OPEC Tensions and "Break Even" Testing Pause NYMEX Dropoff

Posted by Kelly Burke on Oct 17, 2014 9:08:15 AM

Abstract image of an oil rig, dollars and a calculator

Thursday we saw ULSD settle out to erase most of Wednesdays drop - Wednesday it closed down -.0136 to 2.4586, and Thursday settled out at 2.4703 (+.0117). Gas not only erased Wednesday's 3 cent drop, but rebounded up +.0622 for the day to 2.2109. This morning, ULSD is trending up about a penny/penny and a half, while gas is hanging in the +.005 range, both having backed off earlier jumps.

So what's going on?

EIA stock reports came out Thursday (thanks to Columbus Day) and showed a build in Crude (+8.9 million barrels), a drop in gasoline (-4 million barrels) and distillates were down as well (-1.5 million barrels). CRUDE actually hit a 52 week low for a brief moment Thursday morning prior to the reports' release but ended up settling out at 82.70

With a decent stock report though, why is everything up when we've been on such a streak? Most likely culprit is the increasing tension slash standoff within OPEC. Historically, when prices dropped below a certain benchmark and started impacting the revenue of OPEC nations they could slow production output somewhat to stabilize. 

But now with thee US becoming a major player in global supply, thing have gotten a little awkward. Its possible that normal rampdowns in output will no longer have the huge impacts on price they once did, given that these nations are now not essentially the only players making an impact. 

However, a lot of analysts speculate that the reason OPEC is taking the giant hits to their nations' revenue without stalling production is an attempt to "find the bottom" and let supply run up to test what level American production can maintain in the face of dropping prices, especially given that the projected minimum level would be around $80 in order to still be profitable production from Shale.

Additionally, in comparison to OPEC operations, a lot of American projects are just that - projects - and in the face of falling revenue, its possible some of the higher cost, longer payout projects will stall out. However, given the remarkable jumps in efficiency from fracking to refinining we've seen domestically, it will be interesting to see where that level might actually be.

Given the weakness of the global economy, raising prices may be a tricky game with less return than anticpated as well, given the concurrent drop in demand. Saudi Arabia, who produces about a third of the OPEC output also looks motivated to maintain market share by any means necessary even at a short term loss in revenue. Specifically it appears motivated to maintain market share in the Asian teritorries - which will probably become even more relevant to them over the coming years, especially if the Alberta to St John pipeline project is approved which would open Canada up to export and become yet another global competitor on supply. 


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Topics: CRUDE, OPEC, EIA Inventories, shale

Monday Puts the Brakes on Friday's NYMEX drops

Posted by Kelly Burke on Oct 6, 2014 3:06:28 PM

It's Monday :( overlaid on asphault

Monday strikes again!

Friday saw Brent Crude drop to almost a 27 month low, dropping to $92/bbl, and WTI for November trading at its lowest level since April 2013.

Today we started with ULSD trending down and gas up slightly, and gas continued to climb through the early afternoon. At the close, ULSD settled up 50 points to 2.6213 and gas shot up +.0347 to 2.4132. Thanks a lot, Monday.  

The dollar continued to strengthen throughout last week, and an unexpectedly good (a relative term) jobs report for the US Friday provided further evidence that the economy is stable to moving forward. The dollar continues to soften commodity futures generally, despite the current geopolitical atmosphere.

Today stocks pushed lower in the US on concerns that the dollar (which actually dropped slightly today) and continued good economic news would push the Fed to raise interest rates. The Fed minutes are due out Wednesday, which should give investors a better idea on the timeline. 

Additionally, supply remains strong and is surprisingly mitigating the factors we almost always see a surge in premium and volatility with. 

There is concern among some analysts slash talking heads that a drop to below $90 per barrel on Brent will spook OPEC into pressuring the Saudi's to cut demand. However, OPEC production hit a 2 year high in September (31 million bpd) and thus far, as discussed, the Saudi's have vowed to hold production targets. We also saw rising production in Russia and Libya, so despite a potential benchmark issue there appear to be no issues on the horizon on the supply side (knock on wood).








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Topics: Futures, Dollar falls, Jobless numbers, OPEC, NYMEX

Targeting ISIS - Oil Prices & Air Strikes

Posted by Kelly Burke on Sep 25, 2014 9:27:49 AM

Line charts depicting the stock market scattered on a table

 Supplies & EIA Data

August saw record high export levels - 3.96 million bpd, up 17% year on year, and refinery output was also up 2.3% over last August. We also saw Crude production surge 16% - largely from Eagle Ford and Bakken shale formation drilling, and on the flip, imports dropped to 7.6 million bpd for the month - the lowest import level seen in August for over 18 years. 

