Stocks & Oil Markets Take a Wild Ride Into 2016

Posted by Kelly Burke on Jan 6, 2016 3:25:23 PM

Line charts depicting the stock market scattered on a table

The last day of trading in 2014 saw Crude close out at $53.27/bbl, which was down 45% from the prior year. 2015 continued the trend with WTI dropping another 30% over the year - with December 31, 2015 settling out at $37.04.

This week we crashed down through the $35-36 dollar support levels and are rapidly approaching the next one of $32.50/bbl after todays tumble resulted in Crude closing out at $33.97/bbl.

Let's take a step back and look at what went on this week to push oil prices down 8% since December 31st.

Monday, January 4th, markets initially shot up with ULSD and RBOB both jumping over a nickel by 10am (+.0516 and +.0576, respectively), before almost immediately changing course - both products were down by noon to flat on ULSD and only up .0156 on gas. So what happened?

Monday brought the news that the Saudi's had cut all diplomatic ties with Iran and ordered all Iranian diplomats to leave the country within 24 hours. This was in response to the Kingdom executing 47 people over the New Years weekend, including and most importantly, a renowned Shiite cleric, which prompted riots and vandalism to the Saudi embassies in Iran and Bahrain. 

As the day went on however, the analysis of the story moved from fear of international conflict bumping up cost over supply disruptions, to the realization that the standoff between Iran and Saudi Arabia meant that this could essentially be the death knell for OPEC. As far as the bears see it, this breakdown of relations essentially guarantees the Saudis will not take any moves to cut production in order to stabilize pricing, because to do so would greatly help Iran, in that the newly allowed exports they promise to flood the markets with would generate them much more revenue. 

Economic data from China Monday supports the bears as well. It was a factor in pushing down oil prices, as well as being responsible for crushing European markets and resulting in the single worst year opening for the Dow Jones since 1932. Overnight, Chinese stocks crashed over 7% and led to a halt in trading across the board - a halt that didnt come soon enough not to pummel stocks internationally. One can only hope the old Wall Street adage "As goes January, so goes the year" is wrong this time. 

There was some bouncing around Tuesday, particularly on the overnights as investors and analysts weighed the API projections that predicted draws in Crude stocks to be announced Wednesday. However, today's EIA report showed just the opposite, and swiftly tanked the market across the board. At the close, ULSD lost -.0446 to settle at 1.0807, RBOB shed almost ten cents (-.0949) to close at 1.1618 (very close to the $1.10 support level) and Crude settled down $2 at $33.97.

What next? Bears are predicting oil hits and potentially breaks through the $32.50 support level for a brief stint in the upper 20's ($28 range), while the Bulls are predicting a jump back to the $37 level. We shall see. 

Stay Tuned!

 

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Topics: Iran, EIA, CRUDE, OPEC, API report, FED rates

OPEC Holds Firm on Output Levels

Posted by Kelly Burke on Dec 4, 2015 3:45:47 PM

Line charts depicting the stock market scattered on a table

This past week has been a wild one.

Wednesday we saw WTI shed almost $2/barrel (4.6%) to close out under $40 at $39.94/bbl and both ULSD and RBOB shed over 6 cents each (-0641 and -0699, respectively) on the EIA Inventory report, which once again showed unexpected builds.  Crude inventories built 1.2mmb, marking the 10th consecutive week of builds.  

An additional weight on oil and other commodities was the dollar, which surged to a 12 year high after the Fed indicated they were likely to move forward with a rate hike. (Friday's strong jobs report makes that even more likely).

Thursday the reverse situation happened, as investors and traders waited with baited breath on the hopes that OPEC would come to a consensus at Friday's meeting to lower output.

Today however, its official - OPEC did not come to any formal policy change and will not be cutting production or lowering the ceiling. Iran has been vocal and vehement for the past few weeks that they would absolutely refuse any cuts in production just when Western Sanctions are coming down and allowing them to reenter the market. They plan to come online at as much capacity as possible in Tehran, and the Saudi's essentially cited the "complication" of Iran's new ability to ramp up output as the reason today's meeting was fruitless. 

