Phil Flynn
The Energy Report 12/04/18
Have No Fear
Oil prices are rallying again as most of the reasons for the historic break in prices are suddenly going away. Remember traders feared that OPEC and Russia would not agree to cut production? Remember many thought because of the cloud of suspicion surrounding Saudi Crown Prince bin Salman that they would be powerless to cut production without raising the ire of President Donald Trump. Or that there would be no progress on a U.S. China trade deal or slowing demand for Petroleum. Well, all those fears are being put to rest, at least for the moment.
The OPEC plus 1 cut looks like that is definitely going to happen, and while the details about how much they are going to cut is not clear the reality is that the market believes a cut is coming. Qatar, of course, won’t care because they are leaving the cartel because they feel marginalized, but so are most of the members in OPEC with the new Saudi Arabia and Russia alliance. Even though Saudi Crown Prince Mohammed bin Salman is an international pariah, his buddy Vladimir Putin can relate, and will deal with the Saudis on a cut. Yet, the word is that Vlad only wants to make a modest cut and expects the Saudis to make the bulk of the cut. The Saudis are pushing Russia to add a little more but regardless of the breakdown the market is pricing in a 1.5-million-barrel cut.
That cut of course will be felt as the talk of demand weakness has largely been overstated. U.S. petroleum exports are at a record high and China's crude oil imports averaged a record 9.61 million barrels a day last month, according to customs data cited by Reuters. China also imported its first U.S. crude oil cargo in around two months last week, according to industry sources and Refinitiv Eikon data - a deal made by an independent "teapot" refiner. China, according to the White House, has agreed to buy more U.S. crude oil, as the winter demand in China is perking up.
The market will get the American Petroleum Institute (API) report tonight, but because of the National Day of Mourning for President George H.W. Bush on Wednesday, December 5th, the Energy Information Administration (EIA) will delay the Petroleum Status report until Thursday at 11 central time. The day of mourning just happens to be the same day as the OPEC meeting, and the energy markets will trade a normal session.
Still, the U.S. Stock Exchange will be CLOSED for trading on Wed, Dec 5th. Trading hours for CME Group US-based Equity products on Dec. 5 will include an abbreviated session, closing after overnight trading at 8:30 am CT and reopening at their regularly scheduled times for a trade date of Dec. 6. CME Interest Rate products will close at their regular times on Dec. 4 and will not reopen until their regularly scheduled times for the trade date of Dec. 6. All other markets on CME GLOBEX and the trading floor will remain open for regular hours on Wed, Dec 5th. ICE Futures U.S. will also have normal trading hours on Wed. CME Equity and Interest Rate options expiring on Wed, Dec. 5 will be moved to expire on Tues, Dec. 4, 2018.
It is looking more and more like the bottom for oil is in. Look to start building a position. The U.S. only has about 500,000 barrels left to release from the Strategic Petroleum Reserve, so we will see the surprise increases in supply turn into draws. While we may see some builds in the Cushing delivery point, overall supplies will start to draw.