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Showing posts from June, 2016

Fundamental Friday: 24 June 2016

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Crude oil: Crude oil fundamentals are reacting bullishly to the spike in refining this summer. Domestic production fell 39,000 b/d to 8.677 million b/d approaching another significant milestone at 8.5 million b/d. Since the beginning of the year, U.S. producers have cut 542,000 b/d worth of production as the squeeze on supply continues despite the stabilization of oil prices. Crude oil stockpiles continued their decline as well. With a drop of about 900,000 barrels, last week stockpiles were reported at 1.225 billion barrels. For the year, stocks are up about 48 million barrels but have declined in the past two months at a rate of about 13 million barrels.

Refinery data spiked to new highs this week as upstream operations heat up with the temperatures. Refinery inputs grew by 190,000 b/d to 16.505 million b/d reaching a new peak for the year. So far, June averages are well above the earlier 2016 months. Compared to last year, this week's refinery inputs are just 27,000 b/d lower, …

Predicting a Crash: Part Three

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The next step in predicting a crisis is identifying the causes behind the growth of the global debt problem. The proliferation of credit, loans, and any other form of borrowing does not occur randomly. Individuals, businesses, and governments are all affected by the state of risk in the economy, the availability of capital in the current setting, and how costly this capital will be. The growth of mortgage-backed securities (MBS) during the prelude to the financial crisis was caused by the perception that these assets were low risk increasing the demand for their creation. As a result, the amount of residential mortgage debt skyrocketed. After the unraveling of the housing market in 2009 and 2010, a similar trajectory has developed leading up to today. In this episode of Predicting a Crash, we're going to look at how central banks in developed nations have encouraged the formation of a debt crisis with cheap capital and a bloated money supply.



Before visiting the current debt crisi…

Predicting a Crash: Part Two

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In the first part of Predicting a Crash, I identified debt as one of the main drivers of global weakness in the past couple of years. Despite the mountains of debt that brought down the housing market, developed and emerging economies have continued to borrow piling onto record levels of sovereign, household, and corporate debt. At some point, this pyramid will implode taking down the global economy with it. If you don't believe me, refer back to the financial crisis just eight years ago for an example of the crushing effects of too much debt. But the crash of the housing market would be small potatoes compared to what could happen if governments and multinational corporations tumble from the leveraged pedestal from which they rule. In this installment of Predicting the Crash, we'll begin to dissect the debt problems and what companies, governments, and analysts are saying about its implications.


Because of its large growth rates and massive population, China, and its insatiab…

Fundamental Friday: 17 June 2016

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Crude oil: Crude oil fundamentals continue to support a bullish recovery in spot prices. After growing slightly last week, total production fell once again losing 29,000 b/d to land at 8.716 million b/d total. While rig data showed an increase in drilling operations, extraction rates continue to fall with the exception of last week's peculiar gain. Crude oil stocks added onto its losing streak dropping about 900,000 barrels to 1.226 billion barrels total. The draw on crude inventories marks the 4th straight decline as the accelerated refinery season suggests a bullish trend in stockpiles could speed up as well.

Refinery inputs fell slightly last week. Down about 100,000 b/d, refinery usage of crude oil totaled 16.317 million b/d. While this week appears to be a drawback, the overall trend should continue upward throughout the summer. Rig utilization dropped by 0.7 percent to land just above 90 for the week. Refinery statistics for the summer of 2016 are well above the trends in th…

Predicting a Crash: Part One

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It's the holy grail of bears and the ultimate breath of relief for bulls. It only occurs every once in awhile even though its coveted by economists and analysts across the country. Many claim to have it, but only a few are truly owners. Some might not even realize when it has stumbled upon them. Viewers of the movie The Big Short  have seen dramatized representations of some of the best. Stock market crash predictions are definitely hard to come by, but they can save an investor thousands if not millions of dollars while making them seem more intelligent than an entire horde of bumbling day traders that drove stock prices to the ground. This new series, featured on Black Gold Disease, seeks to identify the trends and alerts that will give way to the next "I told you so" moment. In the end, that petty mentality has no room in the words of the next few writings. Instead, this author hopes to dissect the path to the next market crash which he believes is not far on the hori…

Fundamental Friday: 10 June 2016

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Crude oil: Crude oil fundamentals record a very important move this week in the EIA supply estimates. Domestic production reversed its long downtrend to add 10,000 b/d for a total of 8.745 million b/d. After a thirteen week losing streak, U.S. suppliers finally signaled that are ready to increase output in a recovering environment. While 10,000 b/d will not have a large impact on supply and demand dynamics, it represents a reversal that could heap bearish sentiment onto the markets (if confirmed of course). Stockpiles, though, fell by just over 3 million barrels to end at 1.227 billion for the same week. Because stocks tend to lag production, the new trend of draws on inventories could be in danger.

