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The CL Crude-analysis Thread
Started:December 17th, 2014 (02:33 PM) by tturner86 Views / Replies:125,568 / 1,754
Last Reply:December 4th, 2016 (01:02 AM) Attachments:450

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The CL Crude-analysis Thread

Old February 6th, 2016, 08:16 PM   #1491 (permalink)
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Here are a couple of other ways to look at that data.

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Old February 8th, 2016, 01:33 PM   #1493 (permalink)
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Follow up on my previous post regarding employment.

Mr Denninger was just on Stocks & Jocks and commented on the adjustment to the establishment survey number and admitted that he does not have historical data on this as he does with the household survey number - however he did mention that is a rather large adjustment

Not to be confused with typical Christmas firings (household survey etc)

Oil industry ??
Skilled labor ??
Other/ both ??

-William

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Old February 9th, 2016, 09:34 AM   #1494 (permalink)
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Food for thought and would like to hear your thoughts

With /CL (oil, WTI) and current pricing, how much more pain can folks (banks) holding the paper keep standing before saying enough is enough ??

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-William

EDIT

According to FT71 DB is the largest commodity trading bank in the world


Last edited by WilleeMac; February 9th, 2016 at 10:06 AM.
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Old February 9th, 2016, 10:04 AM   #1495 (permalink)
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Quoting 
As you’d also expect, we talked a bit about oil as well. What would end the bear market? Would Saudi and Russia combine forces and reduce supply? How quickly can shale producers turn production on and off? But on this subject we came away with an answer, something wiser (not smarter, wiser) market types have been susurrating for several months: the supply pressures won’t stop until debt-financed production becomes equity-financed production. It really is that simple.

The reasoning is clear: We know you can’t hold back production to get higher prices later if you have debt to service. Only equity financed production has that luxury.

The process is also clear: The highly leveraged producers drown each other with supply in an attempt to be the last man floating, but ultimately all sink. The equity holders get wiped out and the bond holders become the new equity holders in exchange for writing off their debt claims. Sometimes the new equity holders sell their claims to others in the process. Sometimes they hold on. But either way the new owners have made time their friend instead of their enemy.

This debt for equity swap is the sine qua non for swing production to begin the long awaited, over forecast pull back in supply.

Did you see what just happened to the stock prices of Chesapeake Energy and others producers of its ilk?

The process started today.


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Old February 9th, 2016, 10:40 AM   #1496 (permalink)
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WilleeMac View Post
Food for thought and would like to hear your thoughts

With /CL (oil, WTI) and current pricing, how much more pain can folks (banks) holding the paper keep standing before saying enough is enough ??

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-William

The 'derivative exposure' numbers can be very misleading as they are all notional and not in anyway netted. Bank A could buy a 1kkb 2017 oil swap from Bank B at $35 and then tomorrow sell them back the same product at $35.10. Bank B doesn't want to give Bank A the $100k profit they made because they don't have to until the swaps settle in 2017. Hence both Bank A and Bank B now have an additional $70M derivative exposure even though they have no position.

Another way to think about this. Imagine you day trade say 50 round turns/100 sides day of CL. Even at $30 thats a $3M notional. Do that 250 days a year and thats a $750M notional. Now tell your next door neighbor that you trade $0.75 Billion of crude a year and see how he reacts. Obviously not a great comparison as futures are netted but I think it illustrates how these numbers can suddenly look so huge. I picked CL in this example as this is the CL thread, but while the notional on CL is currently around $30k, the notional of an ES contract is 3 times larger at $92k so an ES trader trading 100 sides a day is trading over $2B in equity derivatives a year!


WilleeMac View Post
EDIT

According to FT71 DB is the largest commodity trading bank in the world

Hmmm. DB used to have a very large commodity desk. But then so did Goldman, Morgan, Barclays, UBS, JP and several other of the major banks. DB like most of the banks have significantly reduced their commodity trading exposure. Even if they are the largest commodity trading bank, that's small fry compared to what it was 5 years ago. Of course, as described above, their notional derivative positions is probably still enormous, even if their net position isn't.

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Old February 9th, 2016, 12:08 PM   #1497 (permalink)
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I just read an interesting theory.

They said that oil companies can't shut down oil pumping because they have to pay on their loans. They are saying that is why oil production won't slow down.

Data from EIA yesterday said that oil production per well in ND hit all time high in Dec. They also have an all time high in well drilled but not completed and hooked up.

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Old February 9th, 2016, 12:40 PM   #1498 (permalink)
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I just read an interesting theory.

They said that oil companies can't shut down oil pumping because they have to pay on their loans. They are saying that is why oil production won't slow down.

Oh yes I don't think that's a theory, I think that's reality. As long as variable cost > market price, keep pumping.

It doesn't really matter what your fixed costs are/were (cost of land, cost to drill well, interest on loans etc) you have to pay those costs whether you keep the well pumping or not. So as long as what you are getting more for the oil than what it costs you to pump that oil (labor, rig lease) you keep it flowing, and just lose less money than you would do if you stopped flowing.

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Old February 9th, 2016, 06:36 PM   #1499 (permalink)
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CL margins dropping 15% tomorrow

Performance Bond Requirements: Crude Oil Margins - Effective 02/10/16 - CME Group

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Old February 9th, 2016, 06:44 PM   #1500 (permalink)
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This makes no sense at all. IM drops from $5,060 on 12/11/15 to $4,400 on 12/14/15 to $3,850 on 2/10/16 when volatility is high.

Same with ES IM not changing since 7/25/14.

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