Even the oil commercial players didn't trade oil correctly.

Quoting 

According to a Reuters analysis of hedging disclosures by the 30 largest such firms, more than half of them did not expand their hedges during the three months ended June or had no hedges at all, exposing them to a plunge that wiped more than $20 off the price of oil in the following months. ... In total, the data show the 30 biggest publicly listed shale-focused producers by output held hedged positions equivalent to about 366 million barrels of oil as of June 30, compared with 367 million at the end of March. A year ago, they had 562 million barrels, according to the data.

Majority of U.S. shale firms pass up second quarter chance to hedge $60 crude | Reuters

ron99 

Even the oil commercial players didn't trade oil correctly. Majority of U.S. shale firms pass up second quarter chance to hedge $60 crude | Reuters

They got plenty of storage (supply) and IMO it is indeed the midstream companies (the "merchants") the ones who set the prices. MLP's open and close the valve of their own tank farms.
I backtested the commercials net positions and they are pretty correlated with crude prices. BUT just keep in mind the COT has a (3) day lag, a lot of positions can be switched in those 3 days.

ron99 

Even the oil commercial players didn't trade oil correctly. Majority of U.S. shale firms pass up second quarter chance to hedge $60 crude | Reuters

They rarely do. In fact in my experience when they do hedge it's often forced by their banks rather than their choice. I guess it's understandable in that if they weren't bullish the commodity, then wouldn't be in the business. Still bad management.

ElChacal 

They got plenty of storage (supply) and IMO it is indeed the midstream companies (the "merchants") the ones who set the prices. MLP's open and close the valve of their own tank farms.

Hmmm... not sure I agree but I have nothing to support that

ElChacal 

I backtested the commercials net positions and they are pretty correlated with crude prices. BUT just keep in mind the COT has a (3) day lag, a lot of positions can be switched in those 3 days.

You have to be careful. Commercial does not always equal commercial. It is (or at least always was) quiet easy to get hedge exemptions etc. I don't remember the exact details but they reclassified Vitol from a hedger to a speculator a few years back, and the impact on the COT was enormous.

Not CL but pretty related and an interesting read none-the-less: https://www.ft.com/content/70931a66-5238-11e5-8642-453585f2cfcd

Quoting 

Charif Souki, the chief executive of Cheniere Energy, says the start up of the company’s Sabine Pass liquefied natural gas terminal in Louisiana in December will create a global market for LNG that could eventually compete with oil, where millions of short-term deals are done every day. Currently, the price of LNG — gas that is turned into liquid for storage or transport — is heavily linked to the value of oil, and most deals involve contracts running for 10 years or more. Cheniere is pushing to link LNG to gas prices globally — something that has already happened on a small scale in the US — and create a large spot market. “I think transporting this model into the global market will transform it, I think eventually you’re going to have a gas market that is truly a spot market like the oil business is because, at the end of the day, you need to have the communication between producers and consumers about whether the demand is there to build additional capacity.”

https://www.ft.com/content/5a8c9a4c-54b0-11e5-8642-453585f2cfcd

Some snipets:

Quoting 

US shale producers reported a cash outflow of more than $30bn in the first half of the year, in a sign of the challenges facing the US’s once-booming industry as the slump in oil prices begins to take effect. The shortfall points to a rise in bankruptcies and restructurings in the US shale oil industry, which has expanded rapidly in the past seven years but has never covered its capital expenditure from its cash flow. US oil production fell in May and June, according to the US Energy Information Administration, and some analysts expect it to continue falling as financial constraints limit companies’ ability to drill and complete new wells. Companies have sold shares and assets and borrowed cash to increase production and add to their reserves. The aggregate net debt of US oil and gas production companies more than doubled from $81bn at the end of 2010 to $169bn by this June, according to Factset. The next hurdle facing many US oil companies is the resetting of their borrowing base: the valuation of their oil and gas reserves that banks use to determine how much they will lend. Borrowing bases are generally set twice a year, and the new levels, which will typically take effect from October 1, will reflect significantly lower expectations for oil prices than the round agreed in the spring.

CobblersAwls 

Not CL but pretty related and an interesting read none-the-less: Cheniere Energy chief pushes for a global spot market in LNG - FT.com

CNBC :- Jim Chanos: New short position in Cheniere Energy

off topic but im just curious about this and wondering if someone could explain:

"What is most ironic is that Saudi Aramco just slashed prices for crude oil to everyone around the world."

article is a few days old but what does this mean? what is the difference between the spot/futures market and then this other type of market that apparently exists? you can call aramco direct and negotiate a price for oil?

Profiler 

off topic but im just curious about this and wondering if someone could explain: "What is most ironic is that Saudi Aramco just slashed prices for crude oil to everyone around the world." article is a few days old but what does this mean? what is the difference between the spot/futures market and then this other type of market that apparently exists? you can call aramco direct and negotiate a price for oil?

Many state run energy companies sell their crude oil at a predefined formula plus or minus a constant. Then each month they will adjust the constant but not the formula itself. So the formula will move up and down with market prices.

Saudi have different formula's for different parts of the world. A google search shows that Saudi cargo's destined for North America are priced basis the Argus Sour Crude Index (ASCI) which is a USGC Sour Crude Index based upon physically traded volumes of Mars, Poseidon & Southern Green Canyon. (Kuwait and Iraq also index to ASCI).

I believe that Saudi crude is not only 'destination restricted' but also 'resale restricted' as well. Meaning you can't resell it and you can't redirect the cargo to a different location. So the people who buy it are the people who refine it.

SMCJB 

CNBC :- Jim Chanos: New short position in Cheniere Energy

This will be interesting to watch unfold. Chanos also apparently has shorts on RDSA and SCTY which makes me think that he is bearish on energy stocks across the board but probably wants to drum up interest and support on this knowing Icahn is involved.

US oil production is down 500,000 brls/day.
US oil imports are down 500,000 brls/day.
But US oil input to refineries is down 1,000,000 brls/day.

Input to refineries last week per day was 16,110,000.
US production plus imports per day were 16,594,000.

Inventories still growing.