Dwindling OPEC Agreement Hopes Reverse Rally

Posted by Kelly Burke on Aug 30, 2016 4:00:34 PM

markets_pic.jpg

August has been all over the place. Crude futures this month were up 23% in less than 3 weeks as of the 28th. We've bounced from an August 10th low of $41.71 to an August 19th a high of $48.52 -  and today we’re in the middle at $46.35.

So what’s going on?

Last week, optimism reigned. Longs were up and shorts were way down across the board on WTI, RBOB and U.S. ULSD. Citigroup and BOA/ML were saying the global glut is diminishing based on the narrowing Brent discount we were seeing. That was reflected in last week’s rally but we saw that rally reverse yesterday as hopes backed off on just how quickly we might see that supply glut fade.

So what caused the overabundance of hope in just how quickly the supply glut could fade?

Stop me if you’ve heard this one before: OPEC countries are set to meet September 26-28th in Algiers for “informal talks” in which the Saudis are reportedly “prepared to listen” to the input of the other OPEC nations in regards to agreeing on output caps to curb global oversupply. This drove the market higher on hopes of an agreement propping up pricing longer term, but hopes on any such agreement coming to fruition have begun to drop off.

Déjà vu all over again.

If you recall, the last OPEC meeting had a similarly framed narrative and a similarly bullish impact on the markets a few weeks out from the meeting before falling off, as it became clear that the conference would fail to produce a deal. There was no agreement on output cuts last go around largely because of Saudi insistence that Iran be a full participant in agreeing to output limits, which the newly un-sanctioned Iran obviously refused to agree to.  Given the dynamic there has not changed substantially it’s hard to imagine that a meaningful deal is reached this time either.  

That seems to be the conclusion that traders reached as well just like leading up to the prior meeting. Today saw Crude close out at $46.35, down marginally from Monday’s close but over a dollar down from Friday’s $47.64. (ULSD and RBOB followed suit, dropping -.0151 and -.0186 respectively for August trading)

What’s becoming interesting about the other dynamics involved in the OPEC meetings is Russia realistically needs an agreement sooner rather than later. While they are not in Venezuela style meltdown yet, a huge portion of their revenue depends on oil and the ongoing standoff with the Saudis on over production for market share retention will presumably hit breaking point at some time, as both Russia and Saudi Arabia hemorrhage money.

Meanwhile, it looks like long term the supply situation may correct itself, and largely courtesy of the Russia/Saudi standoff, somewhat ironically. Bloomberg is reporting that oil discoveries have plummeted to lows not seen in over half a century as a result of ongoing price depression that has halted new discoveries by severely curbing investment in drilling and exploration. This is especially notable in the U.S. where exploration is at multi year lows after the crash in prices from 2014 highs.

So although this OPEC meeting is unlikely to produce an agreement to cut supply and stabilize pricing this time, in an odd twist of fate, ultimately the ongoing standoff may push long term pricing up over time regardless of OPEC input.

Stay tuned!

 

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Topics: OPEC, russia, WTI Crude, saudi arabia, oil glut

Surprise Move by Iran on OPEC Deal Rallies CRUDE

Posted by Kelly Burke on Feb 17, 2016 4:46:25 PM

Middle Eastern Nations flags in a circle around an oil drilling rig

In a suprise move today, the oil minister of Iran stated that Iran would support the effort by OPEC and non-OPEC countries to stabilize the oil market and oil prices. The now-confirmed rumor that the Saudis and Russians were amenable to agreeing on a production ceiling has been circulating for a while, and served to briefly prop prices Tuesday - but the lack of a solid agreement, and the assumption that Iran would not cooperate had backed prices off their intraday highs. 

Today however, was another story entirely. After the Iranian minister announced the intent to cooperate, we saw WTI surge nearly 6% to once again close above the $30 dollar mark at $30.66 - quite a reversal in a short time when you consider that just last Thursday we saw WTI's lowest close since 2003 ($26.21/bbl)! 

ULSD and RBOB came along for the ride today as well, with ULSD jumping over 6 cents to $1.0879, and gasoline closed up over $1 again (barely) at $1.0034, a gain of over 3 cents on the day. Gasoline has been dancing around slightly under the $1 mark over the past week or so, with the exception of Friday's rally where it jumped over 10 cents to $1.0432.

It's difficult to determine if the nebulous "agreement to have an agreement" on the table with OPEC and other producers will sustain a longer term rally. Even if there is an agreement, it isn't clear just how much of a rally it will bolster long term, since the production ceiling sets production at January levels (read: unsustainably high for higher prices levels), it doesnt actually drop production.

That said, Iran not ramping up production will likely help matters in terms of at least mitigating some of what has been ever-increasing supply. Another concern though, should prices stabilize at higher levels - what impact does that have on rig counts and U.S. production? Although dropping rig counts have not proven to be the bullish signal they would normally be, a rising rig count could be a bearish symbol should the market stabilize around the $40/bbl mark, in my opinion, as it may signal the U.S. kicking over the first domino and restarting the game of chicken for "market share by means of over production" the major producing nations have been playing for the past year and a half.  

Time will tell. EIA numbers are not out until Friday this week because of the holiday - it will be interesting to see what impacts they have in the face of a possibly changing global supply picture. 

Stay tuned!

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Topics: Iran, CRUDE, OPEC, russia, wti

CRUDE Rallies Despite Record Inventories

Posted by Kelly Burke on Feb 3, 2016 4:12:50 PM

Oil barrels imposed over a line graph

Another wild week!

Friday we saw March diesel settle at $1.0787 (a far cry from last Mondays $.09353!), and gas closed out at at $1.1031. Crude settled at $33.62/bbl, a rebound of nearly 25% from the prior week's 12 year lows ... but at the close yesterday, compared to Friday's numbers, diesel had shed $0.0678, gas was off $0.1023 and Crude settled below $30 once again, at $29.88.

Today we saw almost a full reversal on Crude and Distillates, with diesel back up within .0001 of Friday's number at $1.0786 (+.0677) and Crude back up to $32.28. Gasoline had a modest bounce back to 1.0137 (+.0129) after yesterdays $0.0822 tumble. 

What's interesting about today's rally is that, at least in my humble opinion, it's essentially the rally that shouldn't have been.

Why? Because the EIA report this morning indicated builds that set inventory records for Crude and Gasoline. Crude inventories built 7.8mmb to 502.7mmb for the week ending January 29th. Gasoline was projected by analysts to build 1.7mmb but instead jumped a whopping 5.9mmb to 254.4mmb. Distillates drew down 777K barrels versus the 1.1mmb projected.

Most of the analyst chatter pegs today's gains on the weakening dollar (off almost 1.5% today as of writing), which can make commodities in general a more attractive proposition - generally speaking the two work opposite each other, when one goes up the other goes down. However, factoring in the last year, it's unlikely a non-precipitous drop on the dollar supports a rally of today's magnitude. 

Another factor at play is the continuing rumors about OPEC and non-OPEC countries coming to agreements on supply cuts to bolster prices. Russia has indicated it would be willing to cooperate with the Saudi's on a coordinated approach, as has Iraq.

However, all of the production talk is just that - talk - which has worked for these countries in terms of short term price bumps, but until there is an actual meeting and agreement it's unlikely to have a long term impact.

U.S. Production is also down thus far in 2016, which may be a factor, since with OPEC keeping production ramped up, we become a "swing player" in terms of global (over)supply. The drop in production last week according to the EIA was 7,000 barrels per day however, not really a significant decline in the big picture. 

Long story short, there are multiple factors that multiple sources are hanging their hats on to explain today's rally (myself included) but the overall market is likely to remain bearish, given inventory levels, weak global demand, and the lack of any real concrete indications that production cuts from oil producing nations are actually forthcoming. 

Stay tuned!

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Topics: Dollar falls, CRUDE, OPEC, russia, EIA Inventories

Crude Rallies Again on Escalation in Syria & Uncertainty in Iran

Posted by Kelly Burke on Oct 8, 2015 3:38:13 PM

Line charts depicting the stock market scattered on a table

Crude came back in a big way in trading today – with intraday highs briefly breaking $50 before settling out at $49.43/bbl. (Fun fact – we haven’t seen WTI break $50 since July)

ULSD and RBOB rallied as well, with ULSD closing up (+.0222) to 1.6018 and RBOB up (+.0178) to 1.4078.

It appears that yesterday’s inventory-induced drops were a one-time thing, and the market has shifted its focus to escalation in Syria.

On Wednesday Russia launched its first round of naval assaults on Syria, and today saw more airstrikes. Of note, in one of today’s campaigns, the Russians reportedly fired 26 Cruise missiles at Syrian targets. Reportedly however, at least 4 of them hit Iran instead. Yes, Iran. There has been no comment from Moscow, but US sources are confirming the hits.

This obviously fuels concern about the conflict in Syria not just escalating, but spreading throughout the region. Adding to the regional uncertainty, Ayatollah Khomeini has reportedly balked at further negotiations with the US on the controversial so called “Iranian Nuclear Deal,” claiming the US would use it to undermine the Islamic Republic’s fundamental interests, which will likely lead to more uncertainty in the Middle East, and also led to speculation that Iranian sanctions may not, in fact, be lifted which would obviously result in their exports not coming back online.

However, despite today’s jump and the ongoing conflict, there is still consensus among many that the US stockpiles are the indicator to watch. Goldman Sachs announced they would not only not be raising their price forecast for 2016, but that they were not ruling out dropping it further. Their calculation is based on the continued presence of the oil glut and record production.

Of note domestically, the House is expected to vote on and pass a repeal of the Crude Export Ban tomorrow. It’s unclear whether it will pass the Senate yet, but the White House has already issued a statement that it will veto the bill. There may be some market rumblings depending on how the bipartisan bill fares in the Senate early next week.  

Stay Tuned!

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Topics: Iran, Iran Sanctions, CRUDE, Syria, russia

Crude Reverses Early Gains on Surprise Inventory Data

Posted by Kelly Burke on Oct 7, 2015 3:57:52 PM

Abstract image of an oil rig, cash and a calculator

Today once again started in positive territory, with Crude up almost 2% and refined products creeping higher, but we saw a quick reversal mid-morning when products dropped into the negative, where they would end up settling at the close. (Crude ended up settling down to $47.81, ULSD was down -.0319 to $1.5796 and Gas dropped -.0462 to $1.390)

What happened?

Early in the day products were up on the EIA announcement that they are projecting demand for Crude would hit its fastest pace in 6 years in 2016, even as US production is expected to decline.  This implied further easing of the so called oil glut, which could keep a stable pressure on prices going up, in theory.  

Additionally, API projected yesterday that Crude stockpiles would show a draw of 1.2mmb.

Consequently, WTI hit a brief intraday high of 49.71, just under the $50 psychological benchmark.

However, gains were pared quickly when the EIA Inventory Report showed a build in Crude stockpiles of 3.1mmb to 461mmb, higher than any analysts had predicted. That puts Crude and petroleum product stockpiles at a high of 1.3 billion barrels. So much for a slow-down of the oil glut, eh?

Another bearish signal is that thus far into hurricane season, we have not seen any major supply delays, or refinery damage/shut downs, which are usually cause for temporary price jumps this time of year.  There is also still the looming question about what happens to global pricing when Iranian exports come back online at full capacity.

Some analysts are cautioning that traders and speculators are taking the proposed Russia/Saudi Arabia meeting too seriously, in that they don’t see them coming together on any type of agreement on raising prices by cutting supply. That would seem to be supported by the recent Saudi price drop for exports. It’s also worth remembering that Russia and Saudi Arabia are diametrically opposed in terms of the war in Syria, which may not bode well for any sort of collaborative action.

Stay Tuned!

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Topics: CRUDE, Syria, russia, WTI Crude, EIA Inventories, saudi arabia, oil glut

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

Double Black Friday - Commodities & Spending Both Dropped Off

Posted by Kelly Burke on Dec 1, 2014 11:44:34 AM

Black Friday overlaid on dollars

A doubly "Black Friday" this year as OPECs decision resulted in a commodities free fall. The second part is that it was hoped that the relief consumers have been getting at the pump since the summer would have helped boost retail sales for the season. As the numbers are coming in though, it's not looking good.

Despite the mayhem in shopping centers we've all seen on YouTube, it looks like Black Friday spending was down 0.5% or so this year over last (bad news, as last year was not a stellar one). 

Today is cyber monday - but dont look to that for relief and an influx of money to retailers either - analysts project that Cyber Monday sales will be off around 3% this year over last. 

The NYMEX was down this morning but has rallied into positive territory again, but who knows for how long. 

Analysts across the board are now pegging the new "floor" price to be around $40/bbl, with Murray Edwards, the Canadian Natural Resources Chairman saying WTI could drop to $30, although he does not expect thats where it would stabilize for very long. (As reported in Business Insider this morning).

Why so low? 

Well, the global picture is still lackluster, to put it as kindly as possible. Japan is back into a recession, and Moody's downgraded their credit rating. Chinese economic growth is still in the toilet, which puts their demand level in the same place.

It appears the move by OPEC to keep prices falling to maintain market share is working, US exports to Asia have essentially screeched to a halt as low Middle East prices become more attractive to the Asian markets. 

