• 15 hours Shell Oil Trading Head Steps Down After 29 Years
  • 19 hours Higher Oil Prices Reduce North American Oil Bankruptcies
  • 21 hours Statoil To Boost Exploration Drilling Offshore Norway In 2018
  • 23 hours $1.6 Billion Canadian-US Hydropower Project Approved
  • 1 day Venezuela Officially In Default
  • 1 day Iran Prepares To Export LNG To Boost Trade Relations
  • 1 day Keystone Pipeline Leaks 5,000 Barrels Into Farmland
  • 1 day Saudi Oil Minister: Markets Will Not Rebalance By March
  • 2 days Obscure Dutch Firm Wins Venezuelan Oil Block As Debt Tensions Mount
  • 2 days Rosneft Announces Completion Of World’s Longest Well
  • 2 days Ecuador Won’t Ask Exemption From OPEC Oil Production Cuts
  • 2 days Norway’s $1 Trillion Wealth Fund Proposes To Ditch Oil Stocks
  • 2 days Ecuador Seeks To Clear Schlumberger Debt By End-November
  • 2 days Santos Admits It Rejected $7.2B Takeover Bid
  • 2 days U.S. Senate Panel Votes To Open Alaskan Refuge To Drilling
  • 3 days Africa’s Richest Woman Fired From Sonangol
  • 3 days Oil And Gas M&A Deal Appetite Highest Since 2013
  • 3 days Russian Hackers Target British Energy Industry
  • 3 days Venezuela Signs $3.15B Debt Restructuring Deal With Russia
  • 3 days DOJ: Protestors Interfering With Pipeline Construction Will Be Prosecuted
  • 3 days Lower Oil Prices Benefit European Refiners
  • 3 days World’s Biggest Private Equity Firm Raises $1 Billion To Invest In Oil
  • 4 days Oil Prices Tank After API Reports Strong Build In Crude Inventories
  • 4 days Iraq Oil Revenue Not Enough For Sustainable Development
  • 4 days Sudan In Talks With Foreign Oil Firms To Boost Crude Production
  • 4 days Shell: Four Oil Platforms Shut In Gulf Of Mexico After Fire
  • 4 days OPEC To Recruit New Members To Fight Market Imbalance
  • 4 days Green Groups Want Norway’s Arctic Oil Drilling Licenses Canceled
  • 4 days Venezuelan Oil Output Drops To Lowest In 28 Years
  • 5 days Shale Production Rises By 80,000 BPD In Latest EIA Forecasts
  • 5 days GE Considers Selling Baker Hughes Assets
  • 5 days Eni To Address Barents Sea Regulatory Breaches By Dec 11
  • 5 days Saudi Aramco To Invest $300 Billion In Upstream Projects
  • 5 days Aramco To List Shares In Hong Kong ‘For Sure’
  • 5 days BP CEO Sees Venezuela As Oil’s Wildcard
  • 5 days Iran Denies Involvement In Bahrain Oil Pipeline Blast
  • 8 days The Oil Rig Drilling 10 Miles Under The Sea
  • 8 days Baghdad Agrees To Ship Kirkuk Oil To Iran
  • 8 days Another Group Joins Niger Delta Avengers’ Ceasefire Boycott
  • 8 days Italy Looks To Phase Out Coal-Fired Electricity By 2025
Alt Text

EU Aims To Reform World’s Biggest Carbon Market

The European Union is divided…

Alt Text

A Very Bullish Case For Commodities

Goldman Sachs has put forward…

SCS OTC Corp

SCS OTC Corp

SCS Commodities has been providing energy and agricultural brokerage services to institutional traders since 1991. As commodity derivatives have evolved from open outcry to electronic…

More Info

The Herd Theory: Why Oil Prices Tanked This Week

Oil rigs

-We’re viewing this week’s flat price damage as a function of bullish frustrations and momentum chasing rather than new bearish fundamental revelations. In short, we think the market became impatient with a lack of visible inventory draws four months into OPEC cuts and that Chinese macro concerns, a modest (and possibly transient) uptick in Libyan production and an unimpressive EIA report lead to length liquidation, self-reinforced stop losses and momentum chasing from robots smelling blood in the water.

- Prior to Thursday’s spread breakdown we viewed the relative strength of prompt WTI and Brent structure while flat price cratered as evidence that the market was over extended to the downside. We’re obviously reassessing this view now that WTI N17/Z17 and Brent N17/Z17 have broken down to their lowest levels since November and taken out every source of technical support on the trip. Using a wider lens though the spread picture doesn’t look entirely disastrous. WTI N17/Z17’s print of -1.40 offering 28 cents contango per month and Brent N17/Z17’s print of -1.20 offering 24 cents contango per month still imply aggressive inventory draws in 2H’17.

- Lost in the noise of this week’s carnage was positive news from OPEC + Russia regarding the (priced in at this point) output cut extension and April data which pegged current cartel output at a 22-month low. Morgan Stanley and Energy Aspects both noted this week that OPEC exports have only decreased in the current deal by roughly 800k bpd as member nations emptied floating storage and this number should increase in 2H’17 as floating storage declines (more on that later.)

- We have a positive view of flat price at these levels (this won’t surprise loyal readers) just as we have since $50 but this market is obviously ‘confusing’ us. Given the extremely steep nature of the current selloff, however, we might wait to see some evidence of technical consolidation before getting long. We’re also keeping a close eye on managed money gross shorts in ICE Brent which have a pesky habit of spiking near 100k at market bottoms when bearish enthusiasm is high.

