Helen Rush in London (talking about Brent)
Crude oil prices continue to recover gradually, with Brent has settled above the $67 figure on Friday. Today is the third day of gains in a row, but the bullish impetus still looks too fragile and cautious. The price seems to have found support below $65 earlier this week, however the downside risks are still there and it looks like it’s too early to call a bottom.
Brent has shifted to a recovery mode due to a number of verbal interventions by OPEC+ members who rushed to promise production cuts to stem the sell-off in commodities. The market will be expecting further bullish comments from the cartel ahead of the summit that will take place in three weeks in Vienna.
It looks like the question now is how much output will be cut and for how long. Should the exporters signal that the decline is going to be less than 1.4-1.5 m barrels per day, traders will be disappointed as the US shale production continues to set new records and US sanctions on Iran turned out to be not as tight as was expected.
To stage a robust rally from the current levels, crude oil prices need to see some major production disruptions, bullish weekly EIA data, or a softer Trump’s stance on OPEC and prices. As none of this is expected for now, Brent will proceed with its modest corrective rebound at best, with bearish risks remain.
Oil Price - Nov 16
Oil Price - Nov 16
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Oil Price - Nov 16
Technical stuff by Greg Harmon (based on Nov 15 chart):
Crude Oil capped a long run higher with a top at the end of September. The last 3 months of that run had already transitioned to a sideways channel, but the September high literally put a cap on the rally. Since then it has been diving to the downside. It confirmed that top when it passed the August low, but it did not seem to notice as it continued lower. Today it sits at a 52 week low.
But crude oil prices are also at a 61.8% retracement of the rally that took it to that September high. If the price was