SMCJB 

Couple of interesting oil posts in another thread here. Would definitely recommend listening to the podcast referenced.

And just as everybody starts talking about backwardation, the market flushes! John Kemps latest piece Oil market flashes warning about stock levels in 2018 which includes this chart of Dec17-Dec18 Brent Spread...

Novice question: if people expect stocks to rise meaning cuts will not be enough doesn't that mean there will be more inventory which means future prices should be expected to be lower meaning the more the inventory less the incentive to pay more and thus prices should remain in backwardation ?? What am I missing


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jokertrader 

Novice question: if people expect stocks to rise meaning cuts will not be enough doesn't that mean there will be more inventory which means future prices should be expected to be lower meaning the more the inventory less the incentive to pay more and thus prices should remain in backwardation ?? What am I missing

I agree with everything until you use the word backwardation. I think your mixing term structure with outright price.

if people expect stocks to rise meaning cuts will not be enough doesn't that mean there will be more inventory which means future prices should be expected to be lower meaning the more the inventory less the incentive to pay more and thus prices should remain low

Another way to think about it is if markets are not in contango, there will be no speculative oil in storage, as the market is not paying people to keep it there. Of course if we take all the speculative oil out of storage, and sell it into the market, if there isn't enough demand to absorb that selling, the market will become saturated, and will probably end up in contango! Several months ago when the CL curve was that wierd M shape I believe that was saying, we have too much oil now so markets are in contango, but in the future we won't so markets will move to backwardation.

Baker Hughes oil rig count drops 1. First drop since January!

Is this a Bear Market Rally in oil?
Anyone selling credit spread Calls? Naked?
Thinking of selling 7-10% OTM Call spread.

Thought please?

Mars crude moving from USGC to India!

U.S. Oil Lures India as Arbitrage Opens Up ? gCaptain

SMCJB 

Mars crude moving from USGC to India! U.S. Oil Lures India as Arbitrage Opens Up ? gCaptain

Very interesting development, thanks for sharing the link!

Reuters :- U.S. uncompleted well backlog hangs over oil market: Kemp

U.S. oil and gas exploration and production companies are drilling new wells faster than they can be fractured and hooked up to gathering systems, creating a growing backlog of drilled but uncompleted oil and gas wells.

By June, the number of drilled but uncompleted oil and gas wells across the seven largest shale plays had topped 6,000, according to estimates from the U.S. Energy Information Administration.

The estimated number of uncompleted wells across the seven plays has risen by more 1,000 since December 2016, the agency reported on Monday

More...
https://www.reuters.com/article/us-usa-shale-kemp-idUSKBN1A31AI

SMCJB 

Reuters :- U.S. uncompleted well backlog hangs over oil market: Kemp U.S. oil and gas exploration and production companies are drilling new wells faster than they can be fractured and hooked up to gathering systems, creating a growing backlog of drilled but uncompleted oil and gas wells. By June, the number of drilled but uncompleted oil and gas wells across the seven largest shale plays had topped 6,000, according to estimates from the U.S. Energy Information Administration. The estimated number of uncompleted wells across the seven plays has risen by more 1,000 since December 2016, the agency reported on Monday More... https://www.reuters.com/article/us-usa-shale-kemp-idUSKBN1A31AI

I wonder if this could be for some accounting/balance sheet reason - for example if the well has been drilled then it counts as a 'proven reserve' or something like that in which shale companies can borrow more money/time based on these reserves?

Headline is :- Traders Think Hedge Funds Are Missing a Trick With Oil
Story Is :- "Physical differentials are improving across the world.”

https://www.bloomberg.com/news/articles/2017-07-24/as-hedge-funds-bet-on-falling-oil-traders-see-a-different-story

One thing I don't like about this article is when they say things like

"In Europe, Urals crude was 65 cents a barrel cheaper than Brent this month, the narrowest discount in almost three years, according to data compiled by Bloomberg. In April, the discount was about $2."

Which Brent? Paper Brent (ie futures) or Physical (ie Dated Brent)? I assume they mean paper Brent but that isn't clear. Of course if they do mean Paper Brent then I'm sure the Paper-Dated spread has moved significantly as well.