1 dayHong Kong Still Hopes To Lure Aramco To Stock Exchange
1 dayEU Embargo On Russian Oil Products Enters Into Effect
1 dayGoldman Sachs Warns Of An Imminent Oil Supply Shortage
4 daysIran To Help Venezuela Overhaul Major Refinery Complex
4 daysEU Supports $100 Russian Diesel Price Cap
4 daysOil Prices Crash After Perky Jobs Data
4 daysEU Leaders Meet In Ukraine To Discuss Fresh Sanctions Package
4 daysRussia’s Oil And Gas Revenues Slump 46% Year-Over-Year
4 daysEurope’s Gas Prices Set For 6% Weekly Gain As Cold Weather Closes In
4 daysGermany Failed To Hit Its Gas Consumption Target In January
4 daysRussia Sees No Reason To Cut Its Oil Product Output
4 daysRussia Considers Brent-Based Oil Tax To Limit Its Losses
4 daysU.S. Refiners To Scale Back Capacity Utilization After Record 2022
4 daysTesla May Have To Reconsider Its Mexico Plant
4 daysFitch Expects $95 Oil In 2023
5 daysColorado Regulator Suspends Oil Company’s Ability To Operate Wells
5 daysNorway Says It Will Use Wartime Oil Profits To Aid Ukraine
5 daysSpain Boosts LNG Port Capabilities But Russian Gas Is In The Mix
5 daysEU President Promises 10th Round Of Sanctions On Russia
5 daysMorgan Stanley: Expect More EV Price Cuts Ahead
5 daysAsia’s Oil Imports Hit Record High Despite Drop In Chinese Demand
5 daysOPEC’s Oil Production Drops In January As Saudi Arabia Cuts Output
5 daysTurkey: Oil Product Tankers Must Have Insurance From February 6
5 daysEU Launches LNG Reference Price For Its Gas Market Correction Mechanism
4 minutesEnergy Armageddon
6 minutesHow Far Have We Really Gotten With Alternative Energy
10 minutesRussia Says Europe Will Struggle To Replace Its Oil Products
43 minsGREEN NEW DEAL = BLIZZARD OF LIES
7 hoursReality catching up with EV forecasts
22 hoursFamous author Michael Crichton talks about the "Climate Change Religion" aka Feudalism 2.0
7 days87,000 new IRS agents, higher taxes, and a massive green energy slush fund... "Here Are The Winners And Losers In The 'Inflation Reduction Act'"-ZeroHedge
12 daysA Somewhat Realistic View of the Near Future for Electric Vehicles Worldwide
12 days"Natural Gas Price Fundamental Daily Forecast – Grinding Toward Summer Highs Despite Huge Short Interest" by James Hyerczyk & REUTERS on NatGas
Usually, when a market move makes no sense to you, it is you that is wrong. As my old dealing room boss loved to say, or rather shout, the market cannot be wrong. It is simply a reflection of the last place two people were prepared to trade, so it is always right. Still, there are times when I look at a move and just scratch my head. Now is one of those times.
Over the last month or so, WTI futures (CL) have shot up around forty percent. Given that U.S. supply has been falling as the economic recovery from the shutdown continued and that that is reflected elsewhere in the developed world, that makes perfect sense…up to a point.
That point came this week, when the move up continued to a new nine-month high, even as some of the factors that have caused it started to look a bit wobbly, to say the least.
On the demand side, the world, and the U.S. in particular, is seeing a resurgence in Covid-19 cases, hospitalizations, and deaths that have resulted in a return to partial shutdowns in some states and the prospect of more to come. Of course, I understand that there has been significant progress on the vaccine front and that the U.K. has even begun the rollout of one version but what does that mean in the short term for U.S. demand?
To be honest, very little. Health experts are saying that even if one or more vaccines become available before the end of this month, other restrictions will probably have to stay in place for at least several months…
Usually, when a market move makes no sense to you, it is you that is wrong. As my old dealing room boss loved to say, or rather shout, the market cannot be wrong. It is simply a reflection of the last place two people were prepared to trade, so it is always right. Still, there are times when I look at a move and just scratch my head. Now is one of those times.
Over the last month or so, WTI futures (CL) have shot up around forty percent. Given that U.S. supply has been falling as the economic recovery from the shutdown continued and that that is reflected elsewhere in the developed world, that makes perfect sense…up to a point.
That point came this week, when the move up continued to a new nine-month high, even as some of the factors that have caused it started to look a bit wobbly, to say the least.
On the demand side, the world, and the U.S. in particular, is seeing a resurgence in Covid-19 cases, hospitalizations, and deaths that have resulted in a return to partial shutdowns in some states and the prospect of more to come. Of course, I understand that there has been significant progress on the vaccine front and that the U.K. has even begun the rollout of one version but what does that mean in the short term for U.S. demand?
To be honest, very little. Health experts are saying that even if one or more vaccines become available before the end of this month, other restrictions will probably have to stay in place for at least several months after that. And that is assuming that massive amounts of the vaccine can be produced and distributed and that everybody will take the shots required, both of which look far from certain at this point.
So, demand could remain sluggish for a while longer, and the picture on the supply side is, if anything, even more bearish.
I am writing this before this week’s Baker Hughes Rig Count numbers are released, but the count has been climbing steadily since the low in August, and another 10 were added back last week. The collapse was clearly overdone and there had to be a recovery, but at this point, the continuation of that recovery is based on assumptions about the pace of a bounce-back in the economy that now looks questionable.
The international supply picture isn’t encouraging either. OPEC+ this week agreed to relax their production curbs somewhat, increasing output by 500k barrels a day, starting in January. That announcement actually sparked a rally in crude as there had been rumors of a much bigger increase, but it still means more oil coming onto a market with weakened demand.
At some point, all this will balance out; it always does. That is the beauty of markets. For now, though, oil prices are rising as supply increases and demand looks set to at best flatten out, if not to actually decline for a while. Economics 101 tells you that is not sustainable.
It was drummed into me early in my career that markets can’t be wrong, but that doesn’t mean they always have to be logical, and hitting multi-month highs just as both supply and demand are starting to send bearish signals is not logical at all. Still, I also learned a long time ago that markets can stay illogical a lot longer than you can stay solvent, so I am not in a rush to go all-in on a short CL position.
What I am doing is taking some profits on oil-related stock plays, such as HP and SLB, both of which I recommended here on November 13th and which are up around fifty and thirty percent, respectively. And I’m looking for evidence of a turnaround in crude; something like a double top that would form an obvious resistance level, and when I see it, I will look to set up a small, low-risk short position that can be added to if we do see a significant drop.
Mostly though, as is so often the case, I am looking on and reminding myself that my take on the situation is far less important than the collective take that the current price dictates and that, even though I am convinced I’ll be right at some point, patience is, for now, the greatest of virtues.
To access this exclusive content...
Select your membership level below
COMMUNITY MEMBERSHIP
(FREE)
Full access to the largest energy community on the web