Posted on 08/17/2022 8:06:16 AM PDT by Oldeconomybuyer
NEW YORK/LONDON (Reuters) - Traders and fund managers have left crude oil markets in recent months, dropping activity to a seven-year low amid the worst global energy crisis in decades as investors become unwilling to deal with persistently high volatility.
The exodus of participants, especially hedge funds and speculators, has made daily price swings far greater than in previous years, making it harder for companies to hedge against physical purchases of oil. The volatility has harmed companies that need energy market stability for their operations, which includes oil-and-gas companies, but also manufacturing and food-and-beverage industries.
The high volatility is delaying increased capital expenditures that would help supply keep pace with energy demand, said Arjun Murti, a veteran energy analyst. When volatility is high, oil companies have less confidence in price forecasts, he said.
"There will be concern that prices could fall back to lower levels that wouldn't justify new capex," Murti told Reuters.
Many different types of investors, including banks, funds and producers, have exited the market, participants said, as the market on some days surges on threats to supply, while on other days the cloudy economic outlook causes equally wild selloffs.
(Excerpt) Read more at msn.com ...
Biden stated he was waging war on oil. Problem for him is that he has tk figure out how to do,so while making it seem like, he isn’t responsible for the pain it’s causing.
The bottom could fall out of the oil market and the price of oil will plunge sending economic shockwaves from Texas through North Dakota, Alaska, Louisiana and the other oil producing states, with impacts as serious as a stock market crash.
“The bottom could fall out of the oil market”
I don’t think so. Oil may continue down for now as school is starting and vacation driving has dropped. Look out in October or November. The supply of oil coming into the market is completely out of its average supply range on the low side and as fall/winter demand comes in for heating oil prices should start to rise again.
Biden’s release of a million barrels a day from the Reserve is scheduled to end in October, right as heating oil demand will rise. That’s good for about a $15 rise. Can’t sell off the reserve forever, it’s limited in size. After the election Biden will be back to wanting higher oil prices.
Forgot to add that our refineries are running full out. This causes production to stagnate as there’s no use producing oil that can’t be refined. Cheaper to store it in the ground than in tankers and storage tanks.
Saxxon, you’re right about the medium-term outlook. I had a career in the oil business and am familiar with the pipeline and storage issues that also affect the market. What remains unclear to me is the true effect of Biden’s irresponsible sell-off of the Strategic Oil Reserves. It put some downward pressures on crude prices, but also put some traders and producers on the sidelines, which creates upward prices.
I guess we’ll see. Like you said, Brandon can’t continue to drain the reserves indefinitely.
Fund managers have left crude oil markets.
Bad judgment on long term gains after Biden’s end of his two year chaos things will change very fast.
Investors and speculators in oil contracts are the reason for volatility, not the other way around. In typical lamestream fashion, the bad guys are made out to be the good guys and vice versa.
Before WTI/Brent was traded on the futures markets, prices were determined by real market participants, e.g. oil and gas producers and refiners/end users. They need a predictable market price rather than a daily roulette wheel.
I think getting the financial parties out of the oil and gas markets would be a great improvement for market conditions, so you don’t get some financial party mashing down prices based on the latest rumor about the Iran nuclear “deal” or a statement by OPEC.
That’s my opinion anyway.
Your points are well noted. However, energy CapEx is often a 5-10 year investment. If the trend of government regulations drastically changing every time we switch from R to D, then capital will go elsewhere.
Add to the mix a near religious belief in unproven and unreliable energy sources and it will get ugly. First to the slaughter is Europe.
I agree that the green energy religion is a wildcard, but without financial parties trying to arbitrage futures contracts (with no intention of taking physical delivery), the market would evolve into a more predictable, longer term mechanism that producers could rely on.
And I am an independent oil and gas operator and attorney. I would much rather control my own destiny with a negotiated price than be subject to the latest financial frenzy, required to rely on hedges with basically no actionable knowledge of future market conditions. It’s just playing the casino.
If you know the market is manipulated, and that you are not an “insider”, it’s wise to head for the door.
I think the more important lesson is WHY oil is reversing. It is the slow down in the 2 biggest economies - China and the USA. The oil market in the short and medium term is no less volatile than cryptos or tech companies. It continues to over react upwards and downwards. The charts still suggest the high 60s for WTIC.
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