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Since late September the red trend here has kept a lid on OP:
https://invst.ly/12-stx
In December OP punctured the blue trend that has marked the bottom for Brent for nearly three years, with green marking the recovery path. However, the pressure remains whilst red remains unbroken. Which trend will prevail? We’ll know by February.
Oilprice.com - Speculation on $110 a barrel But no conviction on this from the majority of analysts:
https://oilprice.com/Energy/Crude-Oil/Traders-Speculate-on-110-Oil-As-Middle-East-Tensions-Escalate.html
Hooters (Houthis) "surprise" announcement that they will be targetting American ships, not just ships heading for Israel:
https://oilprice.com/Latest-Energy-News/World-News/Houthis-Will-Target-US-Ships-in-the-Red-Sea.html
Suez Canal traffic:
https://oilprice.com/Energy/Energy-General/Suez-Canal-Crisis-A-New-Catalyst-for-Global-Inflation.html
Regarding 'Speculation on $110 a barrel but no conviction on this from the majority of analysts' , GfG, It's interesting that higher OP - and even the maintenance of its present level - currently seems dependant on global conflicts of one form or another. Absent these circumstances, if the supply and demand equation was operating naturally in a stable global trading environment, it does appear that US Shale production would again be driving OP down and that KSA, as head of the unruly OPEC cartel, would yet again be engaging in a battle to maintain market share. Over the last decade this has inevitably driven OP down to unsustainably low levels causing the boom & bust cycles in the US. The difference this time, however, might be the fact that the debt-laden shale producers, that had to pump ever more to survive as OP fell, have largely been eliminated - so OP might simply fall to a lower compromise between OPEC and US Shale, which I guess might be around $60.
boyo - i can't really fault any of your assumptions in your last post. i must admit that i have been a bit mystified about the oil market over the last few weeks. this oilprice.com article seems to sum up a lot of my general views:
"why oil markets aren’t reacting to supply disruptions and geopolitical risk"
https://oilprice.com/energy/energy-general/why-oil-markets-arent-reacting-to-supply-disruptions-and-geopolitical-risk.html
the edge seems to have come off the "normal" market reaction to major events. several posters have mentioned the malaise and almost indifference that greets evidence of spreading with the middle-east conflict. everyone seems for instance to universally fear the consequences of escalation with iran. but, iran is flinging missiles at iraq, syria & now ****stan, backing hezbollah in lebanon, has sworn the eradication of the israeli state, etc whilst using the houthi's in yemen to disrupt world trade & particularly the oil trade.
it looks like 90% of container traffic has been diverted from the suez route, bulk carriers have been severely impacted along with tanker traffic. the lack of reaction seems to focus on container ships being much bigger so less reliant on the suez route and suez traffic having generally reduced over time, but i find this difficult to agree with. maybe the world reactions will change if a tanker is sunk off the coast of yemen, but the us and uk have already been drawn into a wider conflict with multiple yemeni bombing raids!
maybe there are concerns that unless the markets are anaesthetised they could panic escalation of the conflict to the level of western power boots on the ground. inflation has not fully been laid to rest, and shipping disruption will increase cpi, and we are talking about tax cuts - nothing to do with an upcoming election of course! crude oil production in north dakota falls by 650,000 to 700,000 bpd recently & although this heading for 1% of daily world usage - virtually no market reaction.
in the background the ksa is happy to confront us shale production with lower prices, and funding putin's war in ukraine will have its funding significantly destabilised. keeping the op low in an election year has multiple benefits including: inflation, interest rates and growth though.
at the moment raising the op appears to be as difficult as raising lazarus from the dead. cold weather! what cold weather!
A good article, GfG. I liked this observation in it:
‘[OPEC] are effectively increasing their spare capacity by reducing actual production. And they will not change course until prices rise, which they would only do if a supply disruption occurs.’
OP has always been a guessing game.
The current reduced output from North Dakota (part of the Bakken field which crosses North Dakota, eastern Montana, and southern Saskatchewan) is temporary due to weather conditions and it’ll be back in full swing as the next months of futures contracts come into focus.
But one thing is for sure: OPEC and US Shale tussle for volume and price, which either drives it to a sweet spot that suits both or it goes off the rails.
This shows Shel v Brent over the last few months.
https://invst.ly/1331ep
I'm currently thinking that Shel 's sp will absorb a further modest fall in OP and hold above the blue unless something unexpected happens (which, of course, it probably will !! ).
Good morning All,
I've waited on the sideline to buy back into SHEL for a very long time.
