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Monday, Dec 31 2018

Starting Last Day Of The Year On A Stronger Note

Energy and equity markets are starting the last day of the year on a stronger note, as optimism over a potential US/China trade deal seems to be encouraging traders to go bargain hunting after a rough December (and a rough year) for the bulls.

While energy futures have a normal session today, and are closed all day tomorrow, most US physical markets aren’t active either day, which means trading volume will be light today, and could create more volatility like we saw the day after Thanksgiving, and on Christmas eve.

The DOE report released Friday did not have much to stir markets with both Crude oil and distillate inventories essentially unchanged. The weekly status report will be delayed until Friday again this week due to the New Year’s holiday.

Baker Hughes reported 2 more oil rigs were put to work last week, putting the US oil rig total at 885, compared to 747 this time last year. A report from the Dallas FED last week mentioned how job growth in TX may be at risk if lower oil prices cause drilling activity to slow in 2019.

CLICK HERE for a PDF of today's charts

Market Talk
Friday, Dec 28 2018

Rollercoaster Ride Continues For Energy And Stock Markets

The rollercoaster ride continues for energy and stock markets as one of the largest daily reversals in equity markets on record Thursday spilled over into oil and refined product markets overnight, only to see those gains wiped out this morning.

The post-Christmas bounce for both asset classes may very well set the stage for a longer-term recovery, although we’ll need to see buyers hang on for the last couple of trading days in 2018 to have a chance at sustaining this rally. The correlations between Equity and Oil prices have surged in the past two weeks, which has been typical whenever the “risk on-risk off” pattern of trading (also known as “fear trading”) is gripping markets.

The API was said to show a 6.9 million barrel build in US Oil inventories last week, a 3.7 million barrel build in gasoline, while diesel stocks declined by nearly 600,000 barrels. The report knocked some of the wind out of the afternoon equity-fueled rally, although it’s hard to say if that report influenced the overnight swings of more than $1 for crude and 3-4 cents for products. The DOE’s weekly report is due out at 11am Eastern today.

While gasoline prices have led the way lower for much of the 3-month sell-off, reaching their lowest since February 2016 during the Christmas-eve melt-down, diesel prices led the drop Thursday. Gulf Coast ULSD prices settled at $1.56/gallon, the first time since Hurricane Harvey we’ve seen wholesale diesel prices posted that low.

CLICK HERE for a PDF of today's charts

Market Talk
Thursday, Dec 27 2018

Petroleum Futures Bought Back All That Was Lost

The bulls said no yesterday as the big three petroleum futures bought back all that was lost on Christmas Eve. On twice the traded volume as Monday, refined products popped between 4% and 6% this Boxing Day while crude added a whopping 8% with a gain of $3.50 per barrel.

On the physical side of things, since most benchmarks didn’t publish prices on Monday, buyers and sellers of wet gallons were looking at the net change between the 24th and 26th, which had gasoline gaining a relatively dull 1.2 cents while diesel remained flat .

The weekly inventory report published by the Department of Energy has been rescheduled to Friday at 11am EST. So far it doesn’t look like that agency has been affected by partial government shutdown, which so far has only impacted less important departments like Homeland Security.

OPEC has a laundry list of uncertainties facing it over the next 12 months, perhaps chief of which is proposed American legislation that would allow legal action to be taken against the cartel for price manipulation. The NOPEC Act is already being blamed for Qatar’s departure in November.

Prices are pulling back this morning, taking a breather from yesterday’s rally, and doing little to quell the idea that volatility will be the name of the game going into the new year. The Oil Volatility Index (OVX) is hitting levels not seen since Q1 2016 when WTI had enough of the 2014-15 price collapsed and started a new bullish trend.

While whether or not the capitulation in prices over the last three months is in fact the beginning of a new long term trend, 2019 is poised to be a wild ride.

CLICK HERE for a PDF of today's charts

Market Talk
Wednesday, Dec 26 2018

Christmas Eve Not Kind To Energy Prices

Christmas Eve was not kind to energy prices Monday as the big three American benchmarks lost 4-6% on light volume. Gas and diesel futures lost over 6 and 7 cents respectively while the prompt month crude oil contract cut almost $3 off of Friday’s price.