However,EIA data for this past week showed large draws - attributed to those same lower imports we saw over the August period. Crude Supplies were down over 3 million barrels, way off of the 750k barrel gain forecasted by analysts. Gasoline showed draws as wel -lin the neighborhood of 440k barrels.  These draws in supply are supporting the current price levels we are seeing. 



This week kicked off a coordinateed air strike camaign between the US and primarily Arab Allies bombing ISIS/ISIL targets in Syria.  

Reports are that the major source of funding for ISIS is blackmarket oil - they may be generating up to 3 million dollars PER DAY.

US supplies may actually be a critical factor in targeting ISIS. Why? Because high US stockpiles help stabilize global prices, and lower global prices mean lower blackmarket prices, which hurts ISISs ability to self fund.

Saudi Arabia & OPEC in theory could threaten to curb supply to maintain or force high prices -that would be better for their revenue- however, the Saudis have said they will not change any agreed upon supply. Why? 

Because they want ISIS out of the picture too, so even though this years slide in pricing is hurting the bottom line for some oil producing nations - maintining lower prices forces ISIS to keep cutting the price on black market oil to maintain the discount and the lower it goes, the lower their revenue drops. Add to this that 12 modular refineries are targets for the air strike and you effectively dry up their ability to self fund, as well as their ability to fuel their operations. So, for the Saudis et al - a short term budget shortfall makes long term sense because it can take ISIS out of the equation entirely in the future (in theory anyway). 

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Topics: US Energy Boom, OPEC, Syria, ISIS

Iraqi Turmoil Rocks the NYMEX

Posted by Kelly Burke on Jun 12, 2014 3:57:00 PM

Map of Iraq with factions of the country highlighted

(Image credit: US EIA via Bloomberg Visual Data - Bloomberg Businessweek 6-12-14)

Both Brent and WTI shot up 2% today on last nights news that ISIS insurgents in Iraq captured Tikrit and Baiji, and were continuing their march towards Bahgdad.If you were watching the screen, you also saw ULSD shoot up .085 to 2.9893 and RBOB hit 3.0837, up .0829 on the day in reaction. 

Iraqi production levels have been stable around 3 million barrels per day, making Iraq OPECs second largest producer (behind Saudi Arabia) - so the supply concerns we're seeing push prices up at this intensity level are not unfounded. 

Essentially all of Iraq's oil production comes from the southern, Shia portion of the country by Basra, (see map from Bloomberg above)  where militant influence is essentially non existant (at least in comparison) - so some speculate that even should the Baiji refinery or additional cities fall, actual supply is unlikely to be affected as the area is well guarded and safe. However, it pays to keep in mind that no one saw Mozul or Tikrit being as vulnerable as they apparently were - the invasion of Mozul saw over 500,000 people flee the city in 12 hours, including basically the entire coalition of American-trained Iraqi security forces because of the level of violence and choas that erupted. It's less likely that would happen further south, given the relatively small insurgent force and the steeper odds they would face in terms of fighting back - but its certainly not an entirely unreasonable fear. 

The Obama administration has stated they are "considering all options" - air strikes, drones, etc but have not made a decision at this time. It would seem unlikely that an attempt to garner public support for re-entrance to Iraq would be an easy (or possible) task, all things considered. Ironically, the air strikes on Syria that  the administration faced such backlash for last year were directed at stopping the violence in the area that involved ISIS - the same group now surging in Iraq. Not a good sign for approval for Iraqi strikes. Thus far neither the UN or US has said they will step in to aid the Iraqi government - a fact that it certainly not easing concerns in the market, one would think.

In the grand scheme, considering price volatility and levels as a whole, we're fortunate that some areas (like the US) have seen production booms that have offset some of the drop offs from OPEC nations (mainly Libya) as its helped keep prices overall more stable - the jump in 2012 for example would probably have shot way past a 2% spike. If supply gets disrupted in Iraq though, given its the second largest OPEC producer, that may cease to be the case, which is probably the more far reaching concern pushing prices than isolated fighting would on its own. 

