PARIS () -- Last year record long positions were shorted in the last two months of the year. It forced down the price to a floor of $55, around the Christmas and New Year period. Amazingly, after that week the price immediately rebounded up to $61 within days of January 1.
Now we approach the same time in the year again. But instead of record long positions, spurred on by the hurricanes in America, we are now looking at record short positions of 172,000 lots. Could we be looking at the same pattern, in reverse, happening again this year? Surely not.
But what happens when the market makers, the traders, suddenly get the urge to get that extra yacht...the extra woolly coat for their poodles...the Chanel yakskin remote-control holder...? Could we be looking at a market that is now going to start talking itself up? One that could send the price up to somewhere nice and safe, like $65, maybe more? Well, we are already seeing signs of rumours.
Firstly Goldman Sachs were said to be holding immense short positions over 90,000 lots. But now the bank was thinking of covering those lots creating our much loved herd epidemic. The herd would all cover their short positions and the price would boom as the post-election dollar fell. Well, that's the theory.
Maybe Goldman Sachs is trying to talk up their own position if they have it. After all, these are the people who brought you the 'superspike' report saying crude could hit $105. It would make some kind of sense.
But maybe it is part of the general mentality of the market now. It just does not seem right to have oil at a price under $55. Yet at the same time there has to be movement; otherwise what is the point? So from that point of view the only way is up.
It is not a particularly complex scenario, but more one based on the greed the market displays. Other clues came in the shape of the U.S. inventories. For weeks they have been draw down in the nice middle distillates the market likes, like gasoline and naphtha. But they had all but gone unnoticed. Now there is a draw down in the stocks by 2.7 million barrels and it start to move the price, despite the fact that 138.6 million barrels of distillates remain in stock and refineries are undergoing maintenance.
Let us wait and see, but it appears the market is getting ready to break out one way or the other. To see it break out on the downside, especially with the current dollar weakness seems unlikely. So what is left?
Which does not really bring me on to the second half of this article: the results from French major Total [NYSE:TOT]. You may have been fortunate enough to miss them. Another set of cash rich figures, but sitting there plain as can be was a production fall of 5.8% year on year. Oil and gas production dropped to 2.29 million barrels of oil equivalent per day from 2.43 million barrels a day, a year back.
There were a variety of excuses, Nigerian outages, production lost in Venezuela and its new Dalia field in Angola is due to start up soon, that is true, but it was another distinctly unimpressive corporate showing. Once again a corporation has to come up with a series of excuses about why it cannot lift more oil and gas out of the ground.
Financially Total is still rolling in piles of cash making a profit of EUR3.11 billion ($4 billion) for just a three month period. The company could even have made more if it had not been hit by a EUR143 million rise in income tax, part of the rise brought on by the U.K. government on north sea operators.
The model of the major international oil companies is not only flawed but it too, via incompetent production, affects the price of crude. The production of energy has never been as technical, yet as instinctive a business as it is today.
