Oil Prices Fall On Russia Doubts – Oil and Gas Market Summary 10/12/16

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Oil Prices Daily Newsletter for 10/12/16

Monthly Oil Report OPEC

Verleger: OPEC managing expectations very well Bloomberg

World s biggest oil traders aren t buying what OPEC is selling OilPrice

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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 news, events, and trends influencing oil prices.

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Okay, so let’s take a look at what happened for today, Wednesday, October 12, 2016.

November crude traded down 61 cents or 1.2% to settle at 50.18 after dipping slightly below the $50 level and touching a low of $49.89.

Mainly are concerns throughout the market that Russia really isn’t that committed to this OPEC deal which gave the market quite a boost earlier in the week.

Trading volume pretty good, just over a million contracts. Again, we held above $50 as far as the settlement is concerned but really interesting to start battling it out at that key $50 level again.

Now, the questions of course remain not only whether OPEC can even implement this deal but of course whether they’ll get the non-OPEC support they need and whether we’re going to start seeing jumps up in US production as prices got into the mid-50s for 2017 and 2018, allowing our producers to lock in those good mid-50s price levels for the next couple years through hedging activity.

Let’s take a look at what’s coming out of OPEC.

First of all, today they released their monthly oil report so you are sure to see analysts combing through that over the next few days to see some confirmation of what has been published recently that OPEC is producing at record levels.

Where that production is coming from, are we seeing growth out of Libya, Iran, Nigeria so that is what is expected. We’re expecting to see some growth out of those players.

Of course, those are the ones that are exempt from the production cut deal as it has been negotiated to this point.

Of course, everyone’s going to take a look at Saudi Arabia to see what their numbers are. Are they starting to decline?

Are they going to just pump full tilt until a production cut deal is in place or are they starting to taper off already to support this market? Now, whether or not any of this matters is interesting.

As one Reuters story points out, OPEC points to a larger 2017 oil surplus despite deal to cut. Really, basically what it’s getting at is whether this million barrel a day cut even balances the market in 2017 or even 2018.

That’s basically the idea that you’re getting from some of these barge crude oil traders, the Glencore’s and [inaudible 00:03:38] of the world saying the world’s biggest oil traders aren’t buying what OPEC is selling.

That’s an oilprice.com article which is in Newsletter today and I thought was a really good one. Which just highlighted, again, this idea that supplies are going to be really strong through 2017 and that it’s really hard to see this market rallying much beyond where we are right now.

Now, of course, this article also points out that in the long run, due to the shelving of a trillion dollars worth of capital expenditure in the last couple of years, that later in the decade by 2020 we could have a really, quite a supply pinch.

That will change the perspective on this whole equation dramatically.

The counter to that argument was an interesting interview in a Bloomberg video that argued that the demand side of the equation is crunching as well.

Analysts pointed out that, for example, at the Paris Auto Show this year every car was an electric car. These long term trends are really shifting pretty rapidly.

What does that do to the long term price of oil even with the shelving of these capital expenditure products since the demand side of the equation is contracting also.

What this person also pointed out was that it’s always contracting faster than the real large IEAs of the world expect.

They’re always revising their demand lower for going out 10, 20 years.

That’s kind of where things are battling out right now. Of course, we will see in EIAs whether domestic production is ticking up in the US. Also, I think very telling will be the rig count, of course, over the next few weeks and we’ll be sure to keep an eye on that this Friday.

Now, technically the market is still looking pretty strong. As long as it can stay above 50 as you can see on the daily chart. I’ve just kind of highlighted a channel that the market seems to be in as we rally.  Markets don’t just go straight up every single day.

It’s not unusual for them to have pull backs on these types of rallies. Of course, the concern is that one headline out of OPEC saying that this deal is questionable is really enough to send the market crashing back down towards the low 40s, and quite quickly at that.

There’s probably some nervous length above $50 here, feeling a little bit toppy on this move. Again, the idea that even with a deal, even with OPEC following through on their word (big question mark), how high can the market even go?

What is your risk return on being long at 51 or 52 when most people think 55 is about as high as this market is going to go. You start kind of running out of room on length if that is …

If you buy into that picture that a lot of people are painting, so the market, again, feeling toppy if those are your expectation.

Not out of the question to think of profit taking up here. Now, of course, if the market closes below 50 or sees a headline people may start to think that this is, that this rally is really failing.

Without many shorts in the market, with a lot of length still out there, profit taking and then people getting short could really turn this market around quite quickly.

You have to be nimble and keep an eye on the headlines here. That’s about it as far as news. I look forward to having a chance to kind of comb through the OPEC monthly report myself and perhaps maybe do a special episode or some special articles on that here on Oil Prices Daily once I have a chance to glean some information out of there.

I think it’s probably going to hold some interesting data. Analyst community will be sure to be publishing their thoughts on that report as well.

Stay tune for that.

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Thanks a lot and we’ll see you tomorrow.

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