OIL PRICES
| Oil prices bounced up and down this week as a result of continued OPEC output freeze rumors But before we get onto the data please do take a moment to look at our premium service. If you find the weekly free letters of value then you will get huge benefit from a premium membership. There is no risk to you as the first 30 days are without charge so you can see if the service is right for you at our expense. To find out more pleaseclick here.        For more detailed numbers and oil market analysis start a free trial to Oilprice Premium - Click here Friday, August 26, 2016 Oil prices faced some downward pressure at the end of this week as Saudi Arabia seemed to downplay the chances of an OPEC deal in Algeria (see below). But oil prices moved back up during midday trading on Friday as reports surfaced that Yemeni missiles hit Saudi oil facilities. Meanwhile, Fed Chair Janet Yellen said that the U.S. Federal Reserve’s case to raise interest rates “has strengthened in recent months,” a sign that rate hikes could resume in the relatively near future. Ultimately the markets do not expect an increase in September, but the chances of a December hike are more likely. The dollar fell slightly following the news, providing a small boost for oil. Saudi oil minister casts doubt on freeze deal. In an interview with Reuters, Saudi Arabia’s oil minister Khalid al-Falih said that he did not think that intervention in the oil market was necessary, raising questions about the viability of a deal in Algeria next month between OPEC and Russia. He also said that no “discussions of substance” have been conducted yet. The comments throw cold water on the chances of a freeze deal, but they come just after Iran said that it would attend. Oil analysts are now at odds over the chances of a successful outcome. China’s oil production in decline. The WSJ reports that China’s oil production likely peaked last year at 4.3 million barrels per day and is already in decline, perhaps permanently. China gets most of its oil from aging and depleting oilfields. The collapse of oil prices has made many of them unprofitable, and several of China’s state-owned companies have abandoned the least attractive fields. The result will be a higher dependence on imports in the years to come. China’s top oil companies posted awful financial numbers this week, revealing sharp declines in profits. Environmental groups turn Dakota Access Pipeline into Keystone XL rerun. A group of 31 environmental groups sent a joint letter to President Obama this week, urging him to stop construction on the Dakota Access Pipeline, a $3.7 billion oil pipeline that would run from the Bakken in North Dakota to Iowa. The project has burst onto the scene, thrust into the political limelight. Environmental groups seem intent on turning it into another Keystone XL – a project that they can raise national attention around, putting pressure on the federal government. But it isn’t just environmental groups; the 450,000 barrel-per-day pipeline would cross tribal lands, so Native American communities have been at the forefront of the protest. Wall Street pours cash into Permian Basin. The Permian Basin in West Texas is one of the few shale regions in the U.S. where drillers can still produce at a profit, even at today’s prices. With production falling off in North Dakota (Bakken) and South Texas (Eagle Ford), billions of dollars are flowing out from shale basins around the country and instead flowing into the Permian. Blackstone Group announced on August 25 its decision to invest $1.5 billion in Permian holdings, plus an additional $500 million in a group of oilmen in a separate part of the Permian, according to The Wall Street Journal. Private equity, banks, and oil companies themselves are pooling all of their resources and going big into the Permian. The result is that land prices are shooting through the roof. About half of the $25.5 billion in asset deals this year have occurred in the Permian Basin, according to RBC Capital Markets. “There’s this one corner of the world, the Permian Basin, where investors will keep financing you to keep on acquiring,” said Bryan Sheffield, CEO of Parsley Energy, a company that recently spent large sums on Permian assets. While the Permian has attracted so much attention, some worry the money spent is overdone. “Some are starting to feel like this is a bubble,” said Charles Robertson II, an analyst at Cowen Group, according to the WSJ. Banks cut lending. Banks slashed lending to the oil and gas industry by 3 percent overall in the second quarter, according to Barclays. But that masks the much deeper cuts to credit lines by individual banks. Green Bancorp, for example, decided that it would end lending to the sector entirely because oil and gas lending has become such a headache. U.S. Bankcorp and Comerica, two other banks, slashed their energy exposure by 11 percent in the second quarter. Not only has lending become a riskier proposition in recent years as more companies default on their debt payments, but federal regulators are also scrutinizing banks for their exposure to distressed assets. Venezuela not importing enough oil. Venezuela has been unable to import the necessary oil and refined product it needs to cover domestic needs, as the country’s oil production continues to fall. Oil imports fell 21 percent in the first seven months of this year, according to Reuters, but not because it does not need the supplies. Suppliers are reluctant to sell Venezuela oil because of the country’s inability to pay for the shipments. "We have no more access to purchases under any type of credit. We are importing under two mechanisms: prepayment and swap," a source told Reuters. Coal rail traffic plunges. The decaying state of the U.S. coal industry continues. According to the Association of American Railroads, coal traffic on the railways for the week ending on August 20 plunged by 16.6 percent year-on-year. And so far this year, coal shipments by rail have fallen by 27.5 percent compared to a year earlier. Declining rail shipments mirror the decline of U.S. coal production – coal miners produced 437 million tons so far in 2016, or about 25 percent less for the same period a year earlier. In our Numbers Report, we take a look at some of the most important metrics and indicators in the world of energy from the past week. Find out more by clicking here. Thanks for reading and we’ll see you next week. Best Regards, Evan Kelly Editor, Oilprice.com P.S. – Energy trader Martin Tillier was bullish on oil only two weeks ago, but since then much has changed in the oil markets. Reading both technicals and fundamentals, Martin is convinced that everything points at lower oil prices in the next few weeks. Find out why Martin turned around on crude by claiming your risk-free 30 day free trial on Oil and Energy Insider |
