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Aren't a lot of people's lives changing for the worse?
Posted by Prof. Goose on September 25, 2005 - 10:03pm
Update [2005-9-27 1:41:53 by Prof. Goose]:Here's today's document (change the number in the date for tomorrow...http://www.electricity.doe.gov/documents/gulfcoast_report_092605.pdf
Browse through this interesting pdf from the DOE that the MSM seems to completely miss the point of...it lays out explicitly refinery damage, oil shut in, and other interesting energy stats (found this at peakoil.com)
100% of GOM oil out (and look at the percentage figures for the past month below), 20% of the country's refineries down, NG Henry Hub down, lots of lives displaced, things feeling amok...in a nutshell, virtually 3/4 of the script for the 'Oil Storm' is playing out, and prices go down...must be one hell of a recession looming one wonders...
just to make the point:
Date Percent of GOM Oil Shut-in Percent of GOM Gas Shut-in
==================
August 30 95.20 87.99
August 31 91.45 83.46
September 1 90.43 78.66
September 2 88.53 72.48
September 3 78.98 57.80
September 4 No data reported No data reported
September 5 69.57 54.13
September 6 58.02 41.06
September 7 57.37 40.36
September 8 60.12 40.20
September 9 59.88 38.29
September 10 59.84 38.21
September 11 No data reported No data reported
September 12 57.38 37.84
September 13 56.45 37.20
September 14 56.25 35.18
September 15 56.14 34.11
September 16 56.06 33.84
September 19 55.84 33.75
September 20 58.49 34.82
September 21 73.16 47.13
September 22 91.93 65.95
September 23 99.13 72.04
September 24 100 74.88
September 25 100 80.47
Update [2005-9-27 0:28:18 by Prof. Goose]:September 26 100 78.43
Update [2005-9-28 0:28:18 by Prof. Goose]:September 27 100 78.56
I'll say this the easy way: WTF?
(perspective: The GOMEX produces 1.5 MBOPD (oil) and 10 BCFPD (NG). Overall US consumption is 20ish MBOPD for oil and 62.4 BCFPD for NG. (thanks marek))
Something is terribly awry. Technorati Tags: peak oil, oil, Rita, Hurricane Rita, gas prices
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But when it becomes obvious that the admin has declared war on all factors leading to high gasoline prices, including the price of crude feedstock, this emboldens the short sellers. I think this is why crude is now cheaper than it was before Katrina, in spite of reduced supply.
On 9/6, Rebecca Watson of Interior Dept. also predicted (to Congress!) a fast recovery of GoM production, barring problems with shore facilities, when IMO she didn't have enough data to make such a claim, which implied no undersea pipeline problems. Another manuever to squelch speculation & rising crude prices...
Last month we had an enormous rise the last few days of month in gasoline futures. Let's see if we have another one this month.
If there is 20% less refinery capacity and we refine the 20ish million barrels per day that we use, and 100% of GOM production is shut in, and this is 1.5 mbd. 20% of 20 is 4 million barrels of refining capacity offline so we would in theory have plenty of 'oil' and not enough refinery. This would be a clever explanation for why crude is down overnight except for the fact that unleaded gas is down as well....
I also noticed that there was quite an uptick in crude just about when petroleum inventory data came out last Wednesday. Reality can be an ugly shock for the shorts that depend on fear & price momentum. If that's a trend, low crude price could be quite "short-lived". The next few Wednesdays should be interesting.
Also, easy-to-restart offshore stuff got fixed in 8 days post-Ivan, 9-10 days post Katrina, and ?? days after Rita. Afterwards, MMS figures for decrease of shut-in oil & gas went flat, eg almost zero rate of production recovery, for oil, for about a month (post-Ivan) and 14 days (post-Katrina). In latter case, recovery was halted by Rita, and likely would have taken longer than from Ivan, absent Rita.
Watching MMS shut-in data for next few days & weeks should also be quite interesting.