Predictably, oil was down on the announcement, as it effectively seals the deal in terms of all but guaranteeing the oil glut not just continues, but worsens. (Crude settled at $39.97, down from Thursday's $41.08)

The pressure now will be on higher cost producers like the US. However, that's been the case (and the OPEC strategy) to some degree for over a year now and hasn't solved the problem. The real losers in the lack-of-a-deal are the smaller OPEC and non-OPEC oil producing countries who lack the capital reserves of countries like Saudi Arabia - namely Brazil, Venezuela, etc. If oil continues to slide, we could start seeing serious economic impacts and unrest in oil-revenue dependent nations.

Stay Tuned!

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Topics: OPEC, FED rates, Dollar Strengthens, oil glut

IEA Forecasts and Inventory Numbers Push Commodities Closer to New Lows

Posted by Kelly Burke on Nov 13, 2015 3:48:09 PM

Line charts depicting the stock market scattered on a table

And down we go again - today WTI closed down almost 3%  (the final close was 40.74), which is around an 8% loss on the week. Brent came within 2 dollars of a low not seen in over 6 years, and also ended the week at around an 8% loss, according to Reuters.


To round out the board - RBOB dropped .0342 to 1.2389, a multi month low, and ULSD dropped to 1.3813, a loss of .0253.

So what's going on?

The IEA is forecasting global oil demand growth to drop to 1.2mmb per day throughout 2016, as compared to the 1.8mmb per day we've seen this year. Given that the 1.8mmb has clearly not been robust enough demand to stop prices from crashing, the IEA announcement doesn't bode well for any serious and sustained price rebound anytime soon, if we ignore other factors that we can't predict (geopolitical escalations, etc).

IEA also announced that OPEC oil inventories are at a record almost 3 billion barrels for September, and this weeks EIA Inventory report showed a build of 4.2 million barrels of US Crude, as well as a spike in production.

Rig counts were up for the first time in 11 weeks as well, according to Baker Hughes.

There's been a lot of reporting this week that over 20 million barrels of Crude are sitting on cargo ships backing up in the Gulf Coast, which is approximately double the usual amount. If you recall, there was some reporting a few weeks ago about ships backing up at other major ports outside of China and the Arab Gulf as well, that had contributed to prior drops on basically what amounts to visible evidence of an extreme oversupply.

When you factor these items in with a dollar that continues to strengthen, it's less than surprising that prices are continuing to slide across the board to multi month lows.

Stay Tuned!

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Topics: OPEC, Dollar Strengthens, EIA Inventories, IEA

Crude ends the Week in the Red on Strong Dollar, Supply

Posted by Kelly Burke on Oct 23, 2015 2:52:47 PM

Line charts depicting the stock market scattered on a table

Crude prices are on track to be down around 5% on the week. There were some initial jumps this morning on hope that the newly announced Chinese Stimulus Package could ramp up demand. Prices reversed sharply and quickly, however, as the dollar continues to crush other currencies, which almost universally sends commodities in general on a slide. 

On Wednesday prices touched near 3 week lows on the EIA reporting yet another gain in US Inventories, despite our being into the typical "slow down" phase, when refineries go offline for maintainance, and despite continuing drops in rig counts (and therefore a theoretical drop in production).

Also, on Wednesday morning we still had a sliver of hope that the OPEC meeting would come out with supply cuts - nope, wrong again. Now we will have to wait until the December 4th policy meeting of OPEC to know for sure if there will be supply cuts, but it seems extremely unlikely to most-  as the Saudi's have demonstrated, their main goal is market share retention, and they seem to accept that the crumbling economies of other oil producing countries is essentially a cost of doing business (much to the chagrin of those countries).

However, Bloomberg and others are reporting that the low pricing is starting to hurt for Saudi Arabia as well, as reportedly they have deferred payments to government contractors as the country begins to slide into a deficit. (Excellent read on MarketWatch on the subject here: "Will fiscal pain of low prices force Saudi Arabia's hand ). 

Thursday saw a quick reversal, but again, that's history now on the back of the dollar. The European Central Bank stated they are looking at "options" for economic stimulus for the Eurozone, which thus far has only really pushed the euro lower versus the dollar, and weighed on Crude and other commodities. 

