Oil Recap — Oil Heads for Longest Run of Weekly Losses in More Than 13 Years — Venezuela Overtakes Saudis for Largest Oil Reserves — Why Oil Is Probably Finding a Short Term Bottom Here

Oil peaked at $147 in 2008 and then again in the $110 range in 2011 and 2012. Peak Oil theorists and hyper-inflationists do not understand why the price has fallen so low, in the low $80s... Moreover, Peak-Oil or not, it seems like supply is actually increasing for the time being, and not being constrained by the so called peak-oil theory. The US are almost at the point of drowning under their oil inventories. Last argument: oil demand is not as inelastic as the bulls pretend. Demand actually declines with price increases, and also in economic downturns. Finally, it's interesting to note that according to BP, known reserves have increased in 2012 compared to 2010, while all the producers have been pumping like there is no tomorrow.

So, first, I do not believe that oil has been driven by anything but speculation in the past 5 years. Peak oil or not, the current price reflects not the usage demand by end consumers, but demand by speculators. Yes, speculators do affect prices, as they are part of the demand and supply side in the futures markets.

Second, the massive flow of negative news after a long decline and very negative sentiment is leading me to believe that oil is scratching bottom and is ready for a temporary bounce, before resuming the downtrend of the Greater Depression.

There's a massive flow of extremely bearish news about oil these days. See for yourself, in the past 3 days, on Bloomberg:

  • Oil Falls in New York as IEA Says Global Supplies Have Improved
  • Oil Drops Before OPEC Meeting, U.S. Crude Stockpile Data
  • Oil Drops a Fourth Day on Naimi Comments, Iran Exemptions
  • OPEC Set to Break 10-Year Habit of Supply Cuts During Routs
  • Venezuela Overtakes Saudis for Largest Oil Reserves
  • Venezuela’s Chavez Plans to Double Oil-Output Capacity by 2019
  • Oil Heads for Longest Run of Weekly Losses in More Than 13 Years

Below are quotes from the respective articles (in the order above):
(Bloomberg) June 13, 2012 — Crude oil declined in New York as the International Energy Agency said global markets are better supplied than earlier this year and U.S. retail sales dropped. 
Futures slid as much as 1.2 percent. The Paris-based IEA said in a monthly report today that global supplies increased by 200,000 barrels to 91.1 million barrels a day in May. U.S. crude inventories, which rose to the highest since 1990 at the end of May, may drop this week, according to a Bloomberg News survey before a government report. [...] 
There’s still an overhang in crude inventories in the U.S. and stocks have built globally in the first half of the year,” Gareth Lewis-Davies, an analyst at BNP Paribas SA in London, said by phone.  [...] 
The IEA said the oil market is better supplied amid concern that slowing economic growth will curb crude demand. The agency cut its forecast for 2012 crude consumption to 89.9 million barrels a day, down by 100,000 barrels from May and reflects an increase of 820,000 barrels from last year. 
The Organization of Petroleum Exporting Countries, which meets tomorrow in Vienna, cut production last month, ending seven months of increases, as Saudi Arabia and Iraq lowered supplies, the IEA said. [...]
Abdalla El-Badri, OPEC’s secretary-general, said today in Vienna that “there is some oversupply in the market” for oil. 
Saudi Arabia, Kuwait, Qatar and the United Arab Emirates would like to raise the output ceiling by 500,000 barrels a day, an OPEC delegate said yesterday, declining to be identified because member countries are still in talks. Iran, facing a European Union embargo on its oil exports from July 1, and Venezuela have been joined by Iraq and Angola in warning that supplies are excessive. 
OPEC will keep the production ceiling at 30 million barrels a day, according to all 20 traders and analysts surveyed by Bloomberg News last week. 
Retail sales in the U.S. fell as slower employment and subdued wage gains damped demand. The 0.2 percent decrease followed a similar decline in April that was previously reported as a gain, Commerce Department figures showed today in Washington. Sales excluding automobiles slumped by the most in two years. 
[...] The South American country’s deposits were at 296.5 billion barrels at the end of last year, surpassing Saudi Arabia’s 265.4 billion barrels, BP said today in its annual Statistical Review of World Energy. The 2010 estimate for Venezuela was revised to the same amount, up from 211.2 billion in the previous report. 
Global reserves advanced to 1.65 trillion barrels at the end of last year, a 1.9% percent increase from a revised 1.62 trillion in 2010, BP said.

(Bloomberg) June 13, 2012 — Oil fluctuated in New York amid speculation the Organization of Petroleum Exporting Countries will keep output quotas unchanged even after a slide in prices. 
[...] “OPEC’s output is a very significant feature of the oil market and has the potential to make quite significant changes to supply and impact prices,” said Ric Spooner, a chief market analyst at CMC Markets in Sydney. “The consensus view is that at current prices it’s not too likely that we’ll get any public announcement on production-quota cuts.”
Demand has been incredibly weak,” said Dominic Schnider, the global head of commodity research at UBS AG’s wealth- management unit in Singapore. Boosting supply “will really be the wrong signal.” 
Oil in New York fell after a bearish “death cross” formed on the daily technical chart, according to data compiled by Bloomberg. The 50-day moving average, at $96 a barrel today, dropped below the 200-day mean at $96.41 for the first time since December. Investors typically sell contracts when the moving average for a shorter period falls below a longer one.