There's another flaw in your thesis... energy futures contracts terminate three days before the end of the expiry month, but there is very low volume in the expiring contract (generally less than 1/10th normal) starting from a week prior to termination.
If one wanted to manipulate prices that mattered, you'd do it in the following month contract.
This is a speculative comment, for which I have no proof that it is occurring. But say, for example, that the government sold gasoline futures contracts short (that is it did not have the gasoline to deliver). It would have to make delivery or buy those contracts back.
There was little reason for the Government to sell short unless they believe prices are headed lower, and except for a couple of down days in mid August, there was precious little obvious selling pressure in the commodity. A couple of down days do not give one license to short with abandon... those that do generally end up being 'fuel' for another move... up!
I do remember the time ... roughly in mid-August there were technical setups on the charts that suggested a potential top was forming, but it was never confirmed and the trend remained intact.
Crude terminates not three days before the end of the contract month but three business days prior to the 25th day of the month before the delivery month, unless its a non business day in which case... well, you get the picture.
see charles' that comment that i quoted lower in this thread.
the govt is willing to risk exposure of its control of markets to calm the markets. they expect that most traders have already figured out that the whole lashup is a pig-in-a-poke, and will play along.
I suppose the govt could lean on the sell button and drive prices down for awhile, but I don't suspect them of it at this time. The IEA and releases from SPR and various noises from OPEC and -egads- a friendly word from Hugo Chavez or two could do more to bring down price in a lasting way.
Leaning on the sell key for a day or two merely gets others in the hert short too, and unless a seller with no profit motive (to use your thesis) stays in there selling, forever, eventually price will stop going down and those who tagged along for the ride start to cover... et voila, a move up is born. Eventually all things that go down, come up and vice versa.
This is not to say that an organized scheme to sell short the market could not be done, but it would leave a paper trail that eventually would become noticable. 1.5 billion in crude oil is consumed each and every day in the US - it wouldn't be long before a large hole in the "ESF" or other such funds were noted.
It would be nice if we could rely upon the government of the day to live up to its ideological underpinnings, all of the time, for then they'd be predictable - but lets just, for now at least, assume that the free-marketeers are still in control (Energy Secy Bodman certainly fits the mold by all appearances) -- mucking about with the price of oil here goes quite contrary to such folks.
The other not so small consideration we should make here is how oil companies, a well represented lobby group in every national capital, would react to such manipulation.
Nope, I'm not a big fan of price manipulation theories, not at present. I do believe there is a concerted effort to talk up the situation, and suspect its only because the reality is about what we expect - its even worse than it appears.
A couple days up or down is irrelevant in the big picture.
Proof, please.
(I'm not saying you're wrong, I'm not saying you're right. But extraordinary claims require extrordinary proof. I am a strict empiricist; show me proof and I'll agree with you 100%.)
look, i'm just as hopeful as anyone that we can get out of this mess without killing millions of people, using ethical, truthful means to do so. but the deeper i dig, the more ugliness i find. sometimes i have a hunch, and have to quit digging for a couple days to drink beer and let the confirmation of that hunch settle in before i can go back to digging.
i suppose i am being naive to expect there are any rules left at all when an empire is fighting for its life.
Kunstler, in today's missive, also suspects government intervention:
http://www.kunstler.com/mags_diary15.html
Like I previously implied, the energy markets won't be fooled my short term manipulation. Let's see how these October energy contracts settle in the next few days. No I don't have nay proof, but wild last minute fluctuations in the closing days of a contract may indirectly reveal what can not be proved.
Regards.
NG, CL both rallying quite strongly, setting up the stage for what is known as the "piercing line" candle reversal pattern at a point where price could be said to have found "support" (thus implying the ability to rally higher).
Sometimes Occam's law makes sense.
In this case, the simplest is that regular traders are the principle drivers of energy markets whether energy markets go up or down.
I've mentioned a number of times over the weekend that my expectation was for a short covering rally if not a "common sense" rally ... and here it is.
Long energy, short broader markets I remain.
