Oil and Gas Market Summary 9/27/16 – OPEC Freeze Talks Fail

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 9/27/16

OPEC set for no deal as Iran rejects Saudi output offer – Reuters

Goldman cuts fourth-quarter crude oil price forecast by $7 on supply glut Reuters

Rice Energy s gas deal gives OPEC a black eye Bloomberg

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 is sponsored by Oil 101, a free online introduction to the oil and gas industry. Join over 3,500 members of the Oil 101 learning community today at www.ektinteractive.com.

Okay, so let’s recap what happened for today, September 27, 2016.

Let’s just say, that didn’t last long.

I’m talking about hopes from a freeze from OPEC.

After weeks of chatter, we’re right back where we started. Right back where the Doha talks ended a few months ago. Basically, Iran and Saudi Arabia are duking it out, while all of the other producers in OPEC are just left to suffer.

Basically, just to recap, Saudi Arabia offered to lower their production to January levels in return for Iran freezing at current levels. That offer has been rejected by Iran, who wants to boost production back up towards 4 million barrels per day, solidifying basically a percentage of OPEC production that was where they were before sanctions kicked in and started to affect their production levels.

First, the market reaction, crude oil for November down $1.26 or 2.7% to settle at 44.67.

This marks the fifth day in a row where prices moved by over 2%, and of course we’ve even had a 4% move in there a couple of days ago. The market extremely volatile right now. The market continues to be net long, and is susceptible to a shake-out if prices collapse.

Looking at the charts, again, as we’ve been saying, we’re in the middle of this range. Anything over 44 really still in the middle of a range we’ve been into for 5 days now, so 44 to 46, really just starting to solidify and it’s hard to really gain any direction out of these moves, even though they are big.

Now, whether the market will follow through tomorrow, start breaking out of this, heading down towards 43, then things could really start to get interesting, if people think that a trend is finally starting on a break out there.

Volume today just over 900,000 futures contract trading, so we’ll call that moderate, but less than a million these days, pretty light, light to moderate volume, so not a whole lot of conviction on this move. Still just chopping around in the range.

Getting into the news stories, of course most of the headlines today are going to be dealing with this development at the Algeria OPEC meeting, and some of them did have some interesting insight. Of course, headline is that Iran is really gaining the upper hand as far as an actual deal.

However, I saw one story in Reuters. If you read it a little bit more, I think this quote was really quite telling of how these talks were approached. Again, just the degree of chatter and positioning without really ever actually expecting anything to happen.

I quote this article:

“It is a carefully calculated offer because Saudi Arabia knows it will not be acceptable to Iran. Saudi Arabia wants to put the blame of OPEC in action in Algiers on Iran.”

Again, this is in the newsletter if you are looking for more information on this. It’s a Reuters story titled, “OPEC Set for No Deal as Iran Rejects Saudi Oil Output Offer.”

Really telling on expectations and just coming back to the fact that this idea of a freeze, this idea of a deal really never had a chance. Just the talk of it is enough to drive up prices temporarily, but what that really does for the long-term credibility of OPEC really undermines, I think, future chatter.

Of course, it’s a nervous market. When these ministers talk, the traders are going to listen, so chances are I guess it’ll continue to be a tool that they are able to play.

Again, looking at oil prices themselves, technically in the middle of a range, so you’re not going to see any momentum plays going on here. Even with the volatile action, the prices just really aren’t going anywhere. We’re ending up in the same place and we’re going to have to wait and see if this lack of action combined with tomorrow’s EIA numbers are able to shake this market out of its stupor here.

Speaking of the EIA report, lately the analysts have been having a hard time predicting these huge draws and really unexpected numbers coming out of the EIA on where our crude oil inventories lie.

I do have this week’s crude oil EIA forecast from a really great colleague of ours, Andrew Lebeau, who is a partner at Commodity Research Group. You can read more about them at CommodityResearchGroup.com.

We’ll be sure to put the link in the newsletter, to their research. Andy is calling for the crude oil to be a build of 2.1 million barrels, gasoline to be a draw of 500,000, and distillates to be a build of 2.7 million barrels. He also expects the refinery runs to be down 1.2%. That’ll be in the low 90 percentiles there.

We’ll have to wait and see.

Again, the EIA’s been throwing a lot of curve-balls lately, so tomorrow any confirmation [inaudible 00:07:27], perhaps a large build, might actually be in line with what’s going on in OPEC, really drive some bearish sentiment, and get a long market maybe a little bit nervous.

On the other hand, more draws by the EIA, really bullish numbers conflicting with what we’re seeing out of OPEC, I don’t see it starting a bull market, but I think it really could just set us up for being stuck in this range for a while. Again, tomorrow morning, we will have to wait and see what comes out of the EIA.

Finally, as far as other non-OPEC stories for the day. I think there was actually a couple of interesting things.

Goldman Cuts Forecast for Q4

First, Goldman-Sachs cuts its oil price forecast for the fourth quarter. A quote from them on this research report s basically saying that

with demand unchanged, and year-on-year growth of 1.4 million barrels per day, they are now forecasting that inventories will build in the fourth quarter of 2016, by 400,000 barrels per day versus their prior expectations of a 300,000 barrel per day draw.

That’s a 700,000 barrel a day turnaround on their expectations for the fourth quarter. Although it is worth noting that they did leave their price forecast unchanged for 2017. The link to that story, it’s a Reuters story, is in the Oil Prices Daily newsletter, of course, if you want to read more there.

Finally, outside of real oil price news, but a really interesting story and a provocative title here from Bloomberg saying, “Rice Energy’s Gas Deal Gives OPEC a Black Eye.” Now, if you haven’t seen this, Rice Energy E&P company bought Vantage for $2.7 billion.

It’s mainly a gas deal, and they’re spinning off some assets into an MLP, but what this article was pointing out is how they were able to fund this through the US capital markets.

A quote from this story,

“The seemingly endless appetite of U.S. capital markets is what has enabled the country’s E&P firms to withstand OPEC’s onslaught better than many expected heading into this crash.”

Just talking about from the financing side, the reality of what’s keeping these companies afloat, what’s keeping the US production alive, is the optimism of the US investor and their ability to raise cash in the extremely tight market, even with reserve ratios being devalued and reserve based lending being affected.

This story, of course link’s in the newsletter, has a great chart titled “Stocking Up: Despite (and because of the crash) 2016 is a banner year for US E&P stock offerings.” In 2015, E&P companies raised 15.3 billion. In 2016 they raised 24.8 billion. People are looking for bottoms.

They’re looking for opportunities to really kill it in a market where it’s so highly leveraged to oil and gas prices. If they go up, they’re going to do great, and there’s plenty of investors out there willing to place these bets and loan these companies money.

Really fantastic article. Worth looking into, and again the link is in the In Brief section at the bottom of the newsletter.

That about does it.

Interesting day out of OPEC. Here we are back on our heels as far as oil price movements, but without any follow-through, we’re going to be stuck in a range here for a little while. 44 to 46 is really starting to solidify, and perhaps the EIA numbers tomorrow can lend some direction.

Okay. Well, that’s going to be it for the Oil Prices Daily Podcast for today.

Of course you can get our daily recap of all the news and events that are influencing oil prices each day by subscribing to the newsletter at OilPricesDaily.com or you can also subscribe to this podcast on iTunes.

Thank you very much and we will talk to you tomorrow.

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