The CFTC reported that short speculative positions have hit an annual high with the money manager classification of trader opening 20,000 outright short positions as of 12/18. While it may not necessarily indicate future price direction, it is important to note that bets on lower prices have not been this high since last October.

Premiums over Colonial Pipeline tariffs remain elevated going into the new year as traders vie to take advantage of favorable cash price differences from the origins along the gulf coast and the sundry delivery points up the eastern seaboard. Values for both the gasoline and diesel lines remain at levels not seen since 2016.

The charts are having a hard time offering any bullish sentiment as prices burned through flimsy support to levels not seen since early 2016. A bounce-back today could make a case for some level of overselling Monday. Currently, only the January ULSD contract is staying in the red so far today, but only just. RBOB is tacking on 1.5 cents as WTI tempts cutting Monday’s losses by a third by adding $1 today.

CLICK HERE for a PDF of today's charts

Market Talk
Friday, Dec 21 2018

Wipeout Continues For Energy Prices

The wipeout continues for energy prices to start Friday’s session with most contracts down another 1.5-2% on the day and reaching fresh lows for the year some 40% below where they stood less than 3 months ago. Even a report overnight that Saudi Arabia would be cutting its production more than previously announced was not enough to keep the sellers at bay.

It’s been a brutal week for energy (and equity) bulls after a technical trap-door seems to have been triggered another wave of selling. Brent crude is now down $7/barrel for the week, while refined products are down around 13 cents/gallon each.

The sell-off can’t be purely blamed on technical factors however. As the forward curve chart below shows, energy futures have rapidly transitioned over the past month from a backwardated forward outlook expecting tighter supplies, to a contango curve that suggests a glut of inventory is coming.

All bets are off on where prices will go today as volumes are already dwindling with holiday travelers getting an early start. Nymex futures will trade on Christmas eve in an abbreviated session, and will be closed completely Christmas day. Spot markets will not be assessed either day however, so most rack prices published tonight will carry all the way through to Wednesday.

CLICK HERE for a PDF of today's charts

Market Talk
Thursday, Dec 20 2018

Rollercoaster Ride Continues For Energy And Equity Markets

The rollercoaster ride continues for energy and equity markets following Wednesday’s FOMC announcement. Energy futures gave back all of Wednesday’s gains overnight, but have bounced sharply off of their overnight lows.

It seems that stock markets did not like the FED’s signals that it planned to hike interest rates 2 more times in 2019, after announcing its 4th increase of 2018 in yesterday’s statement. Even though this is lower than previous forecasts of 3-4 interest rate hikes next year, based on the price reaction, it appears many were hoping (and/or betting) for an end of the increases as signs of a global economic slowdown are numerous.

So where to from here? From a chart perspective we need to see prices get back above their previous support to break the potential bearish reverse-flag pattern. For WTI that means getting back above $50, for Brent $60. RBOB gasoline futures need to get north of $1.40 and ULSD needs to break above $1.80 in order to reduce the likelihood of another big sell-off.

Notes from the DOE weekly report:

Good news for US refiners: The DOE’s weekly demand estimate for distillates reached a 15 year high north of 4.8 million barrels/day. The bad news? That’s still 500,000 barrels/day less than the amount of diesel produced each day last week, even with a decline in weekly production.

The (potentially) ugly news for diesel consumers? At 24 days of forward cover, diesel inventories are at their lowest levels since 2008 (when diesel futures surpassed $4/gallon) leaving the market susceptible to price shocks in the coming year, particularly as we get closer to the deadline for the IMO Marine diesel spec change.

CLICK HERE for a PDF of today's charts

Market Talk
Wednesday, Dec 19 2018

Energy Futures Broke Bottom End Of Recent Trading Range

Energy futures broke the bottom end of their recent trading range Tuesday, setting off a wave of heavy selling that took 7% off of WTI prices for the day, and knocked products down by 4%. The decline puts most futures contracts at their lowest levels in 12-15 months, and most wholesale gasoline prices at their lowest levels in 2 years.

Not everyone is so fortunate however as California gasoline prices continue to surge, with basis values increasing more than 50 cents in the past week thanks to a handful of local refinery issues, and a pipeline shutdown in NM increasing demand for supply from the West.

