and then came off. But you know that too, uh, it was probably a negative, a negative factor. And I think the reason, uh, the market hasn’t gone crazy is that one that probably is signing right now, low probability that this actually going to be a supply cut off to hostilities and to the Saudis have said that, uh, they could make up some of the, you know, some of the Iranian shortfall. We don’t even know what the Iranian shortfall is cause some of the April and may barrels are now arriving.
So we’re getting a heart. It’s difficult to assess where around it were. Iranian production is an Iranian export numbers are, but obviously the, the, the market took a look, you know, took a broader look and um, you know, said, hey, we really don’t think this is going to be a supply cut off, you know, going to the streets being closed. But that, but that doesn’t mean there couldn’t be. And obviously with, with uh, the build the u s filled up in the Persian Gulf, you know, events can fold in a, in a different direction. So it remains to be seen. It’s like definitely remains to be seen. Yeah. Though that now we also have, we have an OPEC meeting coming up and it may be postponed till July. They’re talking about postponing until July began to try to get more data, uh, add on where Ron is, whether China buys a, an Iranian barrels, you know, and the Saudis have to make their own decision on whether they’re going to increase production.
You know, there at nine, eight, they say they’re going to be at 99.8 million barrels a day production. They say they’re going to be there for May and June and uh, you know, we’ll see where they go. And, uh, in third quarter I’m thinking they’re going, they will end up increasing production by up to half a million, which would still conform with, they’d still conform to the deal that they made with the Russians, but even with that increase, the market’s still going to be short. So, um, yeah, it looks like a pretty interesting couple of months coming up at the, uh, question for you. Where do you see Iranian production finally coming, coming out at? I don’t think it will go to zero, so no, no, no. Our exports will not go to zero. [inaudible] they’re there. I think right now they’re at about 1.3 million barrels a day of exports. Maybe little low or maybe one one too.
That was the April number. May is going to be lower than that, you know, possibly 800 a day. Think that it’ll settle out at about half a million to 600,000 a day. And it was gonna be who’s gonna Survive? Who’s going to be buying it? The Chinese, this is going to be leakage, you know, whether, whether third party, you know, to China or a third party to India, this is definitely going to be, this is definitely going to be leakage. You know, they’re, they’re sending, they’re sending barrels to Syria. So, uh, you know, there, there is going to be some Iranian on, on the market. Okay, well that’s, that’s all I have really.
Okay. Thanks very much guys. Well, on my side we’ve been looking at of course, base metals, precious metals and the month of May, true to form selling man. Go Away. Like Andy, I was, you know, moderately bullish on the group going early into the month I thought the base metals would kind of have one final rally once this trade agreement was sort of negotiated. And of course president Trump threw a wrench in the works by just a blind siding, everyone with the, uh, with his announcement that the deal was off. So we’ve been going, we’ve been selling off since then, both in base metals and in some of the precious metals like platinum and palladium. Of course. Since then we’ve had, uh, this thing has morphed from an economic deal to, to more of a political deal, which makes it all the more dangerous. Today, Secretary Palm Peo said that China’s national security threat.
So, you know, once you start going into a political rabbit hole with, with the Chinese, things really become dicey I think. And that’s why, you know, the markets are just selling off with a vengeance. And we’re seeing a big sell off in a equity markets as we speak as well. With the down now down 400 points, this trait component is really infectious. You know, it’s not only between the US and China just spills, it has tentacles spreading everywhere. So you, you know, one of the bigger casualties or the Europeans, you know, German companies have about 5,300 operations in China. So when China slows down, it automatically impacts, uh, what’s going on in Germany. And in fact, today we got the Ifo business index out of Germany, the lowest reading since 2014 European purchasing managers index came out as well at 51.6 barely growing unchanged from last month.
And then we have the European elections, parliamentary elections, uh, slated for tomorrow. All these establishment parties aren’t expected to do well. So, you know, you could see pressure on, on the euro sterling is already under pressure. It’s hit a 2019 low close to it. There’s rumors that prime minister may may be resigning as early as tomorrow. So all in all, it’s kind of a very convoluted picture. What, what was holding base metals up for for a long while was the fact that inventory levels were very low, uh, across most, uh, metals, copper, zinc, nickel, aluminum, aluminum is starting to come down as well. So, uh, that kind of gave the market some support. However, we’re starting to see stock starting to creep up now, uh, just as demand is also weakening. So that story of, of a tight market on the supply side, kind of like crude in a way, uh, is starting to, to, uh, not hold up as much.
And, uh, so this week we’ve really had a big, uh, a big sell off in, in a lot of the metals with key support levels being taken out, especially in copper, aluminum, zinc. Now Gold has been stuck that in the water for four weeks. Now you would have thought that with all this that’s been going on, you see some more of some more interesting gold. We’re finally starting to move today. We’re up about $10 an ounce at 1283, but if you look at the gold chart, it’s still very much stuck in a range. But I think with, with all this uncertainty, it could probably have another test higher. Uh, certainly break above $1,300. That’s what we’re looking for, especially if if US stocks continue to head south, uh, I think what’s keeping gold restricted is the fact that the general dollar index is very strong. So we’re seeing it right now at around 98.
It’s at a one month high, uh, you know, very strong against all the major currencies except the NDN is kind of moves up, up, uh, moves up with the dollar as the Swiss franc. So all in all, what, where, where do we go from here? I think we’re kind of in an, in a, in a no man’s land, in terms of trade talks. There is no talk scheduled. Uh, right now the Chinese said today that they’re not going to be doing anything for, for the foreseeable future unless the u s corrects, you know, it’s wrong actions, quote unquote. So we don’t see any dialogue happening until possibly end of June when president g and and Trump meet. And maybe by then we could, uh, we could see the two leaders kind of call a truce and yet the markets to stabilize a bit.
Okay. Thank you very much. And one question on copper, do you see, um, significantly lower or do you think we’re, we’re close to a, to a level of stability?
I think we could probably, uh, work close, you know, the, the low we’ve called for the year, just as a reference point is 57 50 that we predicted that back in, uh, November of last year when we did our annual outlook and we’re about 5% away from that number. Um, so I think are at around 5,700. This is the three month price based, the basis there. Let me, you know, a lot of these mining companies will really start to feel the pinch and we could see investment, deferrals, production cutbacks, uh, uh, if we get down to those levels. So it’s probably another 5% from here. And, um, the bulk of the decline, uh, we’ll probably be behind us, but you know, a lot depends as to what, you know, if the world economy tips into recession or not, right. Just don’t know.
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Okay.
So close, but will remain to be seen.
All right. Well thanks very much Ed. And thanks Marty. Again, this is Andy Lebow from Commodity Research Group or Ed Meir from Commodity Research Group. You can see us on the internet, that’s commodityresearchgroup.com, and you can get a hold of me and also Ed, the same way at alebow@commodityresearchgroup.com.
Marty.
Thanks again for the opportunity to participate. I always learn something when I, especially on the metal side, which is a new new field for us. And if folks are interested in continuing to learn more about our industry, the oil and gas side, to supplement the talking podcast that we do to keep you current on industry events, we now have a weekly newsletter called energized, which is a blog and links to important websites that that will keep you current on what’s happening in this important industry. It can be found@www.ektinteractive.com
I would like to thank everyone for listening.
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