ISSUES....
Inside,
confidential, off the record
Collapsed
Yes, crude oil has collapsed, said
on Tuesday our friend Dennis Garthman in is excellent daily newsletter
" The Garthman Letter".
Garthman
wrote: Crude oil has Collapsed in
the course of the past twenty four hours, as it has become apparent
that the only OPEC nations who have agreed to cut production are
Venezuela and Nigeria, and that their cuts are wholly without
merit for neither country is producing anywhere near its stated
OPEC agreed-upon quotas. They have already "cut" production,
or more properly in the case of Nigeria, have had production cut
because of political problems in its southeast oil producing region,
and in the case of Venezuela because of sheer incompetence at
the PDVSA over the course of the past many years. Without the
Saudis agreeing to a production cut, whatever "cuts"
Nigeria and Venezuela announce are meaningless.
Note then the widening contangos in both WTI and Brent crude futures.
WTI has been in contango for months; Brent, which was inverted
at the very short end only a short while ago, is now in contango
across its entire term structure as
crude bids... and bids aggressively... for what storage facilities
it can find. Bull markets go to inversion; bear markets go to
steadily widening carrying charges. It is a lesson we learned
thirty years ago when analysing the cotton market, and it is a
lesson we've not ever forgotten... nor shall we, hopefully:
Nov WTI down 239 60.85-90
Dec WTI down 234 62.14-19
Jan WTI down 218 63.20-25
Feb WTI down 211 64.05-10
OPEC's Crude Basket (09/29) $57.49
Henry Hub Nat Gas $3.63/MMBtu
Things really turned for the worse yesterday when the US government
announced that it was no longer going to be buying crude oil for
the SPR "until at least after the winter heating season."
The SPR is not fully topped up at this point, for although there
are some 688 million barrels of crude in the reserve, it could
be pushed to perhaps 750 million barrels. The Bush Administration
has decided that "enough is enough," taking this demand
away from the market at a time when demand may be necessary to
keep prices bid. At the margin, and reduction in demand, however
slight, can have a materially deleterious effect. So to this
decision.
You
can subscribe to The Gartman Letter by contacting Dennis Garthman:
Phone 757 238 9346, Fax 757 238 9346 or dennis@thegartmanletter.com
ISSUES....
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