As the weekly chart for WTI below shows, the breakout of the sideways pattern to the downside for futures looks like a reverse flag pattern. This type of chart pattern is known as a continuation pattern, meaning the trend will continue in the direction it started (compared to a reversal pattern that would change course) and suggests that we could see much lower prices in the new year, with a possibility of WTI below $30.

The API was said to report a 3.4 million barrel build in crude oil inventories last week, along with an increase of 1.7 million barrels of gasoline and a draw of 3.4 million barrels of distillates. The DOE’s weekly report is due out at its usual time this morning, and then will be delayed until Friday the next two weeks due to the Christmas and New Year’s holidays.

Canada’s government announced a $1.6 billion financial aid package to prop up the struggling energy industry in Alberta, which continues to be hampered by a lack of takeaway capacity for its growing oil production. Western Canadian Select prices are more than double what they were in November when the government announced forced production cuts, but are still trading below $30 today.

Speaking of oil export bottlenecks, there’s a new fight underway for control of the Houston ship channel between energy exporters, and container ship operators. With the US in the middle of a “race to the coast” to find new options for exporting its surging energy production, this may make other port projects more appealing.

CLICK HERE for a PDF of today's charts

Market Talk
Tuesday, Dec 18 2018

Energy Futures Crumbled To Lowest Levels

Energy futures crumbled to their lowest levels of the year overnight as a combination of over-supply & economic concerns continue to weigh heavily on the market. Prices have rebounded sharply off the overnight lows however (crude oil is trading up $1 and products are up 3 cents) as equities are finding renewed strength after another big sell-off Monday.

Depending on which headline you read, the sell-off in equities may be caused by falling oil prices, or the fall in oil prices may be caused by the drop in stocks. The reality seems to be that both asset classes are struggling through a crisis of confidence lately that’s threatening to become a full-on bear market if they don’t snap out of their funk soon.

The FOMC begins a 2-day meeting today. According to the CME’s FEDWatch tool, traders are putting a 71% probability of another interest rate hike announcement tomorrow. That probability has been declining lately as economic concerns have increased, and the US president launched an unprecedented barrage criticism on the central bank.

CLICK HERE for a PDF of today's charts

Market Talk
Monday, Dec 17 2018

Energy Futures Struggle To Find Direction

Energy futures continue to struggle to find direction, starting the week with more apprehensive gains. After 2 months of consistent selling, the complex has been moving sideways for 3 weeks now.

Prices have been unable to hold below the $50 & $60 marks for WTI and Brent respectively, but also unable to sustain a rally, even following the latest output cut announcement from OPEC & Russia. Here’s why at least one person thinks that 2019 will continue with the unpredictable pattern.

Baker Hughes reported another decline in drilling rigs last week, with the total oil count dropping by 4, reaching its lowest level in 8 weeks. With WTI in Midland trading down to the low $40s last week, we could be in for more rig reductions in 2019 if prices don’t stabilize soon.

Money managers were a mixed bag last week, reducing their net length held in WTI and ULSD contracts, while showing increases in both RBOB and Brent. The net positions also changed for different reasons, as new length in Brent outpaced another increase in short positions (which are now approaching an 18 month high) while gasoline saw reduced length offset a reduction in short bets.

In 2018 we saw the speculative class of trader shift from record net-length as prices were rising early in the year, to below-average positions now. How they behave in 2019 may determine whether or not prices have put in a floor.

CLICK HERE for a PDF of today's charts

Market Talk
Friday, Dec 14 2018

Volatility Is The Name Of The Game

Volatility is the name of the game in energy and equity markets this week with most contracts pointed lower this morning after a strong session Thursday. After weeks of weak correlation, the two asset classes are beginning to move in tandem once again, which could mean the FED will have more sway than OPEC on oil prices as we approach year end.

Just when it appeared safe to wade back into the equity pool as the US-China trade truce was taking hold, some negative economic data from China has stock markets around the world moving lower once again.

In a sign of how volatile trading in refined products has become of late, RBOB and ULSD (HO) futures are averaging 7 cent swings between their high and low trades daily so far in December, compared with an average of a 4.5 cent range for the first 11 months of the year.