If we don't hear of any major trading firm with losses, then who has the deep pockets to lose so much???
in my short time in this forum, i have posted maybe a billion urls. nobody has been able to refute them. if you object to a position of mine, you are certainly encouraged to post urls that contradict mine.
maybe we'd both learn something, on the off chance that anybody wants to learn anything that gores an ox or two, or threatens a sacred cow, or mentions a prominent but ignored elephant in the room.
that's the biggest problem with this whole operation: it was conceived by armchair warriors whose arrogance and hubris are much greater than their wisdom. they figured they could pull it off, and they figured they could cover it all up, and they figured they had enough juice to bull on through no matter what. the official conspiracy theory will hold, by the grace of god, the washington post and the new york times.
the problem i have to think about is this: what caused such desperate, reckless, foolhardy behavior? is peak oil much closer than we think? or can we simply write the whole thing off to egomania...?
i wish i knew. but the bones of it are out there, all you have to do is dig.
The least we can do in an open forum is to question, and to respect those who ask.
Diamond Offshore Drilling, reported that the drilling rigs Ocean Saratoga and Ocean Star broke free from their moorings as Hurricane Rita passed west of both semisubmersibles. Both of the units and their well operations were secured and personnel were evacuated well in advance of the storm.
Rowan Companies reports that, in the aftermath of Hurricane Rita, its jackup rigs Rowan Odessa and Rowan Halifax were not at their pre-storm locations. In addition, the hull of the jackup Rowan Louisiana apparently detached from its legs and is aground offshore Louisiana.
Kerr-McGee reports that an initial flyover of its Gulf of Mexico facilities indicates all of its major operated facilities are intact, with no structural damage from Hurricane Rita observed.
Initial assessments have revealed that the Typhoon tension leg platform (located in 2,000 feet of water in the Green Canyon area approximately 165 miles south-southwest of New Orleans) was severed from its mooring and suffered severe damage during the storm.
http://electricity.doe.gov/documents/gulfcoast_report_092605.pdf
That makes no sense unless you believe usage will drop by more than the amount that's shut in. (Even if that is the case, then lower prices could quickly inspire greater use.)
Maybe 2 more hurricanes and we'll get below $60 a barrel?
At the moment, provided price generally holds the 63 level (CLX5), all we can say with certainty is that the longer term up trend is at best (depending on perspective) in a pause.
Should 63 hold and price start to rise again in the coming weeks or months, the 62/63 to 71 area level will become the upper most trading range in the commodity. I can't speculate here and now whether the upper end will be again tested this year, but while 62/63 holds, it remains a distinct possibility.
Natural gas is in a more bullish position - so far its managed to hold above its last major trading range - provided 11.50 generally holds up, its still in an uptrend technically, having barely paused... so far.
Bottom line: Crude is in "chop" but supported > 62; NG is not in chop, but is in a downswing that has however not invalidated its still intact uptrend.
Price movements up or down all in themselves are less meaningful than trends.
Traders tend to fear uncertainty so much that they'll latch onto just about any empirical information and read too much into it. Right now, there's an incredible amount of uncertainty about the energy market, and the numbers in that report are one of the few sources of (seemingly) reliable facts.
I have no way of judging if they're right or wildly wrong in their collective guess that Rita was not a big deal, and I don't mean to imply that I've formed an opinion or that I agree or disagree with them.
Right now, I'm reduced to hoping that Rita was the last major storm the Gulf Coast will see this year, and that the energy supplies hold up this winter. I'm not sure which of those wishes needs the most help from Lady Luck right now...
Glad you posted. There has been MUCH discussion at TOD in the past about how markets are rational, and over time, in agregate, fine tune prices and modulate supply and demand.
This market is NOT behaving rational to me.
People with little knowledge are moving the price all over the place. How is this supposed to feedback into the real world of supply and demand?
