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Last Updated: March 11, 2017
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There has been a change in the term structure of futures contracts since the OPEC production cut was finalized. In the last week, the maximum WTI near-term price has fallen $2.81 to $51.36 per barrel and prices do not reach $52 until mid-2021 (Figure 8).

uploads1489232312233-The-Term-Structure-of-WTI-Futures-Contracts-Has-Changed-1-1-1200x873.jpg

Figure 8. The term structure of WTI futures contracts has changed. The maximum near-term forward price has fallen $2.81 per barrel in the last week. Source: CME and Labyrinth Consulting Services, Inc.

The term structure of Brent futures has changed also. Near-term forward prices have fallen $3.39 from a week ago to $53.15 per barrel then, fall into backwardation and do not reach $53 again until late in the third quarter of 2020 (Figure 9).

uploads1489232372248-The-Term-Structure-of-Brent-Futures-Contracts-Has-Changed--1200x869.jpg

Figure 9. Figure 8. The term structure of Brent futures contracts has changed. The maximum near-term forward price has fallen $3.39 per barrel in the last week. Source: CME and Labyrinth Consulting Services, Inc.

Although the forward curve of futures contracts is hardly a predictor of oil prices, it appears that a major downward shift in oil prices is occurring. This reflects something far more consequential than a higher-than-expected U.S. crude oil storage report.

Overreaction or Turning Point?

In part, this week's price downturn reflects waning confidence that OPEC production cuts will result in higher prices. Much of the discussion until now has centered on whether OPEC will deliver on the announced cuts or if output increases by Libya and Nigeria will offset those cuts.

There seems to be a growing awareness that global oil markets are incredibly complex, and that there are so many moving parts that a single, simple solution is unlikely.

The problem may be about expectations. Many believe that the OPEC cuts will increase prices but the cuts may be more about establishing a floor under those prices.

There is no good reason why a normal addition to U.S. inventory should affect prices so much. The timing of this price adjustment may be an over-reaction but the direction may also represent a turning point.

The larger issue is the inexorable relationship between stocks and prices. It's not so much about this week's change in inventory. It's about how much inventory needs to be reduced and how long that will take in the most hopeful scenario.

If OECD stocks must fall by approximately 550 million barrels to support $70 prices, it will take more than a year to get there if production is cut by 1 mmb/d. If the production-consumption balance fluctuates, it will take even longer.

The change in the term structure of oil futures contracts suggests that causes for the recent price slump transcend oil market supply-demand fundamentals. Larger forces in the global economy are operating here. These may include reduced levels of credit creation that signal a slow-down in economic growth. If true, lower oil and other commodity prices are likely along with lower oil-demand growth.

For more than two years, the industry has believed that higher prices are possible without extreme reductions in inventories. Great expectations were placed in an OPEC production cut to rescue the industry from a weak oil market. The fallacy lies in thinking that the problem stems from a simple imbalance between production and consumption and is unrelated to a fragile and debt-dependent global economy.

That hope was a dream. It appears that oil markets have woken up from that dream.

Art Berman Petroleum Geologist and Professional Speaker Visit my website for more information:  artberman.com

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Infographic: Oil and Gas Scams & How to avoid them!

Oil and gas sector is one of the most lucrative sectors for job seekers from industries all over the world. It offers great salaries and benefits packages and an opportunity to travel and work overseas. Due to its high demand, scammers are preying on the vulnerable oil and gas workers. To ensure you don’t fall prey to their mischievous tactics, we would recommend reading our guideline below:

How does scamming occur? 

The scammer poses as an employer or recruiter of an oil and gas company or he may claim to be an employee or recruiter for a job consultancy firm catering to the oil and gas industry. They offer irresistible employment opportunities and often demand money in advance to conduct further processes. Money is often demanded on the pretext of work visas, travel expenses, background or credit checks that the job requires.

What do scammers want from you?

 It is important to understand what the scammer's agenda is so that it helps you shield yourself from getting conned:

To extract money: On the pretext of getting you a job in the energy sector employing any of the tactics mentioned above

For identity theft: scammers look for valid identity of people and ask for confidential personal details including bank details to commit fraud through your name or to withdraw money from your account.

Whatever be their modus operandi, their goal is to either separate you from your cash or accomplish an identity theft. The bigger problem is, the scammers are getting better at their game and coming up with innovative ideas to lure innocent job seekers. In oil and gas industry, the scammers are targeting the job seekers from overseas, immigrants or contractors as they feel it is easier to attract them on the pretext of work permits, high salaries, paid travel, better lifestyle in the first world countries.

How to spot a job scam and keep yourself secure?

 There is always a difference between real and fake, all you need to do is be watchful to notice the underlying discrepancies. There is a pattern that scammers usually follows, which is discussed below. Make sure you watch out for these red flags when you receive any job offer next time:

Free email provider - No legitimate hiring agency or company will use the services of free email provider like Gmail, Hotmail, or Yahoo. So, if you are receiving an email or have been requested to share your details on emails that use free email services, then be extremely cautious. The scammers try to trick the job seekers by using an email address that looks authentic for instance: [email protected]. It is important to notice here that the ‘xyz’ part of the email ID is usually a gmail, yahoo, etc. which is a free email address. A legitimate job provider would never use.

Fake or new company name - If company name or oil and gas recruitment agency name is mentioned along with the free email id, then do a quick search on the company. Verify its existence and contact them via official email address and contact numbers mentioned on the website. Check their social media presence too. If the website and social media page look new while the company claims to be in business for a substantial amount of time, know for sure that there is something fishy.

Bad grammar and confusing job details - The scammers usually do not pay much attention to structure the mail. You can spot grammatical errors and even the job descriptions are not explained well or is completely different than your skillset and experience. Any authentic mail from a company or oil and gas recruitment agency will ensure an error-free, concise, and clear communication

Fee to conduct a job interview - No legitimate oil and gas company or recruitment agency will ever ask for money to conduct a job interview or to apply to job positions. If the mail says, the money will be refunded once you appear for a job interview, then please do not trust such claims as it is always bogus.

Asking for confidential personal information - Anyone asking for information that you will never put on CV, is a warning sign. It includes your bank details, passport copy, identity cards, your current residential details and so on. No genuine company will ever ask for such details before you sign the offer letter. If by chance, you have shared your bank details or another confidential detail to the scammer, contact your bank and email service provider and register a complaint against it.

Unknown source - There are countries who have strict spam rules and until you subscribe or give consent to the company, they cannot send you emails. So, if you receive an email from a company you haven’t contacted or have not applied for jobs, then be cautious it might be a scam.

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See our infographic below for a quick summarized glance -


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