Much like Seligman's dogs in the learned helplessness/electric shock experiments traders eventually stop trying to avoid the torture and instead brace themselves but do nothing.
In the words of one commentator:
...You are just like these dogs.We saw this in 2008 during the inexorable spring/early summer run to $147 with Goldman calling for $200. In July of aught-eight I dropped a comment at the WSJ's Environmental Capital blog, repeated as we approached the 1-year anniversary of the day the shorts joined the dogs and just cowered as they waited for the next shock, with some background:
If, over the course of your life, you have experienced crushing defeat or pummeling abuse or loss of control, you learn over time there is no escape, and if escape is offered, you will not act – you become a nihilist who trusts futility above optimism....
...As best as I’ve can tell approx. 40% of the move from $80 to $147 (25-28 bucks) came from “speculation”. I use quote marks because of the terminology problems most of the talking heads have when the subject is commodities. Speculators in commodity parlance take the other side of a hedgers trade, thus performing a societal good.Try trading this:
The problem was, until last week, the shorts had been beaten up so bad by the relentless flow of “investor” money that were out of the game. The $10.75 uptick on June 6 was their capitulation.
They covered and said screw it.
From Bloomberg, Sept. 27:
Iran Doesn’t Want Oil Deal in Algiers, Won’t Freeze Output
- Gulf nation seeking to raise output to 4 million barrels a day
- OPEC could reach a formal deal in November, Zanganeh says
Iran is not willing to freeze its oil output at current levels and doesn’t intend to forge an agreement with other major crude producers at talks in Algiers this week, the nation’s oil minister said.And from ZeroHedge:
Iran wants to raise its crude production to 4 million barrels a day, Bijan Namdar Zanganeh told Bloomberg Television in an interview Tuesday. OPEC’s third-largest producer -- with daily output of 3.6 million barrels last month -- will talk to other members at the International Energy Forum in the Algerian capital and it’s possible the group could reach a formal supply deal at its November meeting in Vienna, he said.
“It’s not our agenda to reach agreement in these two days,” Zanganeh said. “We are here for the IEF and to have a consultative informal meeting in OPEC to exchange views. Not more.”.....CONTINUE
While we await every new headline out of Algiers, overnight Goldman threw in the towel on its "transitory" oil market bullishness, and in a note by Damien Courvalin looking "Beyond Algiers, Weakening Oil Fundamentals", the bank cut its Q4 oil price target from $50 to $43, as the bank admits the previously anticipated rebalancing will take longer to achieve, and now expects "a global surplus of 400 kb/d in 4Q16 vs. a 300 kb/d draw previously."
Speaking of the Algiers meeting, Goldman also notes that "while a potential deal could support prices in the short term, we find that the potential for less disruptions and still relatively high net long speculative positioning leave risks skewed to the downside into year-end. Importantly, given the uncertainty on forward supply-demand balances, we reiterate our view that oil prices need to reflect near-term fundamentals – which are weaker – with a lower emphasis on the more uncertain longer-term fundamentals."
Here is the summary from Courvalin:
Oil prices have remained range bound ahead of the OPEC consultation in Algiers this week and as production disruptions have yet to meaningfully ramp up. Statements by participants suggest potentially greater collaboration between OPEC members than in previous attempts, although the outcome of this advisory meeting remains uncertain. Our production forecast continues to reflect a seasonal Saudi production decline into year-end and no growth elsewhere (the equivalent of a deal) with OPEC exc. Libya/Nigeria production growth only resuming in 1Q17.
Nonetheless, our 4Q16 oil supply-demand balance is weaker than previously expected given upside surprises to 3Q production and greater clarity on new project delivery into year-end. This leaves us expecting a global surplus of 400 kb/d in 4Q16 vs. a 300 kb/d draw previously. Importantly, this forecast only assumes a limited additional increase in Libya/Nigeria production of 90 kb/d vs. current estimated output. As a result, we are lowering our 4Q16 forecast to $43/bbl from $50/bbl previously. While a potential deal could support prices in the short term, we find that the potential for less disruptions and still relatively high net long speculative positioning leave risks skewed to the downside into year-end. Importantly, given the uncertainty on forward supply-demand balances, we reiterate our view that oil prices need to reflect near-term fundamentals – which are weaker – with a lower emphasis on the more uncertain longer-term fundamentals.......MORE
