Global Oil Market News - Dec 10

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dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Global Oil Market News - Dec 10

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On December 7, Reuters reported OPEC and its Russia-led allies agreed to slash oil production by more than the market had expected despite pressure from U.S. President Donald Trump. The producer club will curb output from January by 800,000 b/d versus October levels while non-OPEC allies contribute an additional 400,000 b/d of cuts, in a move to be reviewed at a meeting in April.

The Brent oil price jumped about 5% to more than $63 a barrel as the combined cut of 1.2 million b/d was larger than the minimum 1.0 million b/d that the market had expected. Saudi Arabia, de facto leader of the Organization of the Petroleum Exporting Countries, has faced demands from Trump to help the global economy by refraining from paring supplies. Asked whether the decision to cut could sour Riyadh's relations with Washington, Saudi Energy Minister Khalid al-Falih told reporters the kingdom was ready to pump more should a major supply outage occur. "We will not squeeze consumers beyond what they can afford," he said, adding that given the United States had recently become the biggest oil-producing nation, its energy companies were "breathing a sigh of relief".

The OPEC deal had hung in the balance for two days - first on fears that Russia would cut too little, and later on concerns that Iran, whose crude exports have been depleted by U.S. sanctions, would receive no exemption and block the agreement. But after hours of talks, Iran gave OPEC the green light and Russia said it was ready to cut more. Russia gave a commitment to reduce output by 228,000 b/d from October levels of 11.4 million b/d, though it said the cuts would be gradual and take place over several months. Iraq, OPEC's second-largest producer, pledged to cut 140,000 b/d. Falih said Saudi production had dropped to 10.7 million b/d in December from 11.1 million in November and was set to decline to 10.2 million b/d in January. Iran, Libya and Venezuela were effectively given exemptions. Nigeria, which has been exempt since the previous round of cuts from January 2017, agreed to participate.

U.S. special representative for Iran Brian Hook met Falih in Vienna this week, in an unprecedented development ahead of an OPEC meeting. Saudi Arabia first denied the Hook-Falih discussion took place but later confirmed it. "U.S. political pressure is clearly a dominant factor at this OPEC meeting, limiting the scope of Saudi actions to rebalance the market," said Gary Ross, chief executive of Black Gold Investors and a veteran OPEC watcher.

On Thursday, U.S. government figures showed the country had become a net exporter of crude oil and refined products for the first time on record, underscoring how the surge in production has altered the supply equation in world markets.

John White at Roth Capital Partners: "In our opinion, while the OPEC and non-OPEC decision to cut production is clearly positive, the timing of the cutback poses problems for U.S. E&P companies. Since the cuts will be initialed in January, this adds uncertainty to E&P companies’ decision process for 2019 capital expenditure plans and gives companies a limited amount of time to gauge the crude oil market."

On December 3, Reuters reported Qatar said it was quitting OPEC in January to focus on its gas ambitions, taking a swipe at the group's de facto leader Saudi Arabia. Doha, one of OPEC's smallest oil producers but the world's biggest LNG exporter, is embroiled in a protracted diplomatic row with Saudi Arabia and some other Arab states.
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Re: Global Oil Market News - Dec 10

Post by dan_s »

Technical Stuff: Oil is probably stuck in a trading range just above $50 through year-end.

The crude oil futures daily chart is in a strong bear trend. After a wedge bottom at the $50 Big Round Number, it has begun to enter a trading range.

The crude oil futures market crashed over the past 2 months on the daily chart. It is now pausing at the $50 Big Round Number.

The 3 sell climaxes over the past month have created a wedge bottom. When there is a reversal up from a sell climax, traders typically look for at least 2 small legs up to around the 20 week EMA. In addition, they expect a test of the top of one or more of the sell climax bars.

Finally, when a sell climax is as extreme as this one has been, the bears are exhausted. This makes them resistant to selling again for anything other than a 1 – 5 day trade. The bulls know this and will therefore buy selloffs, looking for 3 – 5 day rallies.

With traders buying low, selling high, and taking quick profits, the chart evolves into a trading range. This process started 2 weeks ago. There is no sign yet that it is about to end. The odds are that the chart will stay sideways for at least a couple more weeks.

Only minor reversal up

The selloff was in a tight bear channel. There is therefore an 80% chance that the 1st reversal up will be minor. A minor reversal means a bear flag or a bull leg in a trading range.

A strong bear trend only has a 20% chance of reversing up into a bull trend without at least going sideways and forming a major trend reversal pattern. Consequently, the upside over the next month is probably only $10 – $15.

Can there be a strong break below $50? Probably not. The longer the daily chart goes sideways, the more traders will believe that the current price is just about right. The price will therefore be a magnet.

If there is a bear breakout the market might fall or a $5 – 10 measured move down. But a tight trading range late in a bear trend is often the Final Bear Flag. It is a magnet, and a breakout up or down usually gets drawn back to the range within 10 – 20 bars.
Dan Steffens
Energy Prospectus Group
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