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Topics: Brent Crude, RBOB, OPEC, WTI Crude, Iraq

Futures Continue to Rebound on Two Week Rally

Posted by Mark Pszeniczny on Jun 9, 2011 9:04:00 AM

If you were to ask me two weeks ago if I thought the HEAT pit would rebound 30 cents after falling 45, I would say its about as likely as a tornado in Massachusetts....  And so here we are!   With what has been an almost two week rally, todays moves looked to be a reaction to the indecisiveness of OPEC.  For that last few years, OPEC has lost much of their mojo and most discounted their pumping policies and mandates as rhetoric.  As with any slow news day, people needed something to jump onto and the report that OPEC was doing nothing had bulls run the table.  That coupled with the DOE report of Crude having a 4.8mbl draw simple let the gates open for a decisively higher session.  Jobless claims increase slightly last week still signaling a troubled economy.  Even the Natgas report that showed an unexpected injection of 80bcf could not derail the upside.  While many see the last several sessions as technical buy backs, it is difficult to maintain the notion that better days are to come as we pop 3 or 4 cents higher everyday.  At the close, Crude maintained above $100 and settled up $1.19 to $101.93, HEAT rose .0441 to $3.1378 and RBOB jumped .0611 to $3.0398.

heat chart

                 CLOSE       CHANGE 
JUL     30398       +.0611
AUG    30217      +.0563
SEP    30079      +.0527
OCT    28922       +.0445
NOV     28701       +.0423
DEC    28887      +.0405
          CLOSE    CHANGE
JUL    31578       +.0441
AUG    31508      +.0427
SEP    31677     +.0412
OCT   31843      +.0400
NOV   32015       +.0401
DEC   32167       +.0397
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Topics: Jobless numbers, OPEC

Middle East turmoil causing price surge

Posted by Mark Pszeniczny on Feb 21, 2011 10:08:00 PM

Presidents Day is historically a quiet day as most participants are off for the long weekend, but today’s moves have bucked the historical trend.

Values have surged in electronic trading up over .08 cents on HEAT and over .06 cents on RBOB. Crude is currently trading at $91.42 up $5.22! On what do we owe this pleasure? Over the weekend continued political unrest came to a head in Libya as forces fired on crowds marching for the overthrow of the Gadhafi regime. Gadhafi, in recent years, appeared to be kowtowing to the West. As the movements seen in Egypt spread throughout the Mid East and into the OPEC member nation of Libya, many investors are playing it safe and have pushed HEAT back up to the $2.80 level. New reports have Gadhafi fleeing to Venezuela overnight, but have yet to be confirmed. The ultimate fear is not that Democracy will spread to the region, but that a regime worse than what is in place takes power and impedes production. This instability could not have come at a worse time for the Oil markets, already what most contend to be largely overbought trade. Libya exports about 1m bbls per day, certainly one of the smaller OPEC nations, and easily absorbed if the 1.6 billion barrels of strategic reserves were tapped, but significant none the less. Long term, this appears to be a good thing, we just need to live through the short term pains.

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Topics: Libya, Market analysis, OPEC

Weak Jobs push Markets south, destroy extended rally

Posted by Mark Pszeniczny on Jun 4, 2010 9:24:00 PM

The sideways action continues as a healthy correction has once again seen buyers run for the hills. On the heels of healthy construction spending and new home sales, and some bullish inventory numbers, the Jobs data that was released today wiped away any chance of an extended rally. Most were expecting healthy increases in jobs but once the census workers were removed from the data, jobs actually were flat, setting off a firestorm of selling in all markets. The Dow was down over 300pts and the Euro continues to get hammered against the greenback. Short term, the prompt HEAT contract in the $1.85 to $1.95 range looks still to be defining the 5 to 7 o’clock hour on the clock. Anywhere in this range appears to bring out the buyers. Longer out is going to heavily depend on demand and when OPEC feels the need to jump in. At the Close, HEAT fell .0814 to $1.9577, RBOB lost .0859 to $1.9953 and Crude lost $3.10 to $71.51. The prevention of the magical third up day has most assuming the sideways action or range bound trading will continue.

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Topics: Weak Jobs Report, HEAT, The Market, OPEC

Futures show solid gains on home sales

Posted by Mark Pszeniczny on Jun 2, 2010 9:12:00 PM

It was one of those days in the pits as the market opened positive and stayed there all day. After yesterday’s impressive construction spending report and today’s strong Home sales news, buyers appeared willing to jump back into Commodities. Many point out that we still look to be oversupplied, but by how much, should be defined as the inventory report gets released on Thursday. As we see so often, and shown by the chart below, a good deal of buying occurs after a floor appears to be defined. Hindsight being perfect of course. One should note how little we have heard from OPEC over the last few weeks during the correction. This is also typically about the time when news outlets will pick up stories on gas prices. Remember the street pricing being several days behind what the NYMEX does. All in all, the taking back of yesterdays losses today was somewhat expected as the sideways action should continue prior to the first named storm of the season. At the close, Crude gained a mere .28 to $72.86 yet RBOB jumped .0436 to $2.0261 and HEAT added .0355 to $2.0059.

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Topics: Commodities, The Market, OPEC, NYMEX

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