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
Oil prices are getting geared up for the OPEC/Non-OPEC meeting in Vienna, Austria. At this meeting it is widely expected that the players involved will extend cuts throughout the rest of next year, despite some lingering geo-political and shale oil concerns. This meeting comes as oil prices pull back from a two and a half year high and global supply is tightening.
Some are concerned that the rising tensions between Saudi Arabia and Iran could derail a deal but that is not likely to happen. Both countries need high oil prices right now and the Iranians can’t really ramp up production very much anyway. They seem to have a common bound when it comes to high oil prices.
The Russian oil companies are crying poor, as they watch some of their market share get eclipsed by U.S. oil exports but despite those concerns the Russians are already laying the groundwork for the production cut extension. Reuters reported that Russian Energy Minister Alexander Novak said on Friday that Russia would discuss the details of an extension on Nov. 30, but made no mention of how long this should last beyond its March expiration.
Bloomberg News reported that “global oil demand is a critical factor that will be at the top of minds when OPEC and non-OPEC members discuss their next policy moves. The main driver of oil prices in recent months has been the strong and improving outlook for global growth. The International Monetary Fund has revised up its global growth outlook, and euro zone and U.S. manufacturing PMIs have been on a tear. There have also been important improvements in China, where the Caixin manufacturing PMI has shown an impressive rebound from a manufacturing recession between December 2014 and June 2016.”
Yet, at the same time the market is showing concern about a big drop in Chinese stocks. China stocks dropped again today, sending the benchmark Hang Seng index gauge to its lowest level in three months. Oil traders are a bit worried about this market shake up as it was a drop in Chines stocks two years ago that caused oil to crash to $26 a barrel area. While we seem to be on more solid footing the trade is taking some profits early.
And while shale oil is on the rise can it be as much as a factor as some hoped? Reuters news reports that U.S. crude oil production has risen by 15 percent since mid-2016 to 9.66 million barrels per day (bpd), not far from top producers Russia and Saudi Arabia. Rising drilling activity means output is likely to grow further. U.S. energy firms added oil rigs last week. The monthly rig count rose for the first time since July, to 747 active rigs.
Still in the big picture the increase is shale oil has not kept pace with OPEC cuts at 1.8 million barrels a day as well as rising global demand at close to 1.8 million barrels a day. The market is also finding out that it may get squeezed by a lack of investment in traditional energy projects. A trillion of dollars of capital spending cuts is already coming back to haunt this market today and in the coming years. That is why we should see supply continue to tighten dramatically moving forward.
Diesel supply is still a big issue. Refiners must continue to ramp up production to meet short supply. Gas prices should also stay strong as the holiday travel weekend was the best since 2005.
Natural gas is trying to make a comeback as some weather forecast are turning a bit colder. Still this market is having a hard time rallying into warm weather.
Traders will also look for news about the Keystone Pipeline. If it is down, it is reducing supply to refiners by 590,000 Barrels per day.
Stay Tuned to the Fox Business Network to give you the best in business news! I will be among some fantastic speakers at The MoneyShow Orlando in early February. Get signed up early as rooms are filling up fast! Find out why many missed the most significant oil bottom in a generation and what will be the ramification for the global economy going forward. Sign up for my master class. Go to Flynn.OrlandoMoneyShow.com. Traders need to get the trade levels. Email me at email@example.com or call 888-264-5665.
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