So what do these wild swings mean? There is a case to be made that bouts of extreme volatility after a strong move in either direction is a sign that the trend is coming to an end. That could be good news for bulls in the energy space as the swings could be signs of bottoming after a harsh 2-month sell-off. Then again, if this argument is true, it could be bad news for stock investors if these are the warning signals that the 10-year old bull market is officially finished.

CLICK HERE for a PDF of today's charts

Market Talk
Thursday, Dec 13 2018

Aggressive Wave Of Selling Takes Hold

The recovery rally in energy prices ran out of steam late in Wednesday’s session as an aggressive wave of selling took hold in the last 10 minutes before settlement, wiping out the gains from earlier in the day and that downward momentum has continued overnight. There did not appear to be a headline story to drive the selling, suggesting we’re still stuck in a sideways pattern as books are repositioned ahead of year end, and new bets are made on where we’ll go in 2019.

The IEA’s monthly oil market report released this morning is also getting some blame for the downward pressure as the agency showed an increase in global inventories for the month. The IEA held its estimates for 2019 steady from their last report, with total global supplies expected to outpace demand by a small margin. The report also contemplates whether or not OPEC just put a floor under prices with their latest extended output cut agreement.

Yesterday’s DOE weekly status report was a mixed bag, with oil inventories declining for a 2nd week, while US gasoline exports reached a new all-time high. A big question for US refiners as we approach the winter doldrums for gasoline demand is whether or not international buyers have enough capacity to continue soaking up the excess US production.

A new report from the EIA suggests that the US strategy of waiting until the last minute on issuing waivers on its sanctions against Iran may have had an intended effect of reducing purchases of Iranian oil, while still allowing global pricing benchmarks to fall.

CLICK HERE for a PDF of today's charts

Market Talk
Wednesday, Dec 12 2018

Energy Markets Trying To Move Higher

Energy markets are trying to move higher for a 2nd day, but still seem to be struggling with setting a definitive price floor as their overnight gains have been eroding this morning. A large decline in US crude oil inventories is taking credit for the move higher overnight while equity markets continue on their trade-induced rollercoaster ride.

The API seemed to surprise many Tuesday afternoon when it was said to report a 10 million barrel draw in US oil inventories last week. Then again, the API showed a 5 million barrel build a week ago while the EIA showed a 7 million barrel decrease, so this week’s move seems explainable as the voluntary industry report catching up with the mandatory government report, and perhaps not an indicator of what we might see from the DOE report this morning. The API also showed a decline of 2.4 million barrels of gasoline last week while distillates increased by 712 thousand barrels.

The EIA offered more insight to last week’s data point showing the US exported more oil and petroleum products than it imported for the first time in around 75 years in a new report this morning. Given the huge swings in the weekly flow of exports and imports to reach that milestone, don’t expect a repeat performance in today’s status report. If China returns as a buyer of US Crude however, that may finally tip the scales to make the US a net exporter on a more regular basis.

Speaking of which, volatility in both equity and energy markets remains high (as displayed by the VIX and OVX chart below) as uncertainty over Trade continues to roil markets depending on the latest headline. Tuesday we saw large early gains in stocks wiped out following reports that a Canadian was arrested in China, in an apparent retaliation for the Chinese executive arrested in Canada last week. Stocks are pointed higher ahead of the open this morning as the US Trader-in-Chief said he would intervene in the latter case if it meant getting a trade deal done with China.

OPEC released its monthly oil market report for December this morning, showing that the cartel’s production held flat last month, as an increase in Saudi Arabian output offset the large declines from Iran. Looking ahead to 2019, the ongoing trend of supply beating expectations while demand growth missing the estimates from earlier in the year seems to be a theme throughout the report, and makes it easier to see how the cartel was able to reach its agreement last week.