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Fundamentals Take A Back Seat As Speculators Play The Markets |
| Sometimes markets are driven by trend-traders following hard supply and demand facts, sometimes they are driven by speculative buying in anticipation of a change in the fundamentals. The three major energy markets – crude oil, gasoline and natural gas – have demonstrated both sides of the equation this summer. Currently the energy markets are being driven by stories of what could happen rather than what is happening. Every week, it seems we are told about excessive supply, excessive production and low demand, yet the three main markets remain firm. Every week, we are reminded that there is a supply glut in crude oil and that the U.S. rig count is rising. We are told that gasoline inventories are relatively high and that automobile owners are driving less. We are also reminded of the near storage capacity of natural gas supply and the relentless production. But that’s the way summer markets tend to trade. Vacations and other activities tend to lead to lower than average volume. Money managers following the main trend seem to be on autopilot, working the trade when it’s going in the direction of the main supply/demand fundamentals then taking profits or squaring positions when conditions change due to rumor and innuendo. For example, when crude oil started to trend lower on bearish fundamentals, the hedge funds and money managers heavily shorted the market, creating a record short-position. They were simply following the bearish fundamentals. When the rumors hit that there might be a production freeze, they aggressively covered their positions while booking profits. Natural gas prices have been supported all summer by lingering heat domes and recently by concerns about a tropical depression, thousands of miles away, moving into the Gulf of Mexico and putting natural gas rigs at risk. However, the strict fundamentals indicate we may hit full capacity before the winter heating season. The point I am trying to get across is that as a trader you have to be flexible. At times traders are going to be locked into the current fundamentals and others times on what could happen in the future. It all comes down to reading the order flow and studying unconventional indicators like the Commodity Futures Trading Commission’s Commitment of Traders report. I find that most traders are tuned into prices or fundamentals, but it is knowing what side of the market the big money is tracking that makes the difference. So it is suggested that you add to your toolbox of trading weapons a few tools to monitor the major players along with a smattering of reliable news services to track the speculators. The bigger traders tend to follow the fundamentals while the small speculators tend to follow the news. If you watch the weekly Commitment of Traders reports and the daily order flow and open interest in conjunction with the charts, you should be able to over time, determine who is running the show and whether the moves will be long-term or short-term.  We’re going to take a look at the swing chart and retracement zones this week. The main trend is up according to the weekly swing chart. Despite the June to August sell-off, the main trend never turned down because no main bottoms were violated. Momentum may have been to the downside, but the bullish chart pattern remained intact. The current weekly chart pattern tells us that the uptrend will be reaffirmed on a trade through $53.62 and it will turn down on a trade through $41.58. That’s a pretty wide range which makes the retracement zones even more important because they chop these range into 50% and 61.8% slices. The main range is $34.06 to $53.62. Its retracement zone is $43.84 to $41.53. The recent bottom at $41.58 the week-ending August 5 occurred into side this zone. The turn at that price was quick and decisive because short-sellers tend to use the zones a profit-areas and speculative traders tend to use them as entry-areas. The intermediate range is $53.62 to $41.58. Its retracement zone at $47.60 to $49.02 is currently being tested. After taking out this zone the week-ending August 19 and rallying to $50.59, the market corrected back into the intermediate retracement zone after the buying and short-covering stopped. The $47.60 to $49.02 zone is very critical to the short-term direction of the market. This is because at this zone, buyers will have the choice to drive the market higher and into the main top at $53.62. Sellers have the opportunity to stop any rally and form a potentially bearish secondary lower top. If this occurs then it will send out a signal that the short-sellers are in charge and that crude prices are headed lower. So essentially, during the week-ending September 2, the direction of the market will be determined by trader reaction to the Fibonacci level at $49.02 and the 50% level at $47.60. Look for the bullish tone to continue on a sustained move over $49.02 with $53.62 the next likely target. Watch for a downside bias to develop on a sustained move under $47.60 with the first target zone $46.09 to $45.02. While watching the price action at these levels, keep an eye on the order flow and pay close attention to the Commitment of Traders report to determine whether the funds are shifting money to the long side or trying to rebuild their short-position. |
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