At the close today, WTI settled the week at 44.60, and Brent at 48.02. (ULSD closed down -.0106 on the day to 1.4544 and RBOB was down slightly by -.0031 to 1.3036)

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Topics: European Economy, CRUDE, OPEC, Dollar Strengthens, brent, wti

Crude jumps 4.9% on Rising Tensions, Dropping Rig Counts, and Russia

Posted by Kelly Burke on Oct 6, 2015 3:32:20 PM

Oil barrels laid over an upwards growing line chart

Yesterday we saw Crude jump almost 2% on a weaker dollar and speculations about Russia and OPEC’s upcoming meeting. Today more fuel was added to the fire (no pun intended) and we saw Crude continue to jump, settling out up an additional 4.9% to $48.53/bbl. Going along for the ride, ULSD closed up (+.0632) to 1.6115 and RBOB jumped (+.0509) to 1.4362.

What’s going on?

Primarily Russia and their proposed meeting with the Saudi’s on energy projects and outlooks, as discussed yesterday. (for a quick refresher, read this: Russia, OPEC and a Weaker Dollar - Oh My!).

Interestingly, before the meeting news broke on Monday, the Saudi’s had abruptly announced they would be slashing the price of their oil exports to retain market share – not a good sign for the global economy (demand), or the global supply situation. But the signal that OPEC may be willing to talk, specifically that the Saudi’s are, has more than eliminated any pull back the price cut could have been expected to have.

 Additionally, the Baker Hughes rig count report indicated further drops (down an additional 29), causing Goldman Sachs to project that US production will drop by 225,000 barrels per day in 2016. Reuters is also reporting that Libya’s production has fallen below 25% of the levels it sustained prior to the ouster of Ghaddafi.

Its possible traders are seeing at least a slow-down in the growth of the oil glut on the heels of these news items, reading it as a bullish signal for prices, and acting accordingly.  

There is rumor of a Chinese stimulus attempt as well, aimed at ramping up economic growth in that country, and therefore oil demand. As we’ve discussed before, news out of China is almost always a big driver of market moves, as they’re still the “hail Mary pass” on global economic recovery everyone is holding out for. Positive news from China = Positive numbers on the screen.

Keep in mind - the tense standoff between the US and Russia in Syria may become an increasing factor over time. Yesterday the Russians violated Turkish airspace, and we’ll have to see if there’s more sabre rattling from the Russians, or equally likely, hawkish overreaction by the US or NATO.

Stay Tuned!

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Topics: CRUDE, OPEC, Stimulus, russia, china

Russia, OPEC and a Weaker Dollar - Oh my!

Posted by Kelly Burke on Oct 5, 2015 3:38:37 PM

Line charts depicting the stock market scattered on a table

The markets are up across the board today, from stocks to Crude oil. 

ULSD was up +.0284 to 1.5483, and RBOB shot up +.0439 to 1.3853, front month, at the close. WTI Crude was up almost 2% to close at 46.26/bbl. 

What happened?

Reportedly, Russia is open to talks with OPEC and other oil producing nations to discuss pricing and global supply. Although no actual meeting has been proposed, traders were still optimistic, and both WTI and Crude jumped up on the news. (Prices were also bolstered by a perceived weakening dollar – more on that in a moment.)

Additionally, apparently Russia and the Saudi’s have a meeting scheduled this month to discuss energy projects, and one can probably assume this will include how they will approach the OPEC meeting, if there ends up being one.

On Wall Street, disappointing job numbers from last week, coupled with a statement from the Boston Fed Chair that growth would have to be hitting 2% target rates to justify an interest rate increase resulted in a semi consensus that the odds the interest rate goes up in October is around 10%. As a result, stocks were up….but for how long?

While the Fed delay was good for Wall Street today, it’s not really a good sign bigger picture, both for Wall Street and the US in general. We saw one effect of that today, where the jump in commodity pricing can be somewhat pegged on the dollar starting to weaken on soft economic data and the implication that the US economy is not strengthening on its anticipated trajectory, as implied by the Fed delays.

Something of note internationally, that could have broad impacts on the markets, is that tensions between the US and Russia are approaching Cold War levels as Russia continues air strikes in Syria. The strikes, ostensibly part of a multifaceted attack on ISIS in Syria have apparently actually been hitting anti-Assad rebels, who are at least nominally supported by the US. To add another splash of gasoline to the fire, this weekend a Doctors without Borders hospital was bombed in Afghanistan, and it appears a US aircraft may have been involved, which could obviously have devastating international consequences, both geopolitically and otherwise.

Stay tuned!