Other notable items from the OPEC report:

“Non-OPEC oil supply growth in 2018 is estimated at 2.50 mb/d, an upward revision of 0.19 mb/d from the previous month’s assessment. The US, Canada, Russia and Kazakhstan are expected to be the main growth drivers, while Mexico and Norway are anticipated to show the largest declines…”

CLICK HERE for a PDF of today's charts

Market Talk
Tuesday, Dec 11 2018

Traders Struggle To Digest OPEC News

Energy markets are having a hard time figuring out where they’re going as traders struggle to digest the OPEC news and volatility in global equity markets. After wiping out Friday’s OPEC bounce with 3% losses Monday, prices are trying to rally this morning following another snag in Libyan oil production and a recovery bounce in stocks.

Libya was forced to shut in roughly 400,000 barrels/day of oil production as its largest field was closed by protesters and/or attacked by militant tribesman depending on which story you read. For a country still trying to determine who is in charge 7 years after ousting Muammar Gaddafi, there may not be much difference.

US equities managed to recover from a heavy round of selling early Monday with most major indices finishing the day moving higher, and carrying that strength through the overnight session. Easing trade tensions with China and signals that the FED may hold off on more rate increases in 2019 are both getting credit for the bounce.

The CFTC shows that money managers cut their net-long holdings across the board again last week, marking 12 out of 13 weeks of declines for WTI, and 8 straight weeks of declines for both RBOB gasoline and ULSD diesel contracts.

While liquidation of speculative long bets was inevitable as the fall meltdown began, the past couple of weeks seem to show more speculative short sellers becoming aggressive – particularly in Brent crude and RBOB contracts. As the charts below show, those short sellers have had a rough track record over the past few years, adding large amounts of lower-price bets just before price rally sharply, and may have just picked another bad time just ahead of the OPEC & Friends output cut.

CLICK HERE for a PDF of today's charts

Market Talk
Monday, Dec 10 2018

Oil & Refined Products Give Back Friday’s Early Gain

Oil & refined products have given back nearly all of Friday’s early 5% gain as doubts about the implementation and impact of the latest OPEC & friends output cut agreement seem to be spreading.

The deal struck Friday morning calls for a total of 1.2 million barrels/day in cuts, of which OPEC will be responsible for 2/3rds, while Russia and the other non-OPEC nations will handle 1/3. As was the case with the last output cut agreement, Iran, Venezuela, Libya and Nigeria have been exempted from the cuts which could reduce their effectiveness.

The CFTC’s commitments of traders report is delayed due to the Federal Holiday last week, but the ICE published its data, showing that money managers cut their net length in Brent contracts for a 10th consecutive week. The total net length held by large speculators in Brent futures and options is now at its lowest level since August 2015.

A Wall Street Journal article over the weekend suggests that the decline in speculative activity, and increases in volatility of late, may be symptomatic of a market being taken over by computerized trading.

Baker Hughes reported a decline of 10 oil rigs last week, with a fairly even spread among states and major basins. While the decline moves the total count to its lowest level in more than a month, there are still 126 more rigs operating now than there were a year ago. A key question for 2019 will be whether or not the drop in prices over the past 2 months will cause drilling activity to slow.

CLICK HERE for a PDF of today's charts

Market Talk
Friday, Dec 7 2018

The Wild Ride Continues

The wild ride continues this morning after cooler heads prevailed in Thursday’s session, helping energy and equity markets pull back from the brink of another major collapse. At multiple points during the day we saw refined products down more than 7 cents, only to recover each time and are starting the day with a wave of buying that had most contracts up around 2% as they awaited the OPEC announcement. US Equities saw a similar pattern, albeit for apparently different reasons, as the DJIA recovered most of its early 700 point drop by day’s end.

Conflicting headlines from the OPEC & Friends meetings continue to roil the energy markets, while equities seem to be breathing a sigh of relief that the arrest of a Chinese executive for violating US sanctions (on Iran) doesn’t appear to be stopping the talks of a trade truce.

Here’s an example of how unreliable the news wires are on the OPEC story:

* 07-Dec-2018 08:01:54 AM - OPEC SOURCE SAYS IRAN HAS AGREED TO OPEC DEAL

* 07-Dec-2018 08:02:58 AM - SECOND OPEC SOURCE SAYS IRAN HAS AGREED IN PRINCIPLE

*07-Dec-2018 08:09:22 AM - IRAN DELEGATE: IRAN HAS NOT REACHED AN AGREEMENT WITH OPEC

*07-Dec-2018 09:39:51 AM OPEC MEETING ENDS W/ AGREEMENT ON 1.2M B/D OPEC+ CUT: DELEGATES

Following that last headline of a 1.2 million barrel/day production cut energy prices have popped another 2-3 percent with most contracts now up 4-5% on the day.

