Oil and Gas Market Summary 10/5/16 EIA Surprises Again

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

Be sure to visit today s oil prices daily newsletter for links to all news stories and sources mentioned in this podcast.

Links:

Oil Prices Daily Newsletter for 10/5/16

Hurricane Matthew may delay fuel cargoes to US east coast Bloomberg

Oil tankers piling up in North Sea show glut facing OPEC Bloomberg

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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 EKT interactive, oil and gas podcast network, and is 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, October 5th, 2016, a Wednesday.

November crude, strong day settling up a $1.14 or 2.3% to settle at 49.83. Just shy of the $50 mark. The high of today, 49.97.

Volume, picking up after a few quiet sessions as we’ve spoken about with just over a million crude oils futures contracts trading.

Good to see some interest.

A lot of it really coming in today as we spoke about and warned about yesterday on the EIA number. Combined with hurricane Matthew, which is really wreaking havoc in the Caribbean and looks like it’s got it’s sites set on the east coast of Florida here.

Let’s just take a step back and look at the actual price action.

Again, strong day bumping right up against $50, which of course not only psychologically, but if you look at the charts in August, we hit $50 before turning back lower towards 43, so a technical and psychological resistance point pretty key right there at $50.

Not too surprising after the move that we’ve had to see the prices take a pause there for the day. If you look at the intra-day chart, there was some volatility in the morning and we had put the highs in by about 11 o’clock or so, and it really just kind of chopped around for the rest of the day.

Once we bumped up against $50, not too much pressure either up or down for the rest of the afternoon. Again, it’s going to be sending a very strong technical signal.

We’re continuing this up trend, another big up day. A lot of momentum into this move on better volume, so last night we started pushing higher overnight. It will be interesting to see if triggers try to push through $50 in lighter volume overnight.

Sometimes they’ve been known to do that just to make the charts look stronger. They could do it on less volume.

The big news today, EIA. Again, lots of surprises coming out of the EIA. Basically greater draws than expected is the trend of the last few weeks.

We hosted our expectations that are provided to us by Andrew Lebow of Commodity Research Group in yesterday’s newsletter. The consensus estimates were for a build in crude oil inventories of over 2 1/2 million barrels.

Andrew Lebow gave us his estimates of a draw of .7, or 700,000, barrels and the report gave us a draw of 3 million. Again, really a huge draw.

Especially considering consensus estimates gave a lot of support to the market. Already in bullish mode and is really the big news that drove things higher today. It leaves people asking, where is the glut? What is going on?

The EIA has been putting up these huge draws, so as far as the US is concerned, are we rebalanacing?

We have a really good section today on that question. Where’s the glut in today’s newsletter at oilpricesdaily.com. It really, the answer is, as it often is, is it depends.

There was a story out of Bloomberg today talking about oil tankers piling up in the North Sea, which of course is the delivery point for the Brent crude oil futures contract, which we don’t talk a whole lot about here at this point, but it is the benchmark for that side of the Atlantic.

A quote out of this story is saying,

“The physical crude market is already showing signs of weakness with floating storage threatening to build up the North Sea.”

A popular trade in the oil markets is the arb, the Brent/WTI arbitrage, and perhaps there’s some possibility of that contracting right now with if there’s weakness in the Brent and starting to some balance and some strength in WTI, we’ll have to see if that plays out.

Oil analyst Phil Flynn writing an article in investing.com saying, “Goodbye to the oil glut.”

Crude oil inventories have fallen on average almost 6 million barrels over the past 5 weeks.

He extrapolates what that would mean over the course of the year if you want to check out that article.

I mean, I have a hard time thinking that we will maintain this pace. However, it’s an interesting theory and really just wanting to point out that the US inventories are shrinking at a really historically quick rate.

Now, Goldman Sachs is out there talking about the big picture saying global oil markets are set to remain,

“Very oversupplied in 2017 amid the return of disrupted output in Nigeria and Libya resilient US shell production and the start of major projects commissioned over the past 10 years,”

So they’re taking a very long term approach. As well as taking a view on a big question mark out of the OPEC deal.

Will countries like Nigeria and Libya be able to ramp up their production after their dealing with various disruptions. That’s a big question mark in how this deal will actually be implemented, but Goldman taking the view that they will be.

That there’s some reasons to be positive that Nigeria and Libya will be able to recoup some of their disrupted production. Again, that article, all these articles, under the title ‘So Where’s The Glut’ in the Oil Prices Daily newsletter.