 

 

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Topics: OPEC, FED rates, Syria, russia, WTI Crude, ISIS

Fed Holds Interest Rates, Oil Drops after Wednesday's Gains

Posted by Kelly Burke on Sep 18, 2015 3:14:46 PM

Line charts depicting the stock market scattered on a table

Oil prices continued to tumble early this week - that is until the Wednesday EIA report came out and spiked prices on Crude up 6%. The report showed that Crude stockpiles fell by 2.1mmbbls for the week ending September 11. Additionally, Distillate stocks dropped by 3mmbbl, and gasoline dropped 2.84mmb. That explains Wednesday, when we saw Crude jump up to settle at $47.15 (Tuesday's close was $44), ULSD jumped .0414 to $1.5414, and RBOB jumped .0492 to $1.3821 (it could have been worse - intraday highs were over 5 up on diesel and 6 up on gas!).

Today is trending down like yesterday, with ULSD down .0390 to $1.4907, and gas down .0198 to $1.3562. WTI closed out at $44.68.

The Federal Reserve announced late Thursday that it will not be increasing interest rates at this time, based on concern about global economic growth. This has pushed oil prices down, because global concern means we're unlikely to see a spike in demand that would ease concerns about the oil glut we've been dealing with. As you'd expect, there's been some demand/use increase because of the lower prices we've been seeing, however its simply not robust enough to really make a sizeable dent in the oversupply. 

The issue with the Fed's statement outside of the grim outlook is they are still suggesting a rate hike this year, probably December. That means we will probably see the same up and down volatility with stocks and oil prices as we have seen over the past few months while waiting for this now-passed deadline. 

Rig counts are down in the US again, according to Baker Hughes' report, which may stem some production, but again, not likely to be a huge mover one way or the other. Refineries will be going on scheduled maintainence soon which may lower Crude stockpiles for a while, we'll have to wait and see on what impact that has. Across the globe, OPEC is still maintaining they will not be stemming production, and Iran has stated they intend to come fully back online as soon as sanctions no longer suppress their output. 

On the political side - the House Committee on Energy voted this week to move a bill proposing the repeal of the Crude Export Ban to the floor for a vote. Obama is likely to threaten veto, and its unclear if it will even get through the Senate to force said veto, but it is a potential bright spot for US producers and refiners that the bipartisan bill is moving to the floor.

(If you want to brush up on some of the issues regarding the Crude Oil Export Ban, you can do so in these articles: "Is it Time to Overturn the Crude Export Ban?" and "Energy Security, Not Independence, Should be the Goal" )

Stay tuned!

 

 

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Topics: US Crude Exports, FED holds interest rates, CRUDE, OPEC, EIA Inventories

Lackluster Jobs Data Crushes Stocks, Crude

Posted by Kelly Burke on Sep 4, 2015 12:19:25 PM

Stock market numbers on a digital display board

CRUDE, ULSD, and RBOB are all trending downwards today in tandem with the Stock Market, after a less-than-robust Jobs Report out this morning. The report showed that the US added 173,000 jobs in August, a relatively far cry from the 220,000 anticipated (hoped for?) by the markets and economists.

According to some analysts, since the official unemployment rate fell to 5.1%,  the report is seen as potentially strong enough to push the Fed into following through with a September rate hike which accelerated sell offs. According to others, lackluster global economic signals are pushing the selling. I find the second assertion is more likely, but either way, the market looks poised to drop 3% on the week.

The past few weeks have seen wild volatility on Crude as well as the Stock Market. As the Wall Street Journal pointed out today - the close Tuesday marked 4 straight days of commodities trading with swings of at least 6% up or down in a row. For example, Monday for October closed up +.1101 on ULSD, and +.1020 on RBOB, then Tuesday more than erased those gains, closing out -.1233 on ULSD and -.1035 on gas. 

With the production level battles still ongoing with OPEC between the so-called "Fragile Five" and the Saudi's which so far hasn't had any curbing impact on output, and a lack of any real bright spots in the global economy, it's more probable than not that we will continue to see serious volatility for the time being. 

Stay tuned!

 

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Topics: Weak Jobs Report, CRUDE, OPEC, stock market, Jobs Report

Stocks Officially in Correction, Oil Trades Under $40

Posted by Kelly Burke on Aug 21, 2015 4:19:50 PM

Line charts depicting the stock market scattered on a table

WTI crashed below the $40 level this afternoon in trading, and clung right to the $40 line at the close, settling at $40.45. (ULSD was off -.0556 to $1.4624, and RBOB dropped -.0143 to $1.5449)

As discussed yesterday, domestic inventories going up pushed prices down towards $40. Today Baker Hughes announced more rigs going back online, for the fifth week in a row, which seems to be the proverbial straw that broke the camel’s back.