(Click to enlarge)

Tanker data shows (very, very slowly) tightening market

Global freight data continued to point towards a slowly tightening market this week with declining floating crude and refined product stocks and falling freight rates. Bloomberg estimates that floating crude inventories have declined from 206m bbls to 160m bbls over the last seven weeks while refined product stocks have drawn from 79m bbls to 72m bbls over the last month. In freight rates the Middle East > Japan benchmark printed 60 on Thursday which is lower by 37 pts since January but still 15% above its 5yr average.

Diff markets continue to show improvement

DFL Brent and Midland-WTI both hinted at physical market congestion in recent months and highlighted bearish trends which eventually doomed flat price this week. Both differentials have performed well recently and we think this indicates at least modest improvement in fundamentals in the Atlantic and Midland areas. DFL Brent has jumped from a low print of -1.23 on April 18th to to -79 cents on Thursday. Back in the US, Midland-WTI strengthened from -1.75 on April 17th to trade -65 on Friday suggesting tighter prospects for west Texas barrels where the rapid production comeback has overwhelmed takeaway capacity. Related: All Eyes On Saudi Arabia As OPEC Begins To Unravel

US production data continued its bearish trends this week and remained the focus of a market which is increasingly impatient in its search for signs of inventory normalization. The US rig count climbed to 697 (its highest mark in two years) after increasing in 41 of the last 44 weeks. US crude output notched another weekly gain increasing to 9.3m bpd and has increased by 865k bbls since July. US crude has recovered all but 317k bpd from its peak of 9.6m bpd in June of 2015 which occurred when the rig count stood near 630.

Option markets get pricey, but with an interesting twist

Crude oil option values unsurprisingly rallied this week as flat price plummeted and realized volatility moved higher. By Thursday afternoon WTI M17 50 delta options implied 31% volatility for a 5.5-vol rally over the last two weeks. The most noteworthy trend in options to us, however, was that upside risk actually rallied relative to downside risk with 25d puts trading at a 1.2 vol premium to 25 delta calls declining from a 2-vol premium for most of the last month. In our judgment this is a bullish sentiment indicator in suggesting that traders were not tripping over themselves to buy puts and chase momentum lower.

USO buying kicks in as fast money heads for the exit

COT data for the week ended April 25th showed aggressive liquidation of length from managed money. Net length between NYMEX WTI and ICE Brent fell by 137k contracts w/w (-18%) and are lower by 33% since mid February when combined net length reached an all-time high of 921k contracts. The net sell efforts came with the help of a 35k contract increase in gross shorts between the two contracts after bearish positions were trimmed for three consecutive weeks.

Refined product speculations showed a similarly bearish trend with funds cutting net length in RBOB and Heating Oil both by about 1/3 on the week. Weekly USO flows are showing a drastically different attitude towards the recent dip, however, with a net buy effort of $199 million dollars over the same period.It’s worth noting that large USO buying preceeded crude oil rallies in November and March and sold the recent rally opposite oil’s recent peak in mid April.

Modest crude draws won’t cut the bullish mustard

• Wednesday’s US stat report showed a small overall crude oil draw, dissapointing product inventory data and a continued lag in US gasoline demand.
• The takeaway for us is continues to be that a bullish move for oil will require unanimously strong data down the balance sheet in crude oil, gasoline and distillates. This report obviously fell short.

US crude inventories failed to meet expectations of a +2.5m draw this week with a decline of 930k bbls. Overall inventories are +3% y/y with PADD I stocks -12%, PADD II stocks +3.5% y/y and PADD III stocks +4.7% y/y. Cushing inventories fell 728k bbls w/w to a 2-month low of 66.7m bbls. Trading flows continue to provide limited relief for an oversupplied US crude market with exports falling back to 538k bpd while imports printed 8.3m bpd and are higher y/y by 5% over the last month.  

(Click to enlarge)

US refiner inputs had a modest w/w decline to 17.2m bpd and are still at a substantial y/y increase of 6.6% over the last four weeks. By region, PADD I demand is -8% y/y while PADD II inputs are +16.5% y/y and PADD III inputs are +4.4% y/y. Refinery utilization is currently running 93.3% which is higher y/y by 3.7%. Increased demand continued to weaken margins this week with the WTI 321 crack trading $15.70/bbl while RBOB/Brent traded $14/bbl and gasoil/brent traded $9/bbl. In the Houston area the LLS 321 crack traded $9.50/bbl. Related: Big Oil Is Making Enormous Efficiency Gains

Gasoline data was disappointing against expectations beginning with a seasonally abnormal build of 191k bbls w/w. Overall inventories are flat y/y but PADD IB inventories in the mid-Atlantic fell by 100k bbls and are lower by 3.5%. PADD II stocks added 716k bbls (+3.7% y/y) while PADD III stocks added 867k bbls to a y/y deficit of 1.4%. On the demand side US gasoline exports printed 732k bpd and are +77% y/y while domestic demand at 9.2m bpd is -3.6% y/y.

Distillate data was also underwhelming beginning with an overall inventory draw of 562k bbls. By region, PADD IB stocks added 476k bbls (+2.9% y/y,) PADD II stocks added 1.2m bbls (+1.7% y/y) and PADD III stocks fell by 1.2m bbls (-9.5% y/y.) Overall inventories at 150m bbls are lower y/y by 4.2%. Refined product exports were flat w/w near 1m bpd (+9% y/y) and domestic demand was strong at 4.3m bpd and is higher y/y by 8% over the last month.

BONUS CHARTS:

(Click to enlarge)

By SCS Commodities Corp.

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News