Too Much Oil

Published on
May 6th, 2019
Topic
Valuation, Trading, Macro, Technical Analysis, Oil
Duration
12 minutes
Asset class
Commodities

Too Much Oil

Trade Ideas ·
Featuring Adam Kobeissi

Published on: May 6th, 2019 • Duration: 12 minutes • Asset Class: Commodities • Topic: Valuation, Trading, Macro, Technical Analysis, Oil

Adam Kobeissi, editor in chief of “The Kobeissi Letter,” makes his first appearance on “Trade Ideas” with a bearish call on oil. He discusses the increase in U.S. and OPEC oil production, notes how President Donald Trump can impact prices, and highlights the trade’s technical setup, in this interview with Justine Underhill. Filmed on May 3, 2019.

Comments

Transcript

  • JW
    Joel W.
    9 May 2019 @ 00:02
    Thank you Han. Thank you Eduard.
  • HS
    Han S.
    8 May 2019 @ 21:53
    $10 potential loss VS $12 profit? I would never go for that kind of risk: reward.
  • ET
    Eduard T.
    7 May 2019 @ 03:32
    His track record calling oil in 2018.... https://www.thekobeissiletter.com/uploads/6/8/8/7/68876099/full_year_performance-2018.pdf January 1st – February 12th: Short WTI Crude: 1.25% Gain February 19th – May 31st: Short WTI Crude: 9.36% Loss June 18th – October 29th: Short WTI Crude: 6.17% Loss October 29th – December 31st: Long WTI Crude: 32.59% Loss
  • AP
    A P.
    6 May 2019 @ 12:52
    US shale production offsetting OPEC is not true as their crude is mainly heavy sour crude while US crude is light sweet (except for countries like Libya that sell US-quality equivalent crude, where current disruptions could open up market share for the US, especally in Italy). Heavy sour is in short supply now and Venezuela collapsing further, Saudi cuts, Iran sanctions, Nigeria outages, etc. should not help. Saudi raising production is not baked in yet - although as they over complied with the OPEC+ agreement, they have some margin to both increase production and still comply with OPEC+. While the Aramco bond sales is behind, they still need much higher prices to balance their budget. Quid: China circumventing Iran sanctions buying oil in RMB? Straight of Ormuz disruptions? When looking at oil, you are much better off focusing on supply factors than demand for short term trading moves. As the Chief Economist of BP puts it - a slowdown in 0.5% global GDP knocks out 300K barrels off demand, while there are 20 things from the supply side that could kick 200-300k barrels off. Long-term, demand comes in strong of course. Agree with the trade though, mainly because WTI production will pick up going into the driving season/end of maintenance season and as prices have picked up and production started again vs 4Q18. Also WTI light sweet needs to be sent to EU refineries as the US does not have enough capacity to absorb it all & refine, so the Brent-WTI spread also has to widen back (trade idea). Also looking forward to how IMO2020 will materialize. Great video of the current outlook here from CERAWeek - http://bit.ly/2IaRQCI Looking forward to Diego tomorrow.
    • YB
      Yuriy B.
      6 May 2019 @ 15:50
      AP, could please weigh in on a couple questions: (1) how does the price of WTI impact the profitability of American refiners (e.g., MPC)? (2) how does the price of WTI impact the profitability of American midstream companies (e.g., KMI)?
    • AA
      Alexis A.
      7 May 2019 @ 09:18
      I agree. Saudis need way higher prices to balance their budgets and whilst it's nice to see that they can raise money on the bond market, this is not a long term solution for them. The Aramco prospectus also highlights that the Saudis have little margin to significantly increase production. Their major wells (5 of them) produce about 70% of their production and they are getting old. Domestic consumption has also ramped up over the years. I am just not sure that they can really open the tap and flood the market. They need strong prices. There is that theory that the Saudis are eyeing the gas reserves of Qatar... Small country (richest per inhabitant), tons of reserves, friend of Iran... Perhaps putting their hands on these resources would give them some margins to reduce oil prices. Lets see what next.