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By Robert Rapier on Dec 12, 2014 with 6 responses

Reading the Tea Leaves in the Oil Markets

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As the year winds down, my next 3 articles or so are fairly predictable. One will be on the top energy stories of the year. As always, I would appreciate any suggestions from readers. Another is that I will grade My 2014 Energy Predictions. (Spoiler alert: I guessed pretty well this year). Finally, I will make predictions for 2015, while providing appropriate context for the predictions. I find the context is more important than the predictions themselves. I can make a prediction on the direction of oil prices, but if you understand the factors likely to drive the price in 2015, you can adjust your expectations accordingly as conditions change.

But this week I would like to post a new interview that I did with Jason Burack of Wall Street for Main Street. I have been asked many times in recent weeks for comments on what’s happening in the oil and gas markets. Here I lay things out as I see them in a wide-ranging 40 minute interview:

Link to Original Article: Reading the Tea Leaves in the Oil Markets

By Robert Rapier. You can find me on TwitterLinkedIn, or Facebook.

  1. By Russ Finley on December 13, 2014 at 1:44 am

    I think he missed your point about low oil prices stimulating the economy. He kept mentioning jobs in the oil industry. Consistently low oil prices will create jobs everywhere.

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  2. By Forrest on December 13, 2014 at 10:20 am

    What goes unsaid, the collusion the international crude oil suppliers in gauge. It’s in your face actions that apparently all countries helpless to abate. The oil economy and influence just to large for a short term politician to curtail. We should have an equally powerful consortium to curtail OPEC price manipulation OOPEC “Opposed”. The Saudis are in the throws of punishing U.S. shale fracking industry for not following their lead. Supply, must be behind demand to gin up artificial price support. It doesn’t take muck shortage to pump up prices twice per natural market supply. This is what happen in no compete monopoly markets. This is reason every fuel consumer upon the planet should be cheering biofuel success and demand the fuel keep from petrol clutches.

    BTW, did you hear the comment that shale oil takes a humungous amount of water and P.O. Environmentalists. I did just read corn ethanol is decreasing water to as low as two gallons per ethanol gallon. Some plants start with municipal grey water. This is about half of shale barrel oil and abut 1/7th if measuring ethanol to gasoline produced. Also, Argonne lab well to wheel recent review had corn ethanol rated at 57% CO2 reduction over gasoline. Chicago city board just approved to have public vote to approve mandatory E15 pump choice within all larger gas stations. They pride themselves as historically first city to make proper choices for health and environment.

    I think their is a headwind to fuel consumption per the incredible improvement to vehicle efficiency, improved supply of biofuels, advent of battery car to city driving, autonomous vehicle driving, lower weight vehicles that avoid crashes, smart phone apps that make pedestrian transportation more efficient, online shopping, major improvements in fuel cell technology. A major part of economy is betting on the quick adaptation of these services to lower consumer cost and improve GW emissions. Just saying, old rules may not apply.

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  3. By Forrest on December 15, 2014 at 8:00 am

    Linco and Line are extremely devalued, but many investors much more competent than I are walking away. They’re afraid of long term consequences of prolonged economic recovery if the stock market goes through revaluation. While these companies were smart enough to hedge for short term turn downs they have positioned themselves poorly for long term recovery needs. XOM may be the better choice? Bad economy equates to low cost of oil.

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  4. By Forrest on December 17, 2014 at 7:39 am

    Biofuel production must be a major headache for the petrol supply chain. First, the good days of industry with OPEC managing supply market to manipulate price. It was a fairly easy accomplishment with diminishing supplies with increasing demand. Problem nowadays, since ’08 U.S. increased production of crude oil 70% to 3.5 MB/d. Add to this extra production, U.S. corn ethanol grew to about 1 MB/d. That ethanol production is a big chunk of the increase within the fuel supply. OPEC expects global demand for oil will be 28.9 MB/d for 2015, but expects supplies to be 30 MB/d. So, petrol prices collapse per expected over supply of 1.1 MB/d? Did I mention corn ethanol is producing close to this and combined with Brazil sugar cane production sits at 1.6 MB/d. Also, the successful roll out of cellulosic ethanol production for 2014 with cost trend lines expected to be competitive with corn in the near future per industry analyst. Also, that cellulosic ethanol production expected to ramp up at fast pace per federal mandate as the need of country to diversify and stabilize transportation fuel needs as lessons learned upon history. That this alternative fuel supply readily consumable as a portion can be substituted within fuel used within current fleet. That ethanol production can be readily accomplished by all petrol consuming countries with no crude oil natural resources. That the feed stock for ethanol is diverse and naturally flexible to market needs of local consumers. Not to shabby that the fuel has huge benefit to meet future environmental needs. Maybe OPEC has biofuel on it’s hit list as well as North American oil production?

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  5. By Forrest on December 19, 2014 at 7:21 am

    You have to love the oil supply business. Yesterday FT had interview with Saudi Arabia rep for Opec. “Saudi oil minister says crude price falls are temporary. It was difficult for the gulf nations and other members of Opec to reduce output and market share.” “S.A. will push ahead with policy to let the market determine price and balance supply and demand. Mr. Naimi revealed that Opec had sought cooperation from other oil producers, but those efforts were not successful.”

    So, ladies and gentlemen, I continue to alert consumers that crude oil is a rigged game. That collusion while being illegal within borders of U.S. is thriving upon international markets of which all oil companies operate. These businesses read tea leaves and comply with benefits to hold production below demand to maximize market forces to double the revenue. A slight imbalance of markets upon inelastic commodity will spike the cost and do so with little loss of production dollars. I had a discussion with life long investor of oil. He was delighted that a screw up within any part of the domestic oil supply chain will greatly reward the supply market. So, seasonal blending and inhibited supplies not so bad for business. Regulations that make competition more difficult, not so bad if you have Exxon reserves. Now, knowing this, why are you not standing up to support ethanol production? Maybe all on this board are cheerleaders for oil exploitation of consuming public. Maybe even environmentalist cheer when fuel prices peak? If this is so, well yes ethanol is evil as the fuel is produced independent supplies, production, and mostly infrastructure and not dependent on crude oil collusion to spike price. Ethanol has enough production currently to have an impact of fuel price spikes. Consumers often have a choice at the pump to empower good behaving business.

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  6. By Charles on December 20, 2014 at 9:09 pm

    Hi Ron,
    I’d love to hear your take on CoolPlanet:
    http://www.forbes.com/sites/peterdetwiler/2013/12/11/cool-planet-a-company-that-makes-biochar-and-gasoline/
    https://www.youtube.com/watch?feature=player_detailpage&v=zkYVlZ9v_0o#t=590
    http://www.biofuelsdigest.com/bdigest/tag/cool-planet/
    http://andrewbellay.com/the-carbon-neutral-pipedream-transcript/
    The company claims to produce high-octane gasoline from woody and other biomass. The ‘carbon-negative’ claim assumes that the resulting biochar will be worked into agricultural soil and not burned for energy … This is the most hopeful news I’ve heard regarding bio-fuels, but I don’t want to be taken in by another pipe-dream.

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