In this special episode, we are very excited to introduce Andrew Lebow of Commodity Research Group.
Commodity Research Group (CRG) is an independent research consultancy specializing in base and precious metals, as well energy products. Commodity Research Group provides research and general price analysis for these markets, along with advice to companies seeking to construct hedging strategies.
Not only is Andy a true oil and gas industry expert (and an old friend), CRG is joining the EKT Interactive Oil and Gas Podcast Network with their own podcast channel.
They will be bringing decades of energy and metals market expertise to our listeners, so be sure to stay tuned!
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|Doug Stetzer:||Hey everyone.
Doug Stetzer here and welcome to this special episode of the Oil Prices Daily podcast.
Very excited to have on the show today, our first interview type episode, Andrew Lebow of Commodity Research Group.
Andy and I go back a long way. He actually gave me my first leg up in the energy trading business. He has been involved with energy derivatives since 1980, so almost 40 years covering the energy markets here.
He began his career with Shearson Lehman, and he worked in the initial formulation and marketing of the Nymex WTI crew contract in 1983, as well as the Nymex gasoline contract in 1985.
Mr Lebow was instrumental in educating various segments of the industry on how to utilize oil futures to hedge against price risk. Throughout his subsequent career, at Man Financial and Jefferies, he continued to work on designing hedge programs for producers, refiners, mid-stream marketers, trader and end users.
He’s appeared before the State Government of Alaska, as well as the State Department of Defense, to discuss hedging techniques, and he is often quoted in the financial press and appears on CNBC, NBC, CNN, CBS, and PBS.
|In addition to just getting some insight out of Andy today on what’s going on with oil prices and some of the fundamentals driving them, we’re really excited to announce that Commodity Research Group is joining the family of podcast channels on the EKT Interactive Oil and Gas Podcast Network.
I thought it’d be great to get Andy on this show.
Some of you already know him in a sense, because he has been the gentleman who has agreed to supply us with his EIA expectations, his inventory report expectations, and it’s just a really amazing resource.
Without further ado, here is my conversation with Andrew Lebow of Commodity Research Group.
Again, you can find them at commodityresearchgroup.com.
We’ll have links to those resources in the show notes.
|Doug Stetzer:||Andy, I noticed on there, first of all thanks for being with us, but you didn’t list your most important accomplishment on your bio, which was hiring me and giving me my first job in energy commodities.
|Andrew Lebow:||You know Doug, I have to say that when we talked earlier you said it was 20 years ago, which I couldn’t believe. I hired a lot of good people over the years. You happened to be one of the best that I ever hired.
I’m very proud of hiring you, and very proud of what you’ve accomplished so far, and what you’re about to accomplish with EKTI, so congratulations.
|Doug Stetzer:||Thanks a lot. Thank you for that. The envelope stuffed with cash is on it’s way.
One of the reasons that we are even having this interview, aside from just tapping into your body of knowledge and starting a conversation, our listeners and our newsletter readers here at Oil Prices Daily are starting to get to know you because you’ve been contributing your EIA statistics, your expectations for the EIA data to us, so we’ll get into that.
You really have that analytical background, and that’s what you have developed over years with a lot of experience, so you’re going to be bringing us this knowledge through a podcast, which we’re super happy to announce on the EKT Interactive Oil and Gas Podcast Network with your new company Commodity Research Group.
You’ll be joined by another guy who I’ve worked with for a long time in there, Jim Colburn who’s an Options Specialist.
Why don’t you just talk about Commodity Research Group, what got your team together, and some of the services and experience that you guys are bringing to the table there?
|Andrew Lebow:||Sure. Commodity Research Group was formed by three of us who had worked with each other for quite a while. I’ve worked with Jim Colburn at Man and Jefferies for maybe 25 or 30 years.
I worked with Ed Meir at Man for 10 or 15 years. The three of us felt that there was a real need in the market for good, solid, independent research done by people who really knew the markets, who had a deep background in the derivatives markets as well as a background in the physical markets.
