00:00We've seen oil prices continue to hold their levels pretty much holding on to their declines.
00:06For instance, NYMEX crude down about 2.8 percent right now at $95 a barrel.
00:11I was asking you earlier, how much do you read into today's decline in oil prices?
00:15They've been all over the place the last two weeks.
00:18I mean, obviously, there's no shortage of volatility.
00:21In fact, this is one of the most volatile oil markets we'll probably ever see in our lifetime.
00:25And with that said, if you look at volatility index indices on the CME Group's website, other than 2020, this
00:33is the most volatile event that we've seen yet in crude oil.
00:37And I'll just add one more thing.
00:39These types of events are usually tops or bottoms, not mid-trends.
00:43So I do expect that we're in some sort of topping action.
00:46Now, that said, it's going to be a really wild ride.
00:48And another thing that leads me to believe that is, you know, it's really nice to see oil down on
00:53a Monday.
00:53The last couple of Mondays we've come in, and it's been the exact opposite story.
00:57So this does feel like the beginning of the end.
01:00But that doesn't mean that we can't get some headlines and pump us up to maybe 105, maybe 1010, somewhere
01:06in that ballpark.
01:07It's very typical for markets that expand with this type of volatility to reach heights that nobody thought were possible.
01:14And then we're usually in a situation where we pull back and then retest those heights or at least get
01:19a little bit – get pretty close to them.
01:22So like in 2020, we topped out around 130, and then we ended up coming back a couple of months
01:27later and touching the low 120.
01:29So I would expect something like that to happen.
01:31But in the big picture, I do believe this is temporary volatility.
01:36And we may even come out of the other side of this with even more oil than we started with.
01:41I know it's not guaranteed, and there's a lot of things that can go wrong.
01:45But we've done nothing but add supply to try to thwart this rally.
01:50OPEC's adding supply.
01:51We've got Venezuelan oil, barrels of oil coming on.
01:54We've got an SPR release that's like globally coordinated.
01:58So there's a lot of things working against oil prices.
02:00The one thing working in its favor is we don't know what we don't know yet, and people are scared.
02:04Right.
02:05And that fear kind of overwhelms a lot of the other things that you're citing.
02:08It does.
02:09How much speculative money is in oil right now on a daily basis?
02:13I think about how there's a crypto exchange and its oil futures contracts have been surging in volume since the
02:18start of the latest Middle East conflict.
02:20So there is that element of participation from a certain group of investors or traders that may be whipsawing prices
02:28more than they would have moved otherwise.
02:31You know, thank you for saying that, because a lot of people kind of forget that aspect of it.
02:36And I believe a big chunk of this is speculation.
02:40And I'm a broker.
02:41I'm in the business of speculating, so I'm not against speculation.
02:45Speculators bring liquidity to the market.
02:47But the problem is we're getting liquidity from places that are unconventional, like you just mentioned, crypto, but also ETFs,
02:55commodity ETFs, such as the USO, lures a lot of hot money in and out very quickly to commodities like
03:01crude oil.
03:02And in my opinion, it's interfering with the price discovery and causing a lot of dysfunctional price action.
03:09And I'll just mention one other thing.
03:12If you look at the backwardation of the market structure, what I mean by that is the front months, the
03:20April-May contracts, are trading much higher than the back months.
03:23December crude oil is in the 70s.
03:24I think it's 75 last I looked at it.
03:26So about $20 lower than the front month.
03:28And that tells me that the speculators are playing a big part in this, because I would say the speculators
03:33are almost solely trading the front month and the second month.
03:38They're not touching the back months.
03:40And so that tells me that this is a lot of speculation.
03:42Right.
03:43I'm glad you bring that up, that the later months, the back months, are still trading in the 70s.
03:48However, that is still meaningfully higher than where oil was trading before the conflict really took place.
03:54For instance, in January, crude oil was below $60 a barrel, and people were talking about this structural bear market
04:00in oil.
04:01What is the new normal for oil once the conflict does wind down?
04:07So this is going to be really interesting.
04:09You're absolutely right.
04:09We were in a four-year perpetual bear market up until a couple of weeks ago.
04:14And so it's been really wild to see.
04:16We went from a bear market to a bull market almost immediately.
04:19There was nothing in between.
04:20And that's kind of unusual.
04:22I do believe that we eventually fall back into a bear market.
04:25And to be honest, I think we could be looking at much, much lower prices, maybe in the 30s.
04:32If you look at a monthly chart of oil, we're trading in a very wild range.
04:36The top of the range is roughly $120 a barrel.
04:39The bottom of the range comes in at about $15.
04:42And this is by drawing lines from the highs over the last 20 years and the lows.
04:47And we've touched the high end of the range.
04:49And if history is our guide, we're probably going to touch the low end.
04:52And as crazy as it sounds, it's under $20 a barrel.
04:55And that's not impossible.
04:57There is a lot of chess pieces on the board moving around, and there's a lot of outcomes.
05:01Some of them could be very negative, but some of them could be very positive.
05:06There's an outlier chance that maybe we get unsanctioned Russian oil.
05:12Maybe we get unsanctioned Iranian oil.
05:14I've already talked about OPEC and Venezuelan oil coming on.
05:17We've got the SPR releases.
05:19We've got offshore rigs in California coming down to retirement.
05:23So there is a chance that everything falls the way that the world wants it to.
05:28And we come out of this with a lot more oil than we had coming in.
Comments