Will we see stability in the oil patch?
Updated
Oil continues to set up a bottom after 3 tests of $47. We have seen a very narrow trading range since the panicked exodus by the overextended bulls. After 5 months of coercion and collusion by Opec members I wonder if investors have grown tired of their typically optimistic statements?.. Much Squabbling exists on how the cuts should be measured, Exports or production cuts? Supply builds as reported by the API today indicate another rise in supplies. the 13 week total has seen the increase amount to over 40 million barrels. Drilling activity increased this week but still remains over 1000 rigs shy of 2014 highs. Still the rate of production has risen steadily approaching 9.2 million barrels a day, trailing the historical weekly production of just over 9.6 million. If prices were to rally and approach $60 it might only take 4 months to resume setting new weekly production rates. An argument can be made that domestic demand has fallen off as we have seen record exports of crude. In 2013 exports averaged around 100k a day. in 2016 several months exceeded 600k a day with average around 500k. More players are jumping into this market. From a technical standpoint the charts show a gap from March 20th that needs to be filled. I think this will occur tomorrow. But it is doubtful that there will be enough fundamental support to rally into the $50's. Crude barely eclipsed my end of year prediction of $53.85... I haven't seen anything that indicates a supply contraction is near. RBOB is up almost 25 cents from the end of last years summer driving season. Higher prices will make some plan shorter trips this year. Will unforeseen events alter this rosy scenario of stability? Lets hope not.
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Now we will see if this "rally" has enough spring left to push through $51. Needs to plow through $53 to make me a believer in a move to $60. I think a couple of tests of $49 needs to occur before any real trend upwards.Note
Opec jabbers and tries to get its minions in line. The markets have held their breath for six months while the winter slow down in demand, the early "maintenance" has pulled production off line and turmoil in many producing countries has slowed flows into the holds of tankers. U S shale has battled pick and could soon eclipse old volumes with 1/3 less wells in action!! Big hedge fundsare making bets that this play is still the place to be. Looking at the 52 week chart August lows around the Brixet vote is the be start of the trend line up. Tests of that support level occurred over the next 3 months. The climb to $55 in March exhausted every bit of the Flatulence from Opec, failure to invest in new projects, Bullish outlooks for the world's economies, and projected increases in world wide demand for crude as an excuse to rally. The pullback the last 2 weeks looks like a ball bouncing down the steps. BUT we are still above the 52 week trend-line. It must breakdown through $48 to convince me a sell off will continue. SO I think we have run of steam for the downside and will retest the $52 resistance BEFORE moving lower to take out $47. If the move has "BAD" news to trade on again then we could push through $52 . I think we will test the upside again before seeing prices below $47. I think the Opec walk becomes a footnote in the current environment. Shale will push to new heights and Opec will find little to agree about other then "yup we should cut production" as they fight among themselves.....Note
The test of the 2016 year end high was successful THIS TIME. We saw Climactic sell off and technical push back from step sell off. Will test the 200 moving average and then head back down again. Don't think there is enough "bad" news to sell off below 43.And still Opig utters its flatulent noise... The bulls need some international crisis-- upset in France or missiles and aircraft carriers duking it out. Fundamentals are just getting in the way here. Production runs are approaching limits and surplus downstream products accumulation occurring. We know long term the lack of exploration will come back to haunt us. Shale hedged a nice amount of production around $50. Shale plays are short term BUT make the suppliers, workers and drillers happy! Happy stinko di Mayo!!! ;)Note
A busy month for Washington... The annoyance from the head tweeter roils the markets. The visit to the "brotherhood" in Saudi Arabia looks to be the 2nd time Trump has stayed on Message. Nest to Wail at the Wall with Bibi.... Oil tested my lower boundary and continues to trade like the ugly sister looking for a date to the prom. One day filled with hope and the next seeing all the issues in the mirror. OPEC still hasn't found the whip to keep its minions in compliance. A little more exports here a bit more production there and only Venezuela and Libya seem to struggle to maintain production. Going forward we will test $55. The range will expand slightly upwards but stay in this narrow channel transited, tested and totally supplied. Dire predictions aside the surplus will not evaporate but will see a slow decline. Balance might be achieved by the end of the Summer. Drive Drive Drive cause this could be the last time we see cheap fuel in the U.S. Last years Exports expansion facilitating the greed of domestic oil interests will see the growth in fluids "deporting". This wisdom fills our politicians coffers...... Looks like the bottom is in for the year....If we take out $57 then $65 looks like a new resistance. On to Sicily....Only a week till the return of the Mad tweeter to home turf...
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