Stocks haven’t taken the news easy, either. US stocks hit their lowest point in a year, on oil price panic and deepening fears about the Chinese economy. The Dow Jones was down over 450 points as of 3:30pm – and over 530 points at the close. The bad news is that makes it in official “correction” territory which could further more panic selling on Monday. The S&P was down over 2% this afternoon - which pales in comparison to the market in China which dropped over 4%. Long story short, everyone’s stock positions got hammered today.

Another factor of a quick price drop on oil like we’ve seen since last June that is rarely discussed is the impact on jobs. This is kind of another anvil hanging over the economy’s head that could drop if oil gets to a critical low price. According to The Guardian's reporting, close to a quarter million people globally have lost their oil and petroleum related jobs, including approximately 35,000 in the US. Shell announced this week that it would lay off 6500 employees worldwide. Then there’s the financial cost. Their article on this portion of the equation is fantastic and thorough, you can read it here: The Guardian

Earlier this month we saw Venezuela and others pushing for an OPEC meeting to discuss changing supply to offset the crushing blow to their economies that the continued low pricing has been having. Yesterday, according to Reuters and the Wall Street Journal, the Algerian Oil Minister sent a letter to OPEC arguing the price has dropped significantly since they agreed on production levels, and is pushing for another meeting to reassess. So far, Saudi Arabia et al have stood firm, but it may be that they are forced to reverse at some price level as-yet-undetermined.  (You can read about that letter and OPEC in depth here: WSJ )

Hopefully we have some better news tomorrow - but it doesn't look good out there, folks. 

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Topics: OPEC, EIA Inventories, stock market, wti

Inventories & Iran Continue to Pummel Crude Prices

Posted by Kelly Burke on Aug 20, 2015 1:59:15 PM

Man grasping his head looking at computer screens

Oil prices are continuing their tumble - and it doesn't look likely they'll rebound in any significant way any time soon.

Wednesday's EIA Inventory Report showed a Crude build of 2.6mmb, bringing US Crude stockpiles to 456.2mmb. Analysts had forecast (hoped for?) a decline of 1.2-2.3mmb, depending on which group you looked at. 

Wednesday's trading saw WTI plunge 4% to below $41/bbl  - the lowest it's been in over 6 years. It settled out at $40.80 for September, and $41.27 for October. Brent lost 3.4% as well to settle at $47.16 for October.

$40 is a fairly significant benchmark, both psychologically and because it touches on production cost for some producers, which means it becomes essentially unprofitable to produce if oil goes any cheaper than $40. 

WTI may bounce some today as September trading closes out, but with refineries going offline in the fall for scheduled maintenance and no reason to think Crude stockpiles will suddenly plummet - it's likely that the decline will continue further. The only real question is what the bottom will be. 

Additionally, the pending Iran Nuclear deal if approved (which is essentially guaranteed) would lift sanctions in Iran, which would allow them to export more oil. They currently export around 1 million barrels per day from their 2.7 million barrel production. Reports say they are capable of about 4 million barrels of production, but its unclear how much of that they would be capable of exporting. 

Regardless, the EIA has revised its projection for oil prices throughout 2015. The new numbers put WTI at below $50 dollars ($49) for the remainder of the year, and only project WTI at $54 for 2016. EIA also cautioned that the numbers may be revised again, depending on Iran's ability to put new oil produced up for export. 

OPEC has maintained they will not be reducing supply regardless of the slide - it remains to be seen whether they reverse that stance if oil continues well below the $40, or even $30 dollar benchmarks as some think it may. 

Back to today- US stocks are getting crushed from fears about oil prices and the lack of foreseeable demand increases, the Chinese economy, and employment. The most recent jobs report showed an increase in unemployment claims - the fourth week in a row it both increased and beat estimates of how much it would increase. Unemployment ticking up, and the Fed signaling that the economy may not be strong enough to withstand an interest rate increase yet (according to their recent meeting notes) have for obvious reasons, not inspired confidence. 

Stay Tuned!

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Topics: Iran, Iran Sanctions, CRUDE, OPEC, EIA Inventories, wti

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