Oil Prices

[Petertan]

Oil is going up with strength of the dollar losing steam.

yewkin, you must be very excited. If not for the strength of the dollar, I believe he will be laughing to the bank. LOL

Or is he is sucking his thumb?

But I still think he is smart trader to cut lose and get back on the wagon again. He talk quite wisely too.

Hope he make it this time.

[CityFarmer]

I notice that name was mentioned in a few posts.

Let's refrain from doing the same. It can be easily interpreted as mocking posts on her.

Thanks

Regards
Moderator

[Petertan]

I notice that name was mentioned in a few posts.

Let's refrain from doing the same. It can be easily interpreted as mocking posts on her.

Thanks

Regards
Moderator

I am sorry. On the contrary, his/her posting do make great impression on me. He sound discreet and very knowledgeable. I appreciate her alerting post too.

I will not mention name anymore. Sorry about this.

[CityFarmer]

I notice that name was mentioned in a few posts.

Let's refrain from doing the same. It can be easily interpreted as mocking posts on her.

Thanks

Regards
Moderator

I am sorry. On the contrary, his/her posting do make great impression on me. He sound discreet and very knowledgeable. I appreciate her alerting post too.

I will not mention name anymore. Sorry about this.

No problem. It is a friendly reminder.

Regards
Moderator

[henryjohn]

http://www.cmegroup.com/trading/energy/c...crude.html

Oil prices drop usd3.00 to USD48.43. Looks like USD51.43 would be a very strong resistance for the next 2 weeks with strong support at USD42 at the moment.

Fundamentals wise, oil would have a short term excess supply for the next 4 to 6 weeks as storage space for oil are running out in both U.S. and China. China are also expecting a slower GDP growth of 6.8% to 7.3% this year which would cap world's oil demand in 2015. Another dampening factor for oil is that U.S. is expected to start rate hike in June 2015 or latest by September 2015. Hence, in my personal opinion, oil price would have a risk of dropping below USD42 to USD35 in the next 4 months.

[Petertan]

Oil went down only toward last 3 hours of trade. I think it is profit taking after the run. Yemen can only get worse.
Saudi attk from the air is not going to stop the rebel from gaining control. More panic will follow when the govt of Yemen collpase.
Oil will soar.

[specuvestor]

IMHO as discussed the key is still the official end of US refinery strike and the plateau of US oil production around ~April. Yemen is noise

[Curiousparty]

http://www.marketwatch.com/story/oil-cou...2015-03-30

[Petertan]

Oil is forecast to go up in 2nd half 2015. And IEA say demand is still strong despite the glut. Maybe cheap oil encourage consumption to rise a little, thus price is holding well at above 45 dollars.

[greengiraffe]

Iron ore and oil markets facing years of pressure
BUSINESS SPECTATOR APRIL 01, 2015 4:50PM

Stephen Bartholomeusz

Business Spectator Columnist
Melbourne

The parallels between what has been occurring in the markets for both oil and iron ore are striking, and the consequences are likely to be equally analogous and painful.

The prices for both commodities, already dramatically lower than their highs, continue to slide to levels last seen (in oil’s case) in the early phase of the financial crisis and, for iron ore, pre-crisis.

The explanation for the implosions in the price of both commodities is obvious and increasingly well-understood. It relates to the coincidence of lower growth in demand and structural increases in supply that are continuing.

In other words, there are increasing surpluses of supply over demand in both commodities that have pushed the oil price down to about $US55 a barrel from last year’s peak of about $US115 a barrel and the iron ore price down to $US51 a tonne from its 2011 peak of $US187 a tonne.

Start of sidebar. Skip to end of sidebar.

MOREIron ore dives towards $US50
MOREOil slumps as traders focus on Iran
End of sidebar. Return to start of sidebar.

For oil, the driver of the surplus was the increased production, most notably from US shale oil, generated by the spike in the price. Since 2008 the combination of US shale and Canadian oil sands production has added around five million barrels a day to global oil production.

For iron ore, the extraordinary post-crisis run-up in the price to stratospheric levels caused a similarly dramatic increase in production, which is continuing as producers look to a combination of cost reductions and increased volumes to lower their unit costs.