The markets are saying there is over supply, when we have concrete numbers that supply has been reduced. Even assuming this will recover over time the market should be raising prices now so they can drop in the future. The only other explanation is that prices will drop further when supply starts to recover. I am assuming demand is constant because there is no indication that demand (at consumer end) has dropped. And we need a high price signal now because we want to dampen consumption - the markets are supposed to do this because our government (under this administration) doesn't believe in calling for conservation
This is supposed to be a world market. Even if U.S. refineries are down (lower need for crude - loss of demand) the rest of the world should be refining at maximum and buying crude because the huge U.S. market is going to need the refined products. As Prof. G. says if the markets are already pricing in a reduction in demand that is a LOT of demand destruction occuring right now. Or the rest of the world can't help us.
I do not see how the market is actually linked to the real world of consumed refined energy and cost of a scarce raw material to make these goods.
I'm not convinced that anyone (like Bush and his buddies) is manipulating the market, but given what's at stake, I sure wouldn't rule it out, either.
I'm hoping that we get a lot more hard information and a more "normal" market response in the next day or two, but that might be my optimism getting the better of me again.
Having read this post and the one above, Lou, I would put forward these factors:
- Everybody is in a let's not panic mode
- Gasoline demand is down (September/October lull)
- No one knows the real damage yet
- New releases from the SPR are coming
Still, as PG said its a WTF situation so its a matter of waiting for the market "correction". I am constantly amazed by the lack of foresight reflected in the daily prices. What worries me is that at some "tipping point" in the near future there will be a panic.Markets don't want to believe that their fantasies can't be maintained, and when the emperor is revealed to be naked, there is inevitably a stampede for the door.
Case in point: Hurricane Rita.
If you look at energy prices and Rita from the wrong perspective you'll place the panic button at the wrong inflection point.
Panic did not hit the market on Friday and Sunday, as many here seem to feel... no, panic hit the market early last week when energy opened up strong and rose in a day of historic proportion.
Then, whatever limited information drifted in and prices ground lower. I would call that the unwinding of panic; if one was long the sector and didn't have nerves of steel, it would be easy to feel like the sell off was the panic spot but in fact its the other way around.
Panic buying is always more entertaining to watch, because fast declines are commonplace...price almost always falls faster than it rises, which is what makes a day like today somewhat unusual. A quick trip up with very little in the way of intraday retracements = "panic" buying.
Will it last? No idea, but we shall find out soon.
Ahhh, someone who's trading prediction I can truly respect! Indeed we shall...
--J
... short sellers believing a market has topped out
... long holders selling positions for similar reasons
... buyers holding off believing prices are coming lower
Last week we saw the market jam up big when nothing was known about Rita's impact. That caused
... buyers panicing, believing prices would be much higher in the days and weeks to come
... short sellers panicing (turning into buyers to cover recent shorts done prior (and there were many)) for similar reasons
... long holders NOT selling positions, believing prices are headed lower
These camps trade positions all the time, some acting on gut, some acting on marginal, good, or excellent information and understanding.
One also has to realize these "investments" are highly leveraged. You can have conviction and still be forced to buy or sell (go long, short, cover, sell) simply because the rest of the crowd doesn't share your views or hasn't got your information.
Being "right" doesn't mean you make money, unless you are right, at the correct time.
Its rational alright... but also packed with fear, risk, greed, quants and pocket protector types, you name it... emotion.
No different from any other high stakes market.
I understand your statements about shorts and longs and trends.
But if it is not connected to real world data, what is driving the fear of being on the wrong end of a trend?
My point is that if they can get it this wrong in the short term, on supply distruction, how the heck is the market going to respond correctly when demand exceeds supply (or tries to) under peak oil when the signals are not going to be nearly as clear?
Price, itself, is a fundamental factor.
Whether someone is willing, or even able, to hold a position open has a lot to do with price. When a highly leveraged position is running against you, at some point you break down and bail, or the would-be futures trader becomes an ex-trader. Even the big houses have their limits. A 10% loss from top of market means a lot more in an instrument which is highly leveraged.
