Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665
In a world full of geo-political risk, can we take some comfort that at least one dangerous hotspot may cool down. Former basketball star Dennis Rodman is on his way to North Korea to open a dialogue with his buddy North Korean leader Kim Jong-Un. Maybe Dennis can explain to him that nuclear war may not be in his best interest. Oil traders can now rest easy. We’re all so relieved.
Energy traders can also rest easy about the tension with Qatar because both Saudi Arabia and Qatar would not impact their oil production cuts in any way. In fact, the Saudis want to make it clear they are serious about doing whatever it takes to get the global oil market in balance. Reuters reported that Saudi officials now say they are making real cuts, including 300,000 bpd to Asia for July, although several Asian refiners said they were still receiving their full allocations.
Reuters is also raising concerns about the U.S. shale producer that they say are vulnerable to falling prices as their oil hedges run out. “According to a Reuters analysis of hedging disclosures by the 30 largest U.S. shale firms, most stayed on the sidelines in the first three months of 2017, a stark contrast from a year ago when firms rushed to lock in prices, even though oil was trading $15 a barrel lower.” Compared with a year ago, the group is more exposed to falling oil prices, with one-fifth fewer barrels hedged, or the equivalent of 28 million barrels, and three times more barrels rolling off, or the equivalent of 38 million barrels. “In total, 18 companies reduced outstanding oil options, swaps or other derivatives positions by a total of 49 million barrels from the fourth quarter to the first quarter, the data shows. Another 10 companies increased their hedging positions by 91 million barrels; two others did not hedge at all.” So, if we do see prices start to fall, we will see the possibility of more bankruptcies and a slowdown in U.S. rig counts and ultimately U.S. production.
Oil traders were emptying storage in recent months but the building contango is making them re-think that strategy. It seems the market is pricing in a tighter market in the future, encouraging storage of oil. Reuters take on this is it, “would undermine the impact of supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC), which partly aimed to force traders holding oil in storage to sell to reduce bloated inventories that have sapped global prices”. Yet it may also cause a tightening of ready to use supply driving prices back up. Many people don’t remember, but in one of the biggest bull oil markets in history we were in a constant contango. We will have to see if the market takes this development as bullish or bearish.
From a technical perspective oil is holding up well but we need to see some more excitement. Enthusiasm seems to have been put on hold mainly because we are waiting for news from the American Petroleum Institute, and The Energy Information Administration, The Federal Reserve, The International Energy Agency, well you get the idea. The market still is trying to come to grips with last week’s surprise increase in U.S. crude oil supply even though it was the first increase in 8 weeks. We will stay tuned for further developments.
Questions? Ask Phil Flynn today at 312-264-4364
A Subsidiary of Price Holdings, Inc. – an Employee Owned Diversified Financial Services Firm. Member NIBA, NFA
Past results are not necessarily indicative of future results. Investing in futures can involve substantial risk of loss & is not suitable for everyone. Trading foreign exchange also involves a high degree of risk. The leverage created by trading on margin can work against you as well as for you, and losses can exceed your entire investment. Before opening an account and trading, you should seek advice from your advisors as appropriate to ensure that you understand the risks and can withstand the losses.
The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or futures. The Price Futures Group, its officers, directors, employees, and brokers may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction. Reproduction and/or distribution of any portion of this report are strictly prohibited without the written permission of the author. Trading in futures contracts, options on futures contracts, and forward contracts is not suitable for all investors and involves substantial risks. ©2017
Prosper all summer long! Tune to the Fox Business Network! Call to sign up for my wildly popular Daily Trade Levels. Just call me at 888-264-5665 or email me at firstname.lastname@example.org
SubscribeReceive daily summaries of all Market Insights blog posts.
Enter email below.
Most Recent Posts
- Morning Softs. 08/16/17
- U.S. plans sale from Strategic Petroleum Reserve
- Housing Starts and Permits & EIA Energy Stocks. The Corn & Ethanol Report 08/16/17
- Crude Draws Continue. The Energy Report 08/16/17
- Oil prices move lower on seasonal pressures
- Morning Grains. 08/15/17
- Morning Softs. 08/15/17
- Crop Progress Seen Unchanged. The Corn & Ethanol Report 08/15/17