03-03-2022, 02:04 PM
As most of you know I am a 31 year veteran of the O&G industry, as a Prospect Generator and Senior Petroleum Geoscientist.....basically I find oil and gas. However, I am also a student of the industry watching trends, and have been following fluctuations in Oil prices and gas prices and the ups and downs for my entire time in the industry. I basically have forgotten more about oil and gas trends than the writer of these tweets thinks he knows. But I post this not to share a resume but to refute one of his points.
Here's how oil prices work. There are long term trends and there are short term trends. But first let's talk about volatility due to unknowns. One of the key factors in short term oil prices is volatility. Most of the oil that is produced around the world outside of OPEC and OPEC+ is highly monitored and regulated. However, OPEC, not only reports to no one but themselves, but mostly sells in bulk and has no responsibility to report their production numbers to anyone. In other words they can lie about how much oil they produce and all we really know is how much oil they SAY they sell. Commodities markets don't like this. To compensate Wall Street looks to US and North Sea (European) refinery stocks (levels of reserves in above ground tanks) to determine how full their reserves are and thus how much excess oil could be on the market. The IEA (https://www.iea.org/) is an international watchdog organization, which watches refinery stocks across the world, listens to what everyone SAYS they are doing, and based upon registered and reported US and European production along with what OPEC and OPEC+ SAYS they are going to do, makes long term predictions about whether the world is in a surplus or deficit in terms of global needs vs. supply. Basically the whole oil and gas world listens to IEA. The problem with this is OPEC lies and OPEC+ lies. Example: OEPC will say it is going to add 400,000 barrels/day to global production, which will be spread among it's member countries. OPEC will then speak with OPEC+ (Russia and the like) and give them a piece of it if they want it. The problem is that it is becoming increasingly clear that most of the OPEC members don't have spare capacity, and the two that do (Saudi and Qatar) refuse to make up the slack for the rest of the member companies. So OPEC lies, IEA, reacts to what they say they are going to do and for MONTHS (like from September through January), IEA is reporting oil prices will fall because in January we should be in a surplus situation associated with the extra oil OPEC said it would put on the market. It wasn't until this month that IEA saw enough evidence that OPEC hasn't delivered to report as such and called upon OPEC to meet their quotas. IEA's report of OPEC's failures makes prices go up.....OPEC's refusal to act keeps prices up, and the daily refinery levels stay historically low due to lack of supply instead of the surplus that was expected. See how complicated this is? Anyway, enough about volatility...
Short term trends show the volatility in the market and results from speculation, unknowns and the importance of energy and specifically O&G to our daily lives. Short term trends are emotional. Weather events, political situations, wars, daily refinery stock reports, etc are all short term events.
Example of a failed measure that attempts to be a long term control and doesn't even affect short term prices: The Biden admiration's release of oil from the national reserves are worthless, emotional and irrelevant. They affects prices not at all (evidence - look back at prices each time he's done it) and because they give refiners a discount on the oil to use it, which only results in padding refiners bank accounts, it affects oil prices not at all. Why does it not affect prices? Because refiners use it immediately and don't put it in their tanks, so refinery stocks do not go up, IEA reports no stock builds and wall street doesn't care. Why do they not put it in their tanks? because they're getting a discount. Refine 80$ gift oil when prices are 100+$ and you're making big money. Why put that in your tanks, when you can refine it and sell it? It's simple economics. Also the amount of oil released is miniscule. The US produces 17 mil barrel/day. Release 40 mil barrel and that's two days production spread across the entire countries refiners. Let's put his in perspective...OPEC has a 50-200,000 BPD shortfall in their reported production number. A release of our strategic reserves gets swallowed up in 20 days of OPEC shortfall, thus why it is a joke that releasing that oil will affect long term oil prices.
Long term trends - I already spoke of this in volatility, so I don't need to belabor it. But basically these are trends associated with long term oil and gas production and refining short falls and build trends. Though the IEA reports daily on builds and reductions at US refineries, and this affects short term volatility (damn speculators), it is the patterns over several days and months that matter to long term prices.