The November jobs report showed an increase of 155,000 in non-farm payrolls, while the headline unemployment rate held steady at 3.7%, while the U-6 (aka the “real” unemployment rate) ticked up to 7.6%. Stocks moved higher in the wake of this report as it seems soft enough to keep the FED re-thinking their strategy for rate increases in 2019.

Notes from the DOE Weekly Status Report:

The headline draw of more than 7 million barrels of crude oil inventory (the first weekly decline in 11 weeks) sure seems bullish at face value, but when you dig deeper and notice that the weekly drop in imports accounted for 6.6 million barrels and the increase in exports accounted for another 5.3 million barrels. Suddenly the drop looks transitory, and even bearish, since we would have had a 5 million barrel build if the import/export flow had held steady to a week ago.

Remember the campaign slogan “drill baby drill”? Turns out that worked out better than its supporters did during the election 10 years ago as the US just became a net exporter of petroleum products last week for the first time in at least 45 years. Total oil & product imports were 8.8 million barrels per day last week, while total exports reached a new record north of 9 million barrels per day, with crude oil exports setting an all-time high north of 3 million barrels/day.

CLICK HERE for a PDF of today's charts

Market Talk
Thursday, Dec 6 2018

Fear Has Taken Hold Of Energy And Equity Markets

Fear has taken hold of energy and equity markets overnight as the Trade Truce between the US & China is threatened by the arrest of a Chinese CFO for violating US sanctions (allegedly) and the Saudi energy minister is suggesting that there may be no OPEC deal this week.

Also weighing on markets around the world is the yield curve on US treasuries has been tightening, which is an often cited early warning indicator of a pending economic slowdown. As the charts below show, the spread between 2 & 10 year treasury rates reached its smallest discounts in more than 11 years. If you don’t remember, ask a neighbor what the economy did after 2007 and that may help explain some of the fear trade we’re witnessing this morning.

US equity futures are trading down around 1.5% so far today, while oil & product futures are down 2-3% at the moment, after being down nearly twice that amount around 4:30am. RBOB gasoline future briefly dipped to fresh 2-year lows during the overnight sell-off, while the rest of the energy complex is still holding above the lows set last week.

This week’s price action of 3 early buying sprees that fizzled into the close, followed by a 4th session that’s started with a heavy sell-off leaves the potential for a bearish continuation pattern on daily & weekly charts. If the bottom end of the past week’s range (set by November’s low trades) breaks down, there’s a strong case that the bear market will continue, and could have another 15-20% of downside based on the reverse flag formation on the charts. It’s too soon to say this formation is going to happen, as we’ll need to see WTI break (and hold) below $49 and Brent drop below $57, some $2.5/barrel lower than current levels before it’s confirmed.

Of course, even if OPEC doesn’t come to a resolution today, there’s still a chance that there could be an agreement announced tomorrow, when cartel members meet with Russia to discuss their extended output cut arrangement. If you’re wondering just how much influence has on OPEC, given that it’s not a member of the cartel, take a look at the birthday letter the OPEC secretary general sent to the Russian president 2 months ago.

The weekly status report from the Department of Energy’s EIA is due out at 11am Eastern.

CLICK HERE for a PDF of today's charts

Market Talk
Wednesday, Dec 5 2018

Energy Markets Flat This Morning

Energy markets are flat this morning, as the US takes a day to mourn a former president, one day ahead of what may be a pivotal OPEC meeting.

The recovery rally in petroleum futures seemed to run out of steam Tuesday, doubts over the Trade Truce and fears of a looming economic slowdown both domestically and abroad continue to build, sending US stock markets for another tumble. Although the correlation between equity and energy prices has been weak for the past few weeks, it certainly appeared that the stock market selling helped to stone-wall the buying spree in oil & products that we saw Tuesday morning.