(Bloomberg) June 13, 2012 — Oil traded near an eight-month low after Saudi Arabia’s oil minister said OPEC may need a higher output limit and the U.S. issued more exemptions from sanctions on buying Iran’s crude, cutting the risk of supply disruption
Futures slid as much as 2 percent after the Organization of Petroleum Exporting Countries said the market is “amply supplied.” The U.S. added six countries and Taiwan to its list of exemptions, saying they “significantly reduced” their purchases of Iranian crude. U.S. gasoline stockpiles probably climbed to a five-week high, a Bloomberg News survey showed.
The comments from yesterday are surprising and suggest Saudi Arabia isn’t willing to reduce production,” Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt, said by phone. “Without a production cut, there will be considerable oversupply in the market in the second half, which will put further pressure on prices.”
Persian Gulf Arab members of OPEC want to raise the group’s output limit by 500,000 barrels a day, a person familiar with the situation said today.
[...] The U.S. added India, Malaysia, South Korea, South Africa, Sri Lanka, Turkey and Taiwan to the list of exemptions from sanctions, Secretary of State Hillary Clinton said yesterday in an e-mailed statement. Clinton announced in March that Japan and 10 European Union nations had qualified for an exemption for a renewable period of 180 days. 
India and South Korea were the third- and fourth-largest buyers of Iran’s crude in the first half of last year, according to the U.S. Department of Energy. China, the Persian Gulf nation’s biggest customer, wasn’t exempted from the sanctions, which are targeted at curbing Iran’s nuclear program. 
Countries have until June 28 to demonstrate they have “significantly reduced” purchases from the Islamic Republic, OPEC’s second-biggest producer, or their banks that settle the oil trades may be cut off from the U.S. financial system. [...]
(Bloomberg) June 13, 2012 — For the first time in a decade, OPEC will maintain oil-output quotas while prices plunge as Europe’s debt crisis and China’s slowing growth curb fuel demand. 
[...] Crude has fallen 22 percent in London since March 13 on mounting concern that Europe’s debt crisis will derail global growth and curb demand for energy. Saudi Arabia, the biggest OPEC member, is pumping the most in 33 years to bring prices below $100, a target set by its Oil Minister Ali al-Naimi. The group exceeded its official output level by 6 percent in April, according to the International Energy Agency. 
“They’re not going to want to rock the boat,” said Mike Wittner, head of oil research for the Americas at Societe Generale SA in New York. “This is a very fragile time for the global economy so I don’t think they’re going to take any action. There’s no way that OPEC is going to announce any cut or even say that very strongly.
This is one of silliest comment I've ever heard. Not surprising that it's coming from a banking analyst... Does Mike Wittner really believe that OPEC cares at all of the global economy? They care about themselves only. And if the producers are pumping, including the Saudis, is because they need the cash. Why do they need the cash? To keep their people out of the streets and avoid protests by giving away subsidies and cash handouts. That's it!
[...] “It is very clear that there are tremendous surplus quantities that led to this severe decline in the prices,” Iraqi Oil Minister Abdul Kareem al-Luaibi said today in Vienna. “This would not serve anyone.”

(Bloomberg) June 13, 2012 — Venezuela now holds the largest proven oil reserves in the world, overtaking Saudi Arabia, according to BP Plc. 
The South American country’s deposits were at 296.5 billion barrels at the end of last year, surpassing Saudi Arabia’s 265.4 billion barrels, BP said today in its annual Statistical Review of World Energy. The 2010 estimate for Venezuela was revised to the same amount, up from 211.2 billion in the previous report. 
Global reserves advanced to 1.65 trillion barrels at the end of last year, a 1.9 percent increase from a revised 1.62 trillion in 2010, BP said. North Sea Brent crude, a benchmark for more than half of the world’s oil, averaged $107.38 a barrel in 2011, according to data compiled by Bloomberg. 
[...] BP said the estimates in today’s report are a combination of official sources, OPEC data and other third-party estimates. Deposits include gas condensates and natural-gas liquids, as well as crude.

(Bloomberg) June 13, 2012 — Venezuelan President Hugo Chavez will more than double the country’s oil-production capacity to 6 million barrels a day by 2019 if re-elected on Oct. 7, according to a government plan released today on his website
Chavez wants to increase domestic refining capacity to 1.8 million barrels a day from 1.3 million barrels a day in 2013, according to the plan. No details on funding were given in the plan, which stated that the nation would “intensify efforts to obtain the financing needed.”  [...]
(Bloomberg) June 10, 2012 — Oil fell a second day in New York, heading for the longest run of weekly losses in more than 13 years, on speculation the economies of the U.S. and China, the world’s biggest crude consumers, will slow and curb fuel demand. [...] 

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