We felt like we could really add something to the marketplace by using our experience and knowledge and contacts to provide good solid research and also doing some consulting along the way.
|Our services, we write a monthly report on a subscription basis, which we cover all the commodities. Ed Meir is one of the top metals analysts in the world actually.
He’s consistently ranked number one by Metals Bulletin. He writes the metals as well as the financials. I’ll write the energy. Jim Colburn will talk about the options.
|Jim’s background is he’s an Options Analyst. He wrote a book on options. He too worked on the formation of the crude option contract back in the 1980s.
As Doug mentioned, I worked on the crude and gasoline contract. We feel like the three of us together make a real good team, that we compliment each other, and we’re looking to really grow in this next year or two.
We have a website, commodityresearchgroup.com. Jim Colburn blogs daily. We’re getting into the podcasting thanks to Doug Stetzer.
|Doug Stetzer:||Well, you know the backgrounds, and we’ve been doing some tests of the podcast, just to start getting a feel for the format, and we’re about to launch it with your first completed podcast.
It’s really amazing, your guys’ experience really shines through.
Your services, these monthly reports are really more of an institutional type product, so the fact that our listeners can get some of that knowledge for free in your podcast is just going to be an amazing resource.
I’ve really enjoyed listening to this. We were just talking earlier how you and Jim have sat next to each other for like 20 years. It’s literally like listening to a couple of old baseball announcers go at it. It’s so fun.
|As far as your website, and some of these other things, all the ways that people can find you and get in touch, we’ll be sure to put all of that information on your podcast page and also in individual show notes for all these podcasts, so they can find your different services and your website and how to get in touch with you, as well as some of the other resources that you’re starting to put out there.
It’s really pretty exciting.
|One of the things that I started when I was putting some questions together for this, I really wanted to just start picking your brain about the markets, and then I realized I was just asking the questions that you answer in your first podcast episode.
I’m not gonna let myself just get to much into geek out on the markets right now, because that episode is coming out. It’s gonna be out either today or tomorrow.
You do discuss some of the top trends that you’re seeing right now that are driving oil prices and some of the things you’re looking out for for the first half the year, or even for 2017.
What are the key themes that you’re keeping your eye on right now?
|Andrew Lebow:||OPEC Compliance
Well obviously the number one theme for the market in the first half of 2017 is gonna be OPEC compliance.
As we discussed in the podcast, and I’m sure your listeners are well aware OPEC pledged to reduce production by 1.2 million barrels a day, and there’s a further reduction pledged by non OPEC, so we will be watching carefully on how well they conform to those pledges.
I think that’s gonna be very key for the marketplace clearly.
The second factor is how has US production reacted to OPEC’s cutting production and higher prices?
That is really, it’s gonna be a very big story for 2017. The last EIA report showed US production up 170,000 barrels a day in the week, which is a huge number. We’ll see if that trend continues.
The two of those go hand in hand with the rebalance that we’ve been talking about now for, I don’t know, a year and a half on when does the market rebalance?
Does the market rebalance? OPEC obviously is hoping that through their production cutbacks, the market’s gonna rebalance sometime in the first half of the year.
Should US production continue to grow at any type of a pace like that, that rebalancing may be pushed forward.
Of course the next thing to watch is gonna be the May 25th OPEC meeting, when we’ll see whether or not OPEC rolls over this current agreement.
|Macro / Legislation / Trump
Obviously, all the macro markets, every market is going to be watching very carefully the new administration coming in, and what the policies are gonna be, not only towards energy but towards the global marketplace.
There’s quite a few things going on for energy that we’ll be looking carefully at, particularly on tax policies. I think those are the big themes for the first half of the year.
|Doug Stetzer:||Right. I’m just really excited about how your guys’ information kind of compliments what we’ve been doing here on a daily basis, just with our keeping track of things, what’s going on with the prices, and some of the key news stories, and you start connecting the dots.