Refineries provided a bullish counter to the increase in production this week. Crude oil inputs jumped 211,000 b/d to 16.417 million b/d, higher than any of the values estimated for the weeks in May. Rig utilization jumped 1.1 percent to 90.9 percent. Some growth in both categories should …

The Short-Term Energy Outlook

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On a monthly basis, the Energy Information Agency releases the Short Term Energy Outlook which looks at data and analysis of recent trends in the oil and gas industry. In addition to looking at the near-term historical trends, some projections for price, supply, and demand are presented for the use of industry officials, economists, and investors. The fifty-page report presents many insights that are worth looking into for any analyst interested in the world's general economic growth. This article will extract what it can from the June 2016 Short-Term Energy Outlook and provide its own opinions and insights along the way. All pictures and data are based on the report from the EIA linked above.


One of the main functions of the STEO is to produce a projection of the West Texas Intermediate spot price over the next couple of years. By the end of 2017, the EIA sees prices approaching the $60 level although their range of possibilities is quite large. Even though traders are trading wi…

The North Sea Dries Up

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The pressure on the oil and gas sectors around the world has not been restricted to the major players in the United States and the Middle East. In fact, suppliers with major stakes in the North Sea are feeling even more pain as declining operations coincide with the region's diminishing financial viability. Oil and gas companies are generating lower reserve replacement ratios. A Financial Times article reported that North Sea decommissioning rates are projected to increase then peak by the 2020's. In fact, a UK oil and gas group predicts that £16.9 billion will be spent on unwinding assets from 2015 to 2024. In that time, oil and gas production in the continental shelf is projected by the UK's Oil and Gas Authority to go from 85 million tonnes to just 57 million tonnes. As one might imagine, the energy sectors in European countries are in danger of falling into financial crisis.

Norway and the United Kingdom are two homes of oil and gas firms with large stakes in the North…

Fundamental Friday: 3 June 2016

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Crude oil: Crude oil fundamentals support another week of a shrinking glut. Domestic production fell 32,000 b/d to 8.735 million b/d. Net change in May output came out to 90,000 b/d a reduction of just over 1 percent. If the trend continues through the end of the year, extraction rates could approach levels close to 8 million b/d. Crude oil stockpiles added on to it loss last week increasing the streak to two. Last week stocks fell 1.37 million barrels to 1.238 billion barrels total. The draws on inventory, coupled with further production cuts, are pressuring investors into a bullish energy outlook. A continuation of these trends could result in pushing prices above $50 a barrel.

Refinery data were, once again, relatively flat from last week. After losing just 73,000 b/d worth of refinery inputs, total inputs ended at 16.206 million b/d. Compared to months in the first quarter of the year, refineries are taking in high amounts of liquids. Capacity utilization remained just below 90 pe…

Can OPEC Convince the World that the Glut's Over?

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This week in energy, investors are gearing up to digest the proceedings of the next Organization of Petroleum Exporting Countries in Vienna. As oil prices appear to stabilize, the group of oil exporters may have more room to breathe going into the latter part of 2016. The output freeze discussion has finally withered down to a whisper as most oil ministers dismiss the idea entirely. In fact, the consortium may be more similar to Pamplona as the bulls rush to the table looking to win the race to more market share. The worst appears to be behind OPEC as its members look to maintain the fragile equilibrium of price stability while trying to pump as many barrels as possible. We've already seen Chevron act on their bullish outlook in the Tengiz oil field. Now, oil exporting nations begin to play their own trump cards as price improvement encourages an aggressive reentrance in the market.


In OPEC's monthly oil market report, it featured the developments of "non-OPEC oil supply&…