First position 2371p + usual fees.
Will add on any further retracement
ATB
Boyo - looking at KSA crude oil production for 2023, it came down from very roughly 10-10.5 million BPD in the first half of the year to an average of 9 million and a little below this consistently for the half beginning July 2023.
As you point out this effectively gives the KSA spare production capacity, which looks to be around a minimum of 10% consistently over the last 6-months +. Essentially its a safety buffer to mitigate any price shocks & introduces a swing-production element to their overall output, which they can change significantly depending on market conditions. Its all about "control" mechanisms.
Absolutely GfG - the ‘increase in spare capacity’ observation was in the article you posted and I hadn’t switched onto that until your post - so thanks!
Good to see you back Armani: hope this works out well for you - and us, of course (self interest is never far away in these matters).
I’m not too disappointed in today’s minor drop although it did run counter to OP and also went against the expectations I had expressed in a previous post. No chart today as my interest is currently in the ratio of sp to OP which is at a recent low of about 29.6x. In terms of the 30 day moving average, it places Shel about £2 down relative to OP when compared to how it has performed on average over the last month (by my amateur calculations). To me, this represents an eventual upside when conditions improve - hopefully by FY results or Q2 when US ‘driving season’ approaches.
Time will tell as char333 would say - it seems he’s over on the BP chat now.
Brent has been on the up since December
Brent: https://invst.ly/133lvt
but Shel has been going the other way, pushed flat down on the the bottom blue tren here:
Shel: https://invst.ly/135h12
BP similarly, although with slightly more sign of an uptick this last couple of days:
BP: https://invst.ly/135h0l
Probably a bit more sense and direction when the impairments, and exactly where they have fallen, are exactified on the 1st February.
Sawan as a "new broom" CEO may well put the impairments at the top of the forecast range - $4.5 billion is a serious dampener for any party. Really could be quite positive in PR terms with an election only maybe 10-nonths away though.
Here’s how Shel, BP, CVX and XOM moved with respect to Brent last week (approximate scale shows Shel and Brent price )
https://invst.ly/136gt0
To put that into some context, here’s a plot of Shel & Brent over the last 15 months , with some dates highlighted when OP was at the current price of $83:
https://invst.ly/136h59
Brent has risen by over $1 since Friday’s LSE close, which suggests that the sp could strengthen further on Monday if OP remains firm.
More recently, Shel has been lagging OP and the comparison over recent weeks suggests that Shel is at least £1 down currently and should be heading to fill the gap created by the update on Jan 8th to 2566 once confidence is restored sufficiently.
https://invst.ly/136hzp
Getafgrip, an impairment of such a high amount hitting the P+L in one go smacks of incompetent Accounts staff spoken from my accounting background. As part of any annual audit, all B/S constituents should be accurately reconciled and agreed as reasonable. I accept that valuation methods and approaches can change, but that is a rarity, eg depreciation method, and the reason and detail of this Impairment needs full explanation.
I think the final impairment(s) figure will have been decided based more on Sawan's overall strategic perspective than basic accounting principles. Personally I think it is likely to be mostly attributable to a realistic valuation of assets, in the event of M & A activity. With your accounting background you obviously know how write-downs impact on ROCE, ROI etc.
A variability factor of $2 billion was indicated with the original announcement on the 8th January relating to impairment(s). This would indicate a very high, costly, and mystifying level of variability in the performance of "incompetent accounts staff." Also four and a half thousand million dollars of impairment(s) is a level of performance from "incompetent accounts staff" that would have me racing for the exit.
I often say that the sp follows OP except when it doesn’t and the fact is that although the two are related the sp does have other significant influences (like nasty impairment news) which ordinarily play a more dominant role. Then there's the tendency for the sp to filter out much of OP’s volatility. This comparison of the two since mid October demonstrates this quite well:
https://invst.ly/137op3
The sp may well be less volatile than Brent but , as I mentioned previously, it is currently running about £1 down compared the trend in OP which has been steadily rising since the year began. There's also that gap up to 2566 beckoning to be filled at some point. It’s a shame about the much smaller one down to 2440 created on Friday with the sharp bounce back towards 2500 . It's possibly small enough to ignore whilst the price is rising. The scene is therefore set for the results to overshadow the recent setback, which was fortuitously announced well in advance.
The daily chart today (Wednesday) makes things look rather worse than they are: https://invst.ly/138i6u
A 15' view shows that the sp has held pretty level over three days despite a drop in OP: https://invst.ly/138i53
Thursday will be the test.