Finally, I think something really good to point out, and this is a quote in a Wall Street Journal article from analyst John Kilduff, you probably see him a lot on CNBC.

It’s really worth pointing out, this quote,

“Futures are like politics. They are local. We can have a global crude glut, but if the US balance sheet is going to continue to shrink with respect to crude, it’s supported and you have to take it as such.”

There you go, the idea again. The WTI crude oil futures contract reflects supplies in Cushing, Oklahoma. It is a global benchmark, yet at the same time it represents local supply and demand.

If the US continues to draw, the EIA continues to report surprises and we’re drawing at a quicker rate than expected, you can expect to see support in the WTI contract at least regardless of how OPEC is doing with their cuts.

Of course imports will be an important line item to watch in the petroleum balance sheet, and we have the link to that in the newsletter as well. As always, we put the links to the EIA reports right there.

A lot going on and honestly, it’s kind of nice to talk about something other than just Opec. We, obviously, for the last week or so, couple weeks, it’s been driving everything and we tend to get a little break from that on Wednesday.

Thanks to the EIA.

Something new to talk about here, very interesting.

Now, the next item that is this storm, hurricane Matthew. Really wreaking havoc in the Caribbean.

You’ve got lots of storage facilities down in the Bahamas. You’ve got large refineries in the Virgin Islands. A lot of these shipping lanes they come out of the gulf and the Caribbean, go up the east coast supplying ports such as the New York harbor.

Those ports receive a lot of product from overseas. You can expect shut-ins of these storage operation facilities as well as disruptions in shipping lanes over the next few days as this storm …

Looks like it’s taking a pretty solid track towards the east coast of Florida. Although forecasts at this point have it hitting, potentially hitting, east coast of Florida, the southeast United States and then turning sharply offshore.

Not cruising right up the coast towards New Jersey and New York.

However, still a big deal. A huge storm.

Really unfortunate devastation happening already in Haiti and the Dominican Republic and expected in Cuba. We feel for these people and it is one more thing that is supportive to energy prices at this moment.

By itself would it have sent prices up towards $50? Maybe not, but definitely one more supportive thing along with this big EIA report.

Speaking of supplies, just a random story for today, not really so much oil prices for today, or next week, or even next year, but a massive oil discovery in Alaska.

An independent E&P operator, Caelus, I don’t know if that’s how you pronounce it, with a very successful discovery in Alaska. In it’s press release there’s talking about it could yield between 6 and 10 billion barrels of light oil.

With the prospect that they might be able to recover 30-40%, making it one of the largest discoveries in Alaska ever. Coming on the heels less than a month after Apache claimed it’s huge oil discovery right in Texas.

Peak oil, I don’t know, it’s always amazing to hear about these huge discoveries.

Of course is it economic at today’s prices up in that region? I don’t know, I don’t know the details of the economics of this deal. Just a huge discovery, though, and fun to read about.

Again, all of these stories in the newsletter. Really interesting day. All signs point to a test of $50.

I wouldn’t be surprised to see that happen at this point, of course. The question will be, is this a breakout?

Was this a breakout of that mirror term downward trend line over the last few months, or are we still in a 43 or 41 to 50 range and we’ve just come back up to the top of that range?

There’s arguments on both sides with a lot of people saying, “All right, we’re still really range bound if you look at it.” Are we still in 43 to 50 or are we breaking out and looking to establish perhaps a new 50 to 55 or 50 to 60 type range?

That’s a big question, and there’s analysts taking different sides of that argument.

Right now, if the EIA continues to contract crude oil supplies or crude oil inventories, you start getting any kind of sense that Opec is going to have success implementing it’s deal, you have to look at the possibility that resistance becomes support.

$50 being the new floor moving forward if all of those scenarios are able to come online. Of course, just to reiterate, at that level lots of production would come back online. Especially out of US Shale.

I took a look at settlements today. Even at this level, 2017 average 52.83, so almost $53 a barrel there and 2018, 54.67.

Pushing up towards 55 a barrel there. If this thing gets another spike, you’re looking at people being able to hedge 2017, 2018 production, and in the mid-50’s that brings life to a lot of people.

Again, you were already seeing it just this week as people weren’t going to risk a quick turnaround in these prices. Able to get anything above $50 starts to be attractive.

I would imagine you would continue to see that as we rally, which again makes financing easier, breathes a lot of life and gives these companies some breathing room if they have that production locked in.

Very interesting, things are looking strong and we look forward to seeing what happens right here at 50. It could prove to be a bit of a battle right here.

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All right, well have a great night and we will talk to you tomorrow.

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