Oil Prices Comfortable at $50 – Oil and Gas Market Summary 10/18/16

Oil prices daily podcast discusses all of the news, events, and trends influencing oil prices each day.

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Links:

Oil Prices Daily Newsletter for 10/18/16

Oil trades near $50 as market ponders OPEC accord, US supplies Bloomberg

OPEC spat over production data grows as Iran rejects estimates Bloomberg

Not everyone s so sure low oil prices will stay put NYT

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Transcript:

Hello and welcome to the Oil Prices Daily Podcast.

Doug Stetzer here bringing you your daily recap of all the latest news, events and trends influencing oil prices.

Oil Prices Daily is hosted on the EKT Interactive Oil and Gas Podcast Network and sponsored by Oil 101. A free, online introduction to the oil and gas industry.

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Okay, so let’s take a look at what happened in oil prices for today, Tuesday, October 18th.

Oil prices were up $.35 or .7% to settle at $50.29 on really light volume of just about 725,000 oil futures contracts.

The market, we’ve kind of been in a theme for really the last week or so at this point that failed breakouts lower and a market that is waiting for news from OPEC is basically forming what is really looked at in the training community as a pennant.

It’s basically a consolidation pattern right here around $50.

Not much conviction at this level.

We’ve had a nice move higher but you’re waiting for the next piece of news to confirm that this OPEC deal is either happening or, of course tomorrow we’ll be looking for news out of the EIA that something on the inventory side might drive the next move as well.

That just really leaves us where we are. At $50 a key level and waiting for what’s either going to propel a move higher or send us back into the low $40’s here if that’s going to be the case.

If you look at the intraday chart. Once again, really reminiscent of yesterday’s action where the market came in in the morning in the mid 50’s and dropped almost a a dollar, about $.75 to a low near $49.75 and then just spent the rest of the day lightly, steadily drifting higher on light volume.

Once again seeing that moves to the downside are not being rewarded and there’s not a whole lot of fear or follow through on those moves, even with yesterday’s settlement below $50.

We were wondering if that was going to play out significantly and right now really not looking like there’s much momentum to the down side just because of that move.

We’ll all be on the lookout for any surprises out of the EIA for tomorrow. Consensus estimates for tomorrow’s EIA inventory report are for a build of 2.4 million barrels.

Although Genscape has already reported a draw to their subscribers. Interesting to see what will happen there. We have numbers from Andrew Lebow of Commodity Research Group and his expectations are for a build of 1.7 billion.

On the light side of expectations of consensus estimates. He’s also expecting a draw of a half a million barrels in gasoline and .6 million in distillates. So slight draws.

If you remember last week, there were some good draws in the product they kept this market from potentially falling apart worse. Of course a couple of stories talking about the status of supply at Cushing.

Just some recent trends on how these EIA expectations have been really difficult for the analyst community to nail. There’s been a lot of surprises there, so we’ll just have to wait and see what comes out of these numbers tomorrow.

Again, have the potential to be a significant driver of oil prices here.

Anything going on with OPEC?

Well, one story out of Bloomberg saying that OPEC Spat Over Production Data Grows as Iran Rejects Estimates.

Now we’re really hearing from three countries. Iraq, Nigeria and Iran putting forth the argument that the OPEC Secretariats numbers underestimate their current production numbers.

What they’re saying here is that if there were to be any caps placed based on current production they want to make sure they are represented at a higher number.

These are all countries that have been exempt from production cuts but they want to make sure that room is being made for this higher production if indeed their own numbers are accurate.

That way when they go to do the final tally about how much OPEC is actually producing and what cuts are going to need to be made to get to their proposed levels, they want to make sure that some of these larger cuts are coming from these other countries.

Now is this enough to derail the deal? Possibly.

We’ll have to see going forward how they resolve this and whether this takes the teeth out of a potential deal if other producing countries, namely Saudi Arabia, aren’t willing to recognize their numbers when they are proposing the cuts that they need to make this deal happen.

There was also another story out of the OPEC Chief Says He’s Confident That Russia Will Join the Production Cut.

A little chatter going into the deal, to be expected. Of course they’re going to try to paint as rosie a picture as they can as far as being able to implement this deal.

In the news, I thought it would be interesting and we’ve spoken about this a little bit over the last few sessions.

This idea that, there’s a real consensus in the marketplace that regardless of the deal from OPEC the oil glut is likely to remain.

There’s a lot of skepticism in the press about this deal even being implemented at all. Which, you would think would be reflected in trader’s positions making bets that oil prices are set to fall from this level, around $50, back down into the low $40’s where they were before this deal was announced.

Of course that isn’t the case in the price action and there’s a couple of stories out talking about the bullish case for oil that are good to keep in mind that despite the analyst and the talking heads in the media, as opposed to actual traders where they’re putting their money, there could be some differentiation there that’s worth noting.

One story out of The New York Times talking about Osprey Management and Energy Focused Hedge Fund saying, “Not everyone’s so sure low oil prices will stay put”.

They’re putting forth an argument that $60 to $70 is actually a possibility here stating that the market has become complacent in it’s outlook just as when the price stayed above or close to $100.

That idea that you get everyone on the same page thinking prices can’t go down. Right now everyone’s saying prices can’t go up.

When you have everyone thinking that same thing, that’s when surprised can happen. What he’s point out is there are structural declines in producing regions such as Mexico, Nigeria, Venezuela and that can put a solid footing under this market.

Another story pointing to this same idea said, “Traders of ETF options deviate from forecasters on OPEC deal”. What you’re seeing is, some of these oil and gas ETF’s, there’s a lot more buying of calls than there is of puts.

As volatility contracts and we are really settling into a range, these call options become cheaper. It’s a pretty cheap way to bet that oil prices would spike if we break out of this range to upside and we get something very constructive out of OPEC.

There must be seeing a good risk reward as far as the option pricing to the upside. Of course that would make put options become cheaper also. What this article is pointing out is that you’re just not seeing the interest, whether in price or volume in buying puts.

Interesting coupe of articles, again when there’s a huge consensus and the analyst communities all talking this one idea, it’s good to keep in mind that they’re not only not always right but they’re pretty rarely right.

These market’s have, when you set up with a lot of people on the same side, that’s when markets can make really crazy moves.

That’s really about it for today. Again, tomorrow’s EIA number definitely could be an oil price driver in the short term. Of course how much prices are really willing to deviate from this $50 consolidation before the OPEC meeting remains to be seen.

Clearly the trend, as we mentioned the last couple of days, is that the spikes lower do not really gain much momentum and are not rewarding the sorts, however, also as we’ve stated, the market is really long right now and something to the downside could really flush it out but people really saying that the potential for this OPEC deal has put a floor under the market for now.

We are really seeing that in the intraday price action.

That’s going to do it for us today, remember get our concise recap of all the news and events that are influencing oil prices each day by going to OilPricesDaily.com and signing up and of course you can also subscribe to the Oil Prices Daily podcast on iTunes.

Thanks again for listening to Oil Prices Daily here on the EKT Interactive Oil and Gas Podcast Network.

See you tomorrow.

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