Another note on Refinery Stocks: One might ask why the refineries aren't refilling their stocks and here's the problem. When oil prices crashed to below 40$ in 2014-2015, the refiners replaced their stocks with cheap oil. This established a long term trend.....as prices stayed low, refiners kept putting more and more in storage, thus keeping the prices low. It's a viscous circle, and it takes months if not years of refinery stock draws (reductions) to reverse the trend. As prices go up for various reasons (short term or long term), refiners will keep the cheap oil in their tanks and buy off the market. If oil prices rise enough the refiners will pull from their tanks to refine the 2014 30$ oil instead of buying 60$ oil on the market. They don't do it all at once, because what if prices go up more, and they need to keep a steady purchasing flow coming in and MOST oil is bought on a month to month contract basis, so they buy their May oil in March or something like that. This is also why they do not put the oil from the Strategic reserves in their tanks. They are getting it at a discount, but even heavily discounted they are not going to mix 70-80$ oil with the 30$ oil in their tanks. Bottom line is this: Unless there ends up being a worldwide long term supply glut that FORCES refiners to mix cheap and expensive oil, they aren't going to do it for simply economic reasons and oil prices will stay high, armored from short term volatility, but continuously low stocks.
So why this quote is ignorance or falacy.
#1 - He's saying that production and oil prices went up due to US exporting it's crude. This is a complete fallacy for the reasons I've stated but also specifically because:
a) US production didn't increase significantly because of this....this is an out right fabrication or mis-use of data. The fact is US production was already going up at the time because oil and gas project take YEARS to bring online. Not days weeks or months, but years. And the larger the project, the longer it takes. Production is NEVER ever ever linked to short term oil price fluctuations. They are on completely different time scales.
b) because US production didn't increase because of this, there therefore was no short term affect on oil prices. There could and likely was a long term affect on oil prices, but giving the US producers more customers for their oil, but that wasn't and isn't seen on this graph.
c) He misinterprets the graph (purposefully or ignorantly), by taking a short term price drop spike and drawing an arbitrary line. Longer term price movement is longer term than a year and you NEVER extrapolate trends in price by using spikes.
The real trends are in purple in the attachment:
You see here some interesting trends. You never use the bottom or top of a spike to establish a baseline. Long term events create spikes and RE-ESTABLISH a baseline. With baseline changes come short term emotional impact and speculation, thus one gets spikes with baseline changes, but the spikes should never be used to re-establish the new trend. The guy in the tweet mis-interprets the trend by using a spike to establish a false trend. Either because he's ignorant or just trying to sell his narrative.
To re-enforce this please see the trends for WTI crude over the last 5 years. What you see here are several long term low slope trends (purple lines up and down). Several baseline changes associated with specific and easily established long term events (red arrows) and a very recent spike to over 100$ (blue arrow) which is likely, and hopefully only a temporary spike (Russia invasion of Ukraine). However prior to Russia invading Ukraine, the first part of this year has seen oil on a very steep and consist high angle slope change, which I believe is a long term re-establishment of a trend higher (last red arrow on the right). This is associated with the event I mentioned above of the IEA predicting lower prices for 6 months based upon OPEC projected output increases and it coming clear that OPEC has been in a major shortfall with that agreed upon build AND growing speculation that neither OPEC nor Russia has the spare capacity they say they have.
Moreover, while I believe the Rus/Uk spike is temporary, there are older examples of spikes occurring during steep slope changes that re-established a higher trend than what is normally expected. The example is from 2005 there was a slope change and re-establishment of a higher oil price trend happening during 2005. This was associated with several large military conflicts and revolutions happening at the same time in major OPEC nations. Conflicts in the Niger delta started in 2004; conflicts in Pakistan (affecting relations with Iran); but the big one was the ongoing conflict in Iraq (2003), which affected Kuwait as well. All of these caused major concerns in terms of short term volatility, but the continued conflicts caused concerns of major long term supply disruption, and a re-establishment of a higher trend started in mid 2005. Right in the middle of these events the 2005 hurricane season with SIX Cat 3 or higher hurricanes hitting the Gulf Cost from Brownsville to New Orleans, with Rita and Katrina being the biggest disruptors. These hurricanes damaged or closed some Gulf Coast refineries for months causing a spike during a steep trend change. This slope with a spike did not relax and sent us toward 80-100$ oil which maintained until the 2014 oil crash. And we are in the same spot again with a spike during a steep upward trend adjustment. The question is will the trend relax from the spike or establish an even higher trend.
Lastly, for those interested, the website I use for watching daily oil price and industry trends is https://oilprice.com/ - this is a great site for watching to the minute oil price oil fluctuations if you're interested in such things, but why I really like the site is the "LATEST ENERGY NEWS" because the articles really show multiple sides of what's going on not just in the O&G industry but in the entire energy industry. In another thread talking about Nuclear Power I shared an article talking about FUSION, that came from this website.
Happy to discuss further.