US stock markets are closed today for a national day of mourning honoring George H.W. Bush, while energy markets are following their normal routine. The DOE weekly status report will be delayed until tomorrow.

The API was said to show inventory builds across the board yesterday, with oil stocks up more than 5.3 million barrels, diesel up 4.3 million and gasoline up by 3.6 million.

As the forward curve charts below demonstrate, the fall sell-off has also wiped out the backwardation (near term prices holding higher than longer term prices) that had become a mainstay for most petroleum contracts for much of the year. Given that the curves have flattened for a full 3 years, this suggests an expectation for ample supplies for an extended period of time, compared to a short term drop in demand (aka recession fears) driving the action.

CLICK HERE for a PDF of today's charts

Market Talk
Tuesday, Dec 4 2018

Recovery Rally Continues For 2nd Day

The recovery rally continues for a 2nd day as production cuts remain the big story ahead of an OPEC & Friends meeting later in the week. The high trades for WTI & Brent overnight marked a 10% bounce off of their lows for the year set last Thursday, while refined products have earned back around 8% in the past 3 days.

For those wondering how high prices could bounce now that the recovery seems to have found its legs: The $60 mark for WTI looks to be a good intermediate term target as it represents both a 38% retracement of the fall price collapse, and marks the bullish trend-line from the 2016 low of $26, which was broken for the first time 2 weeks ago. IF we see WTI make a run to $60, that should mean roughly another 15-20 cents of upside for refined products.

Thursday is scheduled to be an OPEC-only meeting & press conference, while Friday include the non-OPEC countries that have participated in the recent production cuts (Russia) and will conclude with a joint press conference Friday afternoon (Vienna time) meaning we should know sometime in the morning what their new plan will be.

Western Canadian select crude oil gained almost $9/barrel Monday, in the wake of Alberta’s announcement of forced, albeit temporary, production cuts. Hard to say which is more notable, WCS prices doubling in just the past 2 weeks, or the fact that prices are still only $29/barrel.

The API report is due out at its normal time this afternoon, but the weekly EIA report will be delayed one day this week as federal offices will observe a national day of mourning Wednesday in honor of President George H.W. Bush.

CLICK HERE for a PDF of today's charts

Market Talk
Monday, Dec 3 2018

Trade Deals And Output Cuts Pushing Petroleum Prices Higher

A flurry of headlines on trade deals and output cuts is pushing petroleum prices sharply higher to start the week. Refined products are up more than a nickel at the moment, after trading up nearly 8 cents overnight as both energy and equity markets are finding reasons to rally. Here’s are the highlights:

China & US taking a break from trade tantrums: Bullish economic activity, reduces the risk of recession & the drop in demand that would come with it.

Russia & OPEC agree to extend supply cuts. Bullish…at least until they announce the details, which haven’t been agreed to yet.

Qatar leaving OPEC: Neutral? This could be a bigger story in natural gas markets given Qatar’s status, but for now doesn’t seem as though it will impact supplies.

Canada is imposing temporary output cuts in Alberta: Any output cut is bullish oil prices, but this reaction to pipeline bottlenecks may have more impact on US refinery margins than it does on outright prices as the extreme discounts in WCS has given a huge advantage to any plants with access to those distressed barrels.

New congress, new threats to North American Trade? Neutral for now. It’s impossible to say how the negotiations in congress will turn out. Oil & refined product flows between the US, Mexico and Canada have been increasing over the past decade so the pressure will be high to get a deal done.

Baker Hughes Rig Count: 2 more oil rigs put to work last week, marking a 5th consecutive month of increases. The price drop in the past 2 months suggests we may see rig counts level off or begin to dip early in 2019. Neutral. One consequence of record high US Oil production? Sellers in W. Texas are actually having to pay people to take their natural gas.

Commitment of traders: WTI and RBOB snapped their streak of money manager liquidations (it’s probably no coincidence this happened the same week that both contracts had a weekly gain for the first time in 2 months) while Brent and ULSD continued to see reduced speculative bets on higher prices. Bullish. Fund liquidation was a major theme during the fall sell-off. Now that those large speculators presumably have dry powder, they could easily push prices higher should they choose to begin buying again.

CLICK HERE for a PDF of today's charts

Market Talk
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