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Friday, March 25, 2022

What's "Oil Doing?" March 25, 2022

I think someone else over on twitter -- a huge investor in oil -- said this -- I don't think I'm alone thinking about this: the price of oil no longer matters. Don't take that out of context.

Earlier today, I think WTI was trading for $114 but then for some reason it dropped to $111 or maybe $110 by late this afternoon. 

I see that it's back up to $112.40 around midnight tonight. 

I think a lot of us were confused, frustrated, nervous (?) when oil dropped from $114 to $110. But now it's moving back up. 

The price of oil no longer matters to me (don't take that out of context). The price of oil will be volatile but reading the tea leaves suggests that the price of oil is going to remain high (i.e., greater than $90/barrel WTI) for a sustained period of time (more than a year). I guess what I'm saying, this volatility between $90 and $120 hardly matters, does it? I suppose it matters if one is a day trader but for those with a three-year horizon or longer, these swings matter not.

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Think about this. If "they" won't drill at $110, "they" certainly are not going to drill at $80. 

I get a kick out of the adage, "the cure for high price oil is high prices," suggesting that when oil gets high enough, drillers will start drilling again or folks will quit using oil and the price will come down. Googling that adage led me to this article, October 18, 2018. Re-read that article and add Russian sanctions to the mix.

Two things:

  • demand for crude oil is a lot less elastic than folks think; and,
  • the myth of spare capacity seems to be just that ... a myth.

There are rumors / whispers that US oil production is going to pick up "significantly" this spring. I'm not sure what how "significant" is defined, but the tea leaves suggest "we" -- as in globally -- are going to be very, very short in oil supply this summer. Diesel will be worse. 

Natural gas should be fine. The real test for natural gas will be next winter.

Disclaimer: this is not an investment site.  Do not make any investment, financial, job, career, travel, or relationship decisions based on what you read here or think you may have read here

As noted, there are rumors / whispers that US oil production is going to pick up "significantly" this spring. I'm not sure what how "significant" is defined, but the tea leaves suggest "we" -- as in globally -- are going to be very, very short in oil supply this summer. Diesel will be worse.

There are three main suppliers -- the Russia, Saudi Arabia, and the US -- in round numbers, each producing about 10 million bopd. Sure, a lot of Russian oil will reach India and China, but it's not going to be easy. And removing one of three producers is not trivial. I get a kick out of articles about this country or that country that has some kind of problem that might result in a loss of 250,000 bopd or 500,000 bopd, or even a million bopd. But that pales in comparison to the amount that might be taken off the market due to sanctions on Russia. My understanding is that the sanctions don't really go into effect until May -- that needs to be fact-checked -- but that would make sense for any number of reasons. 

I can't wait to get up every morning just to see what "oil is doing."

2 comments:

  1. perspective - still interesting that as big of ruffles each of the 10MMBOPD producers have....each is still only 10% of the world production! at 30MM total there's still a herd of turtles out there where anything can happen and it typically does often.

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    Replies
    1. Yes, I've often thought the same thing. And, then on top of that, a lot of that US production is from tens of thousands of stripper wells across the country.

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