A lot of times I find myself saying, “Well, we’re talking about compliance and we’re gonna need to keep our eye on that, or we’re talking about demand, we’re gonna need to keep our eye on it.”
Now basically, we have you guys who do keep your eye on that stuff at a way more granular level, bringing us some insight.
It’s just really exciting to have those two things working hand in hand.
|Andrew Lebow:||At least for me, I’m a deep dive analyst, I try to, as you mentioned earlier, I do the EIA forecasts and try to keep ahead of what I think the demand trends are, and what I think the supply trends are gonna be at least, on the US basis and globally.
We have a pretty good information network as well.
|In talking about information, I think there’s four things that we look at pretty carefully.
That’s the EIA website, as Doug and I were discussing earlier, which has gone from being one of the worst websites in the early 2000s or the 1990s to being one of the best websites right now with great information.
The EIA monthly report and the OPEC monthly report is actually very good.
We look at the wires everyday also.
|Then the other thing is just our network of just talking to traders and seeing what they see and some oil executives.
They provide us with some color on the dry statistics.
Hopefully we’ll be able to provide your listeners with some of the color along with the statistics.
|Doug Stetzer:||That’s really one of the missing pieces right?
When you’re scanning the news you can really keep track of things. Getting insight from these guys who are trading in the physical markets, they’re getting information funneled to them from their networks of brokers and traders and executives all over the world.
You’re getting a glimpse of what they’re seeing as well. It becomes just an amazing web.
I like the resource about the EIA. That’s something we pass on to our Oil 101 people a lot. It’s an amazing website.
The graphics and visuals, the way the display the data is just out of this world.
It’s just a great website if you’re not checking out that EIA website on a regular basis, then you need to mix that into your routine.
|Finally I thought we’d just talk a little bit about your podcast itself.
We did a few trial runs and then we really nailed it on this last one.
It seemed to me there’s a little bit of a format emerging, obviously it’s gonna be subject to change.
We talk about you guys seem to dive into some key market drivers. You give your analysis of the EIA’s. Like we mentioned, Jim gets into some of these options that are really the strategies that are really popular right now or currently.
I think that options talk is something that a lot of people don’t get or maybe don’t understand, so we’re gonna be walking through a lot of that.
We’ll make sure we tie it to our educational material, so that people can start putting these pieces together.
|One of the themes that we discussed in Oil Prices Daily this week with the Dec7/Dec8 crude spread going positive, and then you guys really dove into, in your first podcast, both from the flat price and the option side was this idea of the contango potentially switching to backwardation, what’s going on in the back of the curve that a lot of people maybe missed if they’re only watching the front month price or the headline price?
That’s gonna potentially be a huge driver in the second half of the year, as far as drawing the stocks as well.
What’s your take on that?
|Andrew Lebow:||Well, you have to watch the back of the curve.
I think that’s a great point Doug, because the back of the curve does give you some excellent clues for what is happening or what could be happening.
For example, last year in the third and fourth quarter, when the market rallied sharply, we saw a lot of selling activity into the calendar 17 and the calendar 18 contracts.
What that was was hedging activity.
What it meant was that US producers are laying on hedges in the $56, $57 range which you would suppose that US production is gonna rise, and we’re beginning to see that.
We may see some of the drilled but uncompleted wells coming on.
|Following some of the flows in the back can really lend the analyst and the trader or your listener, whatever their vocation is, it’s sort of like a follow the money type exercise.
Then, you’ll also see what the market expectation is as the market goes backwardated with the front going over the back, or the front’s going over the back.
That could be expectations that yeah, we are gonna start seeing the inventories draw, cause usually as inventories draw, the market gets steeper into backwardation. As inventories build, they go into contango.
You also have a picture of what the market expectation is, so it’s really important to follow what’s going on in the back of the curve.
