Oil Price - April 2

[dan_s]

On Sunday China increased tariffs by 25% on 128 different U.S. products including pork, wine, nuts and seamless steel pipes, in response to trade tariffs from the U.S. The news has increased trade tensions between the two biggest economies in the world and risen investor fear of a trade war.

The White House is expected to list Chinese imports that will be tariffed, which will include about $50 billion to $60 billion worth of technology products.

Trading volumes were thin, as European markets were still closed for the Easter holiday.

The price of oil had risen earlier in the day, supported by data last week that showed U.S. drilling activity had declined for the first time in three weeks. Energy services firm Baker Hughes on Thursday reported that the number of active U.S. rigs drilling for oil fell by seven to 797. The report eased worry that U.S. shale oil production would derail efforts by the Organization of the Petroleum Exporting Countries’ to curb supply.

OPEC has been cutting crude output by 1.8 million barrels per day (bpd) to prop up oil prices. The pact began in January 2017 and is set to expire at the end of 2018.

However, concerns of oversupply resurfaced on Monday after Russia reported an increase in production in March, to 10.97 million bpd from 10.95 million bpd in February.
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Overall stock market selloff does have an impact on oil because the same large hedge funds that hold equities also hold NYMEX oil futures contracts. The "Trade War" between China and the U.S. will have very little impact on demand for oil (IMHO), but the oil markets do react to headlines. Demand for oil based fuels and feedstock are on the rise and will continue to increase this summer, just like they do every year. U.S. inventories of oil and refined products will decline in April and the decline will accelerate in May.

[dan_s]

Crude Oil decreased 1.80 USD/BBL or 2.77% to 63.09 on Monday April 2 from 64.94 in the previous trading session.

Historically, Crude oil reached an all time high of 145.31 in July of 2008 and a record low of 1.17 in February of 1946.

[dan_s]

What happened today is what I call "Market Risk".

We now have a whole group of investors / fund managers that are investing in stuff like Bitcoin, Tesla, Facebook, etc. These are investments in "stories" and not fundamentals. No one knows how to value Bitcoin. There is no proof if or when Tesla will ever make money. What is it anyway? A car company or a battery company? All of the social media companies like Facebook have uncertain futures and may just be a fad. FEAR and GREED drive the markets and fear over the risk of a Trade War with China is the current "boggyman", which is probably going to turn out to be nothing at all.

Oil is a commodity, yet it trades on emotions on days like today. Eventually, supply/demand determines the price of oil. Supply & demand are much tighter than they were a few months ago and demand is going to exceed demand for the rest of the year. U.S. and other OECD inventories of crude oil and refined products are already below the 5-year average for days of supply and inventories are going to get much tighter this quarter.