There’s about 300 million tonnes of new supply still in the pipeline, which suggests that in a market that already appears to be in surplus, the seaborne surplus will continue to increase. There are some estimates of an eventual surplus approaching 300 million tonnes by 2018.

The industry response has been very similar.

Fortescue Metals’ Andrew Forrest’s call for, in effect, the formation of a cartel in iron ore to cap supply in an attempt to push prices back up has been howled down. It is arguable, from the experience of the oil sector — where there is a cartel that accounts for the core supply — that even had he been successful, it would have had little impact.

The oil price really cracked after OPEC, led by Saudi Arabia, decided last year that it wouldn’t do what it has traditionally done and reduce supply to support the price. Instead, the Saudis have actually increased production in what is seen as an attempt to knock out the US shale producers and other higher-cost volumes.

It is yet to have a discernible impact. While the number of US drilling rigs in operation has fallen quite significantly, production hasn’t. But there is an expectation that, given the production profile of shale oil reserves, there will be a big fall off in volume in the second half of this year.

With the oil price at current levels, Canada’s oil sands, Latin American production, Russian production, the North Sea producers and Nigeria are probably all under water.

Unless there is an unlikely bounce back in the price — made even less likely by the prospect that the sanctions on Iran that have curtailed its output are lifted — there will inevitably be a delayed supply-side response that sees some sub-economic production ceasing.

The more commercial segments of the sector have been responding. There have been more than $US40 billion of announced cuts to planned investment in the industry, a figure that will inevitably grow.

That will affect future production, although the consensus appears to be that it will take some years before the market finds a balance between supply and demand. The ability of the US sector to switch production on and off very quickly and at relatively minimal cost also suggests that there will be a semipermanent ceiling on the price at levels that aren’t substantially higher than the current price.

In iron ore, it is the low-cost producers like Rio Tinto, BHP Billiton and Brazil’s Vale that are playing the role of OPEC, increasing supply (proportionately by a lot more than OPEC) into a falling market.

At the current price they are probably the only producers of any significance making any meaningful margin, albeit the profitability of their iron ore businesses will be under continuing pressure from the lower prices.

They, along with Fortescue, Anglo American, Gina Rinehart and others, still plan significant increases in capacity, which says clearly there is going to be a supply glut for some years to come unless they change their plans — or the market circumstances forces a substantial proportion of existing and planned supply from the market.

It is somewhat perverse that Fortescue, despite having called on the major producers to cap production, is planning its own production increases that could lift its output from a rate capacity of 155 million tonnes a year (it has been producing at a rate of 165 million tonnes) by an extra 35 million tonnes a year.

Fortescue has, remarkably, grown into the fourth player in the seaborne iron ore sector. But because it has higher costs and lower-quality ore than Rio or BHP, it has effectively become — in common with the role US shale appears to have taken on in the oil industry — the swing producer.

For Rio and BHP, which have materially lower production costs, increasing volume over existing infrastructure is a rational strategy. But for Fortescue, increasing production into an increasing glut of supply would appear to leave it swinging in the wrong direction.

As in the oil market, the eventual restructuring of the market to rebalance supply and demand will have to be led by the displacement of the higher-cost supply. In the absence of some left-field development on the demand side, that means closures of higher cost mines, whether temporarily or permanently.

The iron ore price is now at its lowest levels since the market shifted to index-pricing about seven years ago. It isn’t that far away from the $US45 a tonne level that preceded the financial crisis and the stimulus package in China that helped ignite the price.

There are analysts who believe it could continue to fall towards the $US40 a tonne, just as there are oil industry analysts who see a Brent crude price around the $US50 a barrel level as persisting into the medium term and perhaps even longer.

In the absence of a quite dramatic reduction in supply from the marginal and sub-economic producers, both markets face a subdued and pressured outlook for years.

For the established iron ore producers it is a return to pricing levels with which they are very familiar.

That dictates a race to lower costs that were inflated by the scramble to add production to take advantage of the historic spike in prices, a spike that is now a rapidly receding aberration in the industry’s experience.

There isn’t the option at the big end of iron ore (which is available to the US shale sector) of switching production on and off to accommodate and manage changes to the supply and demand balance — only a drive for lower costs and bigger volumes that will eventually drive out most of the higher-cost production.

Business Spectator