That’s something that we hope that we will be talking about in the all the podcasts.
|Finally, one of the major flows, and we talked about this in the podcast that I think Doug’s gonna post in the next day or two, but one of the major flows has been on Brent WTI options with traders buying WTI and selling Brent call options with the expectation that TI is gonna go over Brent.
The impetus, the driver behind that is the tax policy, the Border Adjustment Tax that the Trump administration, or the incoming Trump administration has been talking about.
There was so much flow that this Border Adjustment Tax and it’s possible effect on the markets got a lot of talk.
Markets were abuzz with this. It went from a [inaudible 00:20:10] to people not even looking at it, to now a front line thing.
|Doug Stetzer:||Yeah, and I can tell you right now, if you’re just reading the journal and Bloomberg, you have not seen one story about the Brent/WTI spread option.
I guarantee it.
It’s just something that the type of information that you guys bring that I’m really excited about sharing.
I was just thinking, when was the last time the curve was severely or even moderately backwardated?
|Andrew Lebow:||You know, it wasn’t really that long ago because it might have been … you remember in the second quarter there was a pretty good rally.
The curve tightened up a little bit. Not so much in the front. The front has been pretty well at carry, beyond carry, but some of the backs have crept into backwardation prior.
It happened last year.
|Doug Stetzer:||I was just looking at some of these longer term charts, like in April or something we got up to 60.
|Andrew Lebow:||Yeah, it’s was that big rally. It did kind of creep into backwardation.
|Doug Stetzer:||Of course, then we hung around 60 for a couple of weeks, then dropped to 26, so anyway.
|Andrew Lebow:||[crosstalk 00:21:41]
|Doug Stetzer:||I was literally just talking about that because I was just like, “You know? I feel like I’m zoomed in. I need to get a more longer term perspective.”
So I was looking at some of the longer term charts, I think I talked about that in the Oil Prices Daily podcast literally on Friday.
Those are some of the key things I was hoping to just introduce you and Commodity Research Group and just let everyone know about your guys’ podcast.
Of course, we’ll have all the links to all these resources, and we’ll be putting out some articles following up with all of this.
|If you’re a Oil Prices Daily subscriber or an EKT Interactive subscriber, you’re certainly gonna find out about all of this.
But again, I hope you guys are getting some clues from this conversation. Just how much knowledge these guys bring to the table.
I think Andy, we spoke about getting some of the other members of your team on here as well. We’ll just work on that as we go forward.
I definitely look forward to getting Jim on here as well, and perhaps Ed. Anyway, is there anything else you just wanted to add before we sign off?
|Andrew Lebow:||Yeah, I did want to add that how excited we are to be with EKT Interactive.
We hope to provide good quality information on our podcasts.
One thing that your listeners can be assured of is since we are independent, we have no agenda whatsoever.
We’re just gonna call it like we see it. We’re independent and not beholden to anyone, so you’re gonna get I think a good solid view of the market.
|Doug Stetzer:||I think that’s underappreciated sometimes right? A lot of analysis is coming out from banks or other parties or you get a lot of hedge-fund guys on the news.
|Doug Stetzer:||You definitely wonder if they’re talking their book a little bit sometimes.
|Andrew Lebow:||Unfortunately more often than not.
|Doug Stetzer:||Yeah exactly. That’s a good point. Well excellent.
Well I think we can end it there. Again, thanks for coming on, and I just really look forward to seeing what comes out of this. It’s just gonna be a lot of fun.
|Andrew Lebow:||Okay. Thanks Doug.
|Doug Stetzer:||All right great. Talk to you later Andy.
|Doug Stetzer:||Okay, so that was Andrew Lebow from Commodity Research Group. You can find them at commodityresearchgroup.com, and of course, like we announced, they will be right here launching their own podcast on the EKT Interactive Oil and Gas Podcast Network.
|All right, talk to you soon.