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 bulls are the comeback kids of the commodity world as crude prices hit new highs for 2019 and gave us more confirmation that lasts years plunge was way overdone. While oil is coming into some stiff technical resistance, near $56 a barrel WTI, the bullish fundamentals that are supporting the rally are only getting more bullish by the hour.
For a quick recap of those bullish fundamentals, you start with a more dovish Fed, then move onto U.S. sanctions on Venezuela and their coveted heavy crude, to a shutdown of Libya’s largest oil field, then also add OPEC production cuts that saw the biggest one moth drop in 2 years. A survey from Bloomberg showed OPEC production fell by 930,000 barrels a day in January, to stand at 31.02 million barrels a day. You also saw a big jump in U.S. gasoline demand last week along with a refinery fire that could spike gas prices around the East coast for a few days.
U.S. Shale producers are also showing signs of pulling back on production after weak prices crimped drilling plans. Baker Hughes reported that the U.S. rig count fell by 15 rigs and 14 of those were oil and one of those rig count cuts was for natural gas. The trend of falling rigs should continue in coming weeks, along with some lowered projections for U.S. Shale oil production.
Yet deep water production is hitting impressive new records. Rystad Energy reported that it expects global deep-water production to reach record high levels and surpass 10 million bb/d. With new fields starting up in Brazil and Gulf of Mexico, we expect the total deep-water liquid production to reach 10.3 million bbl/d in 2019. This is an increase of 700,000 barrels per day compared to 2018. In addition to Brazil and the U.S., Angola, Norway and Nigeria are the largest deep-water producers.
It ain’t heavy, its shale oil. The ongoing sanctions in Venezuela continue to challenge U.S. refiners that need heavy oil to mix and make many products. While light shale oil condensate is nice to have, refiners need heavier grades and unless the situation changes in Venezuela it will start to raise prices for both gasoline and diesel at the pump.
As I wrote for the Fox Business Network website, “This may come as a surprise, as many people think that because of the shale oil revolution we would have plenty of crude oil to offset any loss from Venezuela. Yet the truth is that the quality of crude varies widely, and many U.S. refiners rely on the type of oil that Venezuela produces”.
For simplicity, there are two main categories of oil, heavy and light. While the U.S. is awash in light shale oil, we are short of the heavier grades of crude oil needed to produce diesel and other high-margin products. In 2018, Venezuela exported about 500,000 barrels of heavy crude a day to the United States. That has now fallen to about 350,000 barrels a day, but this is still needed by U.S. refiners to create certain types of products. Any disruptions could force them to slow down their operations, because those barrels won’t be easily replaced. A slowdown in operations by refiners would lead to higher prices for your gas and diesel.
Over the weekend, Fox News Channel reported that a top Venezuelan air force general said he doesn’t recognize President Nicolas Maduro as the legitimate leader and backed opposition leader Juan Guaido as the interim head-of-state. A video disavowing Maduro’s rule circulated across social media on Twitter on Saturday, just as Venezuelans hit the streets across the country in support of Guaido, who declared himself the country’s temporary leader weeks ago. General Francisco Yanez, a member of the air force’s high command, urged others in the military to defect, according to Reuters. He is reportedly the air force’s head of strategic planning. In response, the high command accused the general of treason on its Twitter account. Yanez is the first high-ranking general to publicly support the opposition leader.
The Wall Street Journal reports that Specs are coming back into oil. Speculators have been increasing their net-long positions in Brent, buying 29,769 lots over the last reporting week. That brings total net long lots to 232,707 lots, the largest position since early November. Bloomberg News reports that in Norway, the Norwegian Petroleum Directorate now expects output to fall to a 31-year low in 2019, with production expected to be almost 60 million barrels short of its previous forecast for this year in 2018. That’s 80,000 barrels a day less than expected.
Nat gas is selling off more as spring weather returns! Plus, the groundhog said only 6 more weeks of winter.
It is time to prosper! Make sure you tune to the Fox Business Network where you get the Power to Prosper! Oil is on a very good run and should go much higher! To see how one might take advantage of that call to get strategies trade levels and updates at 888-264-5665 or email me at email@example.com.
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