Quote:2) As a direct result, Oil prices went up, US oil production increased, and us exports ramped SIGNIFCANTLYThe correlation he makes in this point is a complete mis-interpretation of facts. He's making a correlation to fit his narrative, when if he really understand the industry, he would understand that what he posted is a complete over simplification of oil price responses. He points to a spike to establish a trend and calls upon a factor that has no control on long term prices to fit his narrative.
Here's how oil prices work. There are long term trends and there are short term trends. But first let's talk about volatility due to unknowns. One of the key factors in short term oil prices is volatility. Most of the oil that is produced around the world outside of OPEC and OPEC+ is highly monitored and regulated. However, OPEC, not only reports to no one but themselves, but mostly sells in bulk and has no responsibility to report their production numbers to anyone. In other words they can lie about how much oil they produce and all we really know is how much oil they SAY they sell. Commodities markets don't like this. To compensate Wall Street looks to US and North Sea (European) refinery stocks (levels of reserves in above ground tanks) to determine how full their reserves are and thus how much excess oil could be on the market. The IEA (https://www.iea.org/) is an international watchdog organization, which watches refinery stocks across the world, listens to what everyone SAYS they are doing, and based upon registered and reported US and European production along with what OPEC and OPEC+ SAYS they are going to do, makes long term predictions about whether the world is in a surplus or deficit in terms of global needs vs. supply. Basically the whole oil and gas world listens to IEA. The problem with this is OPEC lies and OPEC+ lies. Example: OEPC will say it is going to add 400,000 barrels/day to global production, which will be spread among it's member countries. OPEC will then speak with OPEC+ (Russia and the like) and give them a piece of it if they want it. The problem is that it is becoming increasingly clear that most of the OPEC members don't have spare capacity, and the two that do (Saudi and Qatar) refuse to make up the slack for the rest of the member companies. So OPEC lies, IEA, reacts to what they say they are going to do and for MONTHS (like from September through January), IEA is reporting oil prices will fall because in January we should be in a surplus situation associated with the extra oil OPEC said it would put on the market. It wasn't until this month that IEA saw enough evidence that OPEC hasn't delivered to report as such and called upon OPEC to meet their quotas. IEA's report of OPEC's failures makes prices go up.....OPEC's refusal to act keeps prices up, and the daily refinery levels stay historically low due to lack of supply instead of the surplus that was expected. See how complicated this is? Anyway, enough about volatility...
Short term trends show the volatility in the market and results from speculation, unknowns and the importance of energy and specifically O&G to our daily lives. Short term trends are emotional. Weather events, political situations, wars, daily refinery stock reports, etc are all short term events.
Example of a failed measure that attempts to be a long term control and doesn't even affect short term prices: The Biden admiration's release of oil from the national reserves are worthless, emotional and irrelevant. They affects prices not at all (evidence - look back at prices each time he's done it) and because they give refiners a discount on the oil to use it, which only results in padding refiners bank accounts, it affects oil prices not at all. Why does it not affect prices? Because refiners use it immediately and don't put it in their tanks, so refinery stocks do not go up, IEA reports no stock builds and wall street doesn't care. Why do they not put it in their tanks? because they're getting a discount. Refine 80$ gift oil when prices are 100+$ and you're making big money. Why put that in your tanks, when you can refine it and sell it? It's simple economics. Also the amount of oil released is miniscule. The US produces 17 mil barrel/day. Release 40 mil barrel and that's two days production spread across the entire countries refiners. Let's put his in perspective...OPEC has a 50-200,000 BPD shortfall in their reported production number. A release of our strategic reserves gets swallowed up in 20 days of OPEC shortfall, thus why it is a joke that releasing that oil will affect long term oil prices.
Long term trends - I already spoke of this in volatility, so I don't need to belabor it. But basically these are trends associated with long term oil and gas production and refining short falls and build trends. Though the IEA reports daily on builds and reductions at US refineries, and this affects short term volatility (damn speculators), it is the patterns over several days and months that matter to long term prices.
Another note on Refinery Stocks: One might ask why the refineries aren't refilling their stocks and here's the problem. When oil prices crashed to below 40$ in 2014-2015, the refiners replaced their stocks with cheap oil. This established a long term trend.....as prices stayed low, refiners kept putting more and more in storage, thus keeping the prices low. It's a viscous circle, and it takes months if not years of refinery stock draws (reductions) to reverse the trend. As prices go up for various reasons (short term or long term), refiners will keep the cheap oil in their tanks and buy off the market. If oil prices rise enough the refiners will pull from their tanks to refine the 2014 30$ oil instead of buying 60$ oil on the market. They don't do it all at once, because what if prices go up more, and they need to keep a steady purchasing flow coming in and MOST oil is bought on a month to month contract basis, so they buy their May oil in March or something like that. This is also why they do not put the oil from the Strategic reserves in their tanks. They are getting it at a discount, but even heavily discounted they are not going to mix 70-80$ oil with the 30$ oil in their tanks. Bottom line is this: Unless there ends up being a worldwide long term supply glut that FORCES refiners to mix cheap and expensive oil, they aren't going to do it for simply economic reasons and oil prices will stay high, armored from short term volatility, but continuously low stocks.
So why this quote is ignorance or falacy.
Quote:2) As a direct result, Oil prices went up, US oil production increased, and us exports ramped SIGNIFCANTLY
#1 - He's saying that production and oil prices went up due to US exporting it's crude. This is a complete fallacy for the reasons I've stated but also specifically because:
a) US production didn't increase significantly because of this....this is an out right fabrication or mis-use of data. The fact is US production was already going up at the time because oil and gas project take YEARS to bring online. Not days weeks or months, but years. And the larger the project, the longer it takes. Production is NEVER ever ever linked to short term oil price fluctuations. They are on completely different time scales.
b) because US production didn't increase because of this, there therefore was no short term affect on oil prices. There could and likely was a long term affect on oil prices, but giving the US producers more customers for their oil, but that wasn't and isn't seen on this graph.
c) He misinterprets the graph (purposefully or ignorantly), by taking a short term price drop spike and drawing an arbitrary line. Longer term price movement is longer term than a year and you NEVER extrapolate trends in price by using spikes.
The real trends are in purple in the attachment:
You see here some interesting trends. You never use the bottom or top of a spike to establish a baseline. Long term events create spikes and RE-ESTABLISH a baseline. With baseline changes come short term emotional impact and speculation, thus one gets spikes with baseline changes, but the spikes should never be used to re-establish the new trend. The guy in the tweet mis-interprets the trend by using a spike to establish a false trend. Either because he's ignorant or just trying to sell his narrative.
To re-enforce this please see the trends for WTI crude over the last 5 years. What you see here are several long term low slope trends (purple lines up and down). Several baseline changes associated with specific and easily established long term events (red arrows) and a very recent spike to over 100$ (blue arrow) which is likely, and hopefully only a temporary spike (Russia invasion of Ukraine). However prior to Russia invading Ukraine, the first part of this year has seen oil on a very steep and consist high angle slope change, which I believe is a long term re-establishment of a trend higher (last red arrow on the right). This is associated with the event I mentioned above of the IEA predicting lower prices for 6 months based upon OPEC projected output increases and it coming clear that OPEC has been in a major shortfall with that agreed upon build AND growing speculation that neither OPEC nor Russia has the spare capacity they say they have.
Moreover, while I believe the Rus/Uk spike is temporary, there are older examples of spikes occurring during steep slope changes that re-established a higher trend than what is normally expected. The example is from 2005 there was a slope change and re-establishment of a higher oil price trend happening during 2005. This was associated with several large military conflicts and revolutions happening at the same time in major OPEC nations. Conflicts in the Niger delta started in 2004; conflicts in Pakistan (affecting relations with Iran); but the big one was the ongoing conflict in Iraq (2003), which affected Kuwait as well. All of these caused major concerns in terms of short term volatility, but the continued conflicts caused concerns of major long term supply disruption, and a re-establishment of a higher trend started in mid 2005. Right in the middle of these events the 2005 hurricane season with SIX Cat 3 or higher hurricanes hitting the Gulf Cost from Brownsville to New Orleans, with Rita and Katrina being the biggest disruptors. These hurricanes damaged or closed some Gulf Coast refineries for months causing a spike during a steep trend change. This slope with a spike did not relax and sent us toward 80-100$ oil which maintained until the 2014 oil crash. And we are in the same spot again with a spike during a steep upward trend adjustment. The question is will the trend relax from the spike or establish an even higher trend.
Lastly, for those interested, the website I use for watching daily oil price and industry trends is https://oilprice.com/ - this is a great site for watching to the minute oil price oil fluctuations if you're interested in such things, but why I really like the site is the "LATEST ENERGY NEWS" because the articles really show multiple sides of what's going on not just in the O&G industry but in the entire energy industry. In another thread talking about Nuclear Power I shared an article talking about FUSION, that came from this website.
Happy to discuss further.
![[Image: 4CV0TeR.png]](https://i.imgur.com/4CV0TeR.png)