Price moves to extremes all the time without benefit of additional information to drive it, but eventually price drifts back to the norm. Consider Friday and today's trade as an extreme. Unless the news becomes awfully rosy, we'll very likely see price recover at least 1/2 of the cumulative losses over the past few days.
As someone who's been gritting their teeth holding their long positions on gasoline, saying 5%, let alone 10% or 15% lost refining has to mean SOMETHING - I can testify to mw's statement. I came within a whisker of bailing today, and if I had, I would have just exagerated (in my small way) the (now past?) downward trend.
<from the practical into the arcane...>
Short term, it's chaotic, and price seems fundamental as a postive feedback in establishing the flutualtions around and away from the chaotic attractors; longer term, price in and of itself becomes less significant perhaps, and the trends, the 'deeper' fundamentals take over - however, chaos still reigns, and violent fluctuations eclipsing what has gone before, (and making paupers of the likes of me perhaps) can still be expected based on price alone.
--J
looking at this from a long-term, big picture, dick cheney, likud lunatic, mad scientific economist, psychohistorical kinda way......
what if pre-hurricane energy prices had already been boosted way out of free market whack to start socking money away for the estimated 20 or 30 trillion necessary for the hydrogen conversion?
that would give us plenty of slop to absorb temp setbacks like the hurricanes.
remember that senior whitehouse advisor's remark: "we're an empire now, and when we act, we create our own reality."
Won't these little things called "facts" catch up with the market and make prices jump, or is it possible for them to stay low despite all the supply problems?
comments from charles:
As you all know, the US is usually one quarter of all oil consumed globally. But if internal US consumption is reduced because of shortages or voluntary conservation by US consumers, then the net imports into the US will be down. Also, refinery outages will mean that the US will not be able to take as much crude from overseas.
All in all this would result in more oil for the rest of the world, easing demand pressures and the fears associated with the demand/supply mismatch.
My guess is that when US consumption is back to normal, the price of crude will fly because we will be in an even worse position (lower SPR, and other country reserves) than we were before the hurricanes hit.
What do you think?
How about trading volumes, both contracts and on the spot market? Are they perhaps down right now?
It could be that some traders have decided to hang back for a day or two before they decide which way to go. I know I would want to do that in their place if at all possible.
It's gotta be pretty scary for the traders right now, with so much guessing and uncertainty about the GOM data. Then we have special shipments of refined products coming in... and the SPR... Very confusing.
I suggest refraining from any big conclusions for another few days.
http://sprott.com/pdf/pressrelease/TheVisibleHand.pdf
I'm not sure if I buy their argument in total, or believe all of their sources (including them), but it is an interesting read if you tend, like I do, not to believe in conspiracy theories. For those of you requesting evidence and sources, this should give you a good link to inquire further as the report links to numerous press and fed documents.
So we're asked to accept that in one day, the government--with no infrastructure in place yet, and no funding allocated, and confronted with an unexpected crisis of an unfamiliar kind--figured out what to do, and did it, and it worked.
If they could do that in a day, why did they send 500 buses to New Orleans... a month late?
Good point. It seems like $70 is some kind of magic number beyond which prices hikes are felt to be unconstrained. After Katrina, during that brief interval when one market hit that number, traders started backpedaling like crazy -- though it didn't look justified at the time -- just like now.
in the medium short term, there exists a refinery bottleneck and a coming up release of the SPR. these forces will fundamentally drop the price of crude. just like post-Katrina, the price of crude dropped from $70-$63. we will see something similar but don't expect crude to traverse below $60, more hurricane is on the way.
would like to hear mw's analysis! love the discussion on the energy futures.
Remarks by President Bush on Energy Supply (transcript)
http://americas.irc-online.org/am/386
then you will see why we are in Iraq, and why our immigration problem will never get resolved.
I am not defending him, i am only trying to understand why things are as they are.
So all of the reports of "minimal damage" mean what, exactly? The storm hit Friday night / Saturday.
Interesting to note that the SPR information has been removed - probably just a policy issue and nothing more significant than that.
--J