It's not all doom and gloom from the analysts though, Goldman Sachs maintains its $75/bbl forecasted price for WTI for 2015, maintaining the assumption that the OPEC move is to slow US production by reducing profitability and "test the bottom" as it were. However, once they get a feeling for the level they may want prices to start going up again, as so many OPEC nations economies rely on oil generated revenue. Its probably likely Russia enters the debate soon as falling oil revenue is tanking the Ruble and their general economy is really feeling the pinch. 

Stay tuned!

 

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Topics: Commodities, US Energy Boom, OPEC, russia, WTI Crude, consumer spending

Stocks Slide, Energy Rebounds, and MH17 Fallout Intensifies International Standoffs

Posted by Kelly Burke on Jul 25, 2014 3:31:26 PM

Line charts depicting the stock market scattered on a table

Continuing fallout over the downed Malaysian jetliner led to increased international tensions today (deja vu?). Russia called US accusations that it supplied the anti aircraft missles responsible "groundless". President Obama insisted that Russian involvement warranted further sanctions by Western nations. And thats what we saw happen this afternoon - Canada issued new sanctions targeting financial and energy related companies (much like the US sanctions from last week) and instituted travel bans on certain individuals. 

Brent was obviously up on the news and continuing tensions that undermine stability in the markets and international relations in general. WTI was up today as well. ULSD closed up a whopping 0.0448 to 2.9157, despite distillate inventories hitting 125.9 million barrels (up 1.64 million barrels) . Gasoline took an unexpected jump as well today - after initially hanging flat to slightly down this morning and closing down 0.0233 yesterday. Inventories have been up on gas, while demand is uncharacteristically low for mid-sumer  (aka mid driving season). In fact, gasoline inventories hit a four week high - but demand hit a 6 week low, and prices still went up. Funny business. 

Additionally, its just breaking this afternoon that Israel has rejected a cease fire proposition brokered by the US, so expect ongoing turmoil there for the time being.

In the broader markets, - stocks slid basically across the board globally, with the exception of the S&P 500 and the Shanghai Index. US Treasury Yields were down and the dollar was up after dissapointing durable goods order numbers - poor numbers on durable goods indicate that there is a lack of capital expenditure still ongoing which is presumably due to a lack of confidence in the stability of the economy.

All in all another busy week with a lot of balls still in the air, and next Friday we can expect the Jobless Report, and the Fed makes a scheduled announcement on their continuing direction next Thursday,,,,, in other words the saga continues! 

Have a great weekend everyone!

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Topics: RBOB, russia, ukraine,, WTI Crude, Hamas, Israel, mh17

International Issues Increase, but Positive Domestic News Keeps Futures Stable

Posted by Kelly Burke on Jul 23, 2014 4:42:01 PM

Line charts depicting the stock market scattered on a table

 

Futures ticked down yesterday on positive domestic economic news, even as international turmoil escalated. Inventories were expected to show draws, but other economic data out indicates the economy is continuing to recover. The CPI (consumer price index) was up 0.3%, and existing home sales came in up 2.6%, both of which are good indicators. Today, gasoline continued downward, closing down -.0206 but ULSD inched up a little to 2.8754 (up 0.0212 on the day). Not too shabby considering all the insanity internationally. 

Here's a quick rundown of the international issues that could play out in the markets in the coming days:  

In the wake of the tragic Malaysian aircraft crash, tensions between Russia and the West have hit almost Cold War proportions. Russia and Ukraine both wasted no time blaming the other for causing the crash, and the US jumped in and immediately implicated Russian Seperatists in Ukraine for launching the fatal missle. France and the US are proposing further sanctions, with the US sanctions targetting financial and energy companies by way of denial of bonds with a 90 day plus maturity. 

Today, two Ukrainian fighter jets were shot down by Russian seperatists, lending creedence to the theory that seperatists downed the Malaysian jet, and perhaps implying that sanctions against Russia may be escalated, which could potentially have an impact on markets.

Israeli ground troops invaded Gaza earlier this week after a ceasefire agreement was violated by Hamas in under 4 hours. Tuesday afternoon the FAA grounded all US flights to or from Israel for at least 24 hours on concerns of a Malaysian like incident after a rocket struck within a mile of Israels largest airport. Israel called the US flight cancellations a "coup for hamas", at least on a PR level, which isnt helping urge reconsideration of a cease fire on either side.

Hopefully, in addition to international crises being negotiated, the Domestic news will continue to suggest a strengthening economy and mitigate price spikes.... Stay tuned! 

 

 

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Topics: Commodities, Futures, russia, ukraine,, Hamas, Israel

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