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

Crude Hits New Lows After Hopeful Bounce Overnight

Posted by Kelly Burke on Jan 19, 2016 3:35:02 PM

Downwards facing arrow constructed of the words oil and brent

Overnight and early trading on Crude was up - bolstered by the performance of the Chinese Markets (they went up instead of crashing hard enough to trigger the circuit breaker this time). US Stocks, bonds and equities all climbed along, and it looked like today was poised for a rally, or at least the proverbial "dead cat bounce"

However, once the temporary amnesia wore off, Iran coming back online came back into play and the markets took a beating across the board.

WTI Crude closed out at $28.46 - slightly below the $28.50 sub-$30 benchmark some analysts had projected (or more likely hoped) would be the new "bottom". That remains to be seen.

ULSD followed suit with WTI, dropping .0256 to settle at $0.9087, while gas was up 50 points to stay in the $1.02 range ($1.0262 to be precise).

Stocks unfortunately also followed suit with WTI  - as of writing  the Nasdaq, Dow Jones, and S&P are all down - keeping 2016 in the red as it has been thus far. 

The EIA inventories later this week could have a major impact, particularly if there are builds. Most predict draws, but a build on gas could be significant as we could in theory see RBOB follow ULSD below the $1 benchmark. 

Stay Tuned!

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Topics: Iran, Iran Sanctions, RBOB, WTI Crude, $1

Monday Sinks on Demand, Tuesday Surges on Supply

Posted by Kelly Burke on Nov 3, 2015 3:22:33 PM

Man grasping his head while looking at computer screens

Yesterday we saw the beginning of a reversal of last week's rally on more bad economic news from China that came out over the weekend. Specifically, manufacturing dropped again, remaining under the level that is seen as official contraction. Once again, this impacts the oil markets because we're counting on their demand remaining high, or even increasing. That doesn't happen when your manufacturing slows down. Monday settled down marginally with the exception of gasoline. (Crude at 46.14, ULSD down -.0098 to 1.5069 and Gas up 37 points to 1.3753).

Today however, was an entirely different story. At the close, ULSD settled at 1.5660 (+.0591), Gas was up (+.0702) to 1.4455, and Crude was up almost 4% to 47.90, with Brent settling up 3.5% to $50.51.

 What Happened?!

Bloomberg & The Wall Street Journal are reporting that in yet more infighting between Libyans and militia factions, Libyan Oil Ministers announced the indefinite closure of a major port by force majeure after the port came under control of "an armed militia". No word yet on who that militia was. The closure will drop Libyan production/export by approximately 70,000bpd. As discussed before, Libya was a major exporter historically, with a capacity of about a million and a half barrels per day but since the country essentially went into a tailspin, that's been dropping. This latest closure brings them down to under half a million barrels a day - less than a third of their capacity.

In Brazil, oil workers began striking Sunday, and reportedly have already dropped State run Petrobras' output by approximately 25%.

So today obviously jumped on supply disruptions - but globally, we are still looking at a supply glut, especially when we look at Chinese economic data and Iran's announcement that they are working towards another half a million barrels a day coming online.

Barring extreme scenarios, one would assume prices would back off some, or stabilize on supply, rather than continue to surge on it. A big mover tommorow could be the EIA Inventory report, and later this week we're looking at more Fed talks. Also, the October Jobs report out on Friday will undoubtedly move Wall Street, but we will have to wait and see how that may or may not impact the NYMEX. 

Stay Tuned!

 

 

 

 

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Topics: Libya, WTI Crude, china, brazil

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

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

EIA Projections for 2015 & 2016 Released Today

Posted by Kelly Burke on Jun 9, 2015 3:05:31 PM

Line charts depicting the stock market scattered on a table

The EIA released its Short Term Energy Outlook today with its projections for both Crude prices and US Crude Oil production through 2016. It also projects where we will be on retail gasoline, natural gas storage, and electricity for 2015 & 2016.

In a nutshell, the outlook is as follows:

  • Brent is expected to average $61/bbl for 2015 and $67/bbl in 2016. The prior projected price for Brent in 2016 was $70/bbl
  • WTI is also forecast to drop about $3 dollars from the prior projection level for 2016. It forecasts WTI for 2015 to be up about a dollar higher than prior projections (up to $55.35/bbl)
  • Crude production is expected to dwindle slightly through early 2016, but the total projected volumes were revised up slightly - the new projected numbers are 9.4mmbpd in 2015 and 9.3mmbpd in 2016
  • Natural gas injections are expected to continue to climbing over their historic highs through 2016.
  • Retail gasoline is expected to decline slightly through the end of the year, backing off its current yearly high. 
  • Additionally, for consumers, the EIA is projecting an almost 5% increase in electricity bills for this summer season.

Other mentions of note, Brent saw its highest monthly average of 2015 in May, a $5 jump over its April average price. Retail gasoline also hit its high for the year in May. All of this despite inventory builds and OPEC production levels remaining at highs. 

The EIA Inventory Report publishes tommorow morning, we'll have to see how that impacts the NYMEX. Hopefully its an easier day than today, where we saw ULSD jump up .0631 to settle at 1.9179, and RBOB jumped .0696 to 2.0771 at the close. 

Stay tuned!

 

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Topics: natural gas, EIA, Brent Crude, WTI Crude, retail gasoline, US Crude Production

NYMEX, WTI Jump on Shale Slow Down & Inventory Concerns

Posted by Kelly Burke on May 12, 2015 7:11:00 PM

Barrels of oil overlaid on a line graph

The NYMEX shot up again today, after trending slightly downward the past several sessions. Last week saw Brent over $65/bbl and today WTI settled out +1.50 to 60.75, over the $60/bbl benchmark we've all been watching for.

ULSD closed up +.0535 to 1.9989, while RBOB shot up over the $2 line again with a gain of +.0529 to settle at 2.0393. 

Our friends at OPEC came out earlier this week to announce they saw no increase in oil prices on the horizon, given they see no decrease in production, and denied reports that there was consideration of reinstituting production quotas to boost prices. This pumped the brakes on the rally temporarily, and resulted in a pummeling of energy stocks in the S&P in the process - most notably Exxon and Chevron shares (Both companies saw gains today, however, on the price reversal).

So what happened today?

Most analysts are crediting a weaker dollar in combination with the monthly drilling report that indicates some slow down in shale production domestically. The EIA projected that output from major shale plays will drop by some 86K bpd in June.

Analysts also expect to see draws in crude on tommorows EIA inventories report, which is almost always good for a few cents worth of upward pressure on the market - at least if they are correct, that is.

Outside of drilling and supply concerns, we once again saw resumed airstrikes in Yemen on the same day a cease-fire was to be discussed.

Deja vu, anyone?

Stay tuned!

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Topics: Bull Market, RBOB, WTI Crude, stock market, ulsd, yemen

Commodities Rally after Record Drops, up 3% on Crude

Posted by Kelly Anderson on Dec 1, 2014 2:57:56 PM

Stock market numbers on a digital board

After the mulityear lows hit last week, oil started to rally today.

We're still lower than prior to the OPEC production announcement, but today saw ULSD up +.0512 to 2.2124 at the close, and Gas rallied up +.0534 to 1.881 at the close. WTI Crude closed up 2.99 to 69.00/bbl

Analysts are hopeful for an equilbrium price level between $70 and $75 so we're at least much more comfortably close to maintainence levels than we were on Friday. However, even at $70, shale production isnt terribly profitable, so on that side it wouldnt be the greatest benchmark. However, on the consumer level $60 sounds better than $70/bbl when you fill up your car. 

(And yes, the analysts are hoping for $70 while panicking about $40. C'est la vie, right?)

So why did we go up? 

The dollar weakened some, which almost always gives commodities a little bump. 

Most likely though, its just a pull back from an overreaction in selling off on Friday. 

Time will tell. The next few market days should be interesting to watch, especially with the inventory numbers out Wednesday. 

Stay Tuned!

 

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Topics: Commodities, Dollar falls, OPEC, WTI Crude, ulsd

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 Rebound on Election, Energy Shares Continue to Falter on Cheap Crude

Posted by Kelly Burke on Nov 5, 2014 9:51:45 AM

Stock market numbers on a digital board

The Dow & Nasdaq were up in pre-market trading on news of a Republican sweep last night, and stocks are continuing to rebound this morning after Tuesdays drop off. The exception to this rule being energy shares, which are pulling the S&P down on the back of plummeting Crude prices. 

The ADP report on October job creation came in at 230K, 10K above the projected number. Strong payroll numbers for October and September, continually falling initial jobless claims and a surprisingly good Q3 growth number (3.5%) are all good signs for the overall economy.

However, there is still the factor of weakening global growth and demand, which will probably keep the domestic growth pace a lot slower than we'd all prefer. The Q4 growth number is expected to be much less exciting than Q3, thanks to global concerns. 

We saw WTI touch on a 3 year low yesterday on the back of the Saudi price cuts, oversupply, and booming production in the US. This is pulling energy shares down and impacting oil field companies and major industry players, as Crude starts to touch levels that make expensive shale play exploration an increasingly less profitable proposition.

 The Platts pre-report on US inventories is projecting the EIA report will show another build in Crude of about 1.2million barrels. Currently the NYMEX is relatively flat ahead of the EIA report's scheduled release at 10:30 this morning.

We should see then if the analysts got it right, and what, if any, impact the stock data will have on pricing moving forward. 

 

 

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Topics: US Energy Boom, CRUDE, WTI Crude, EIA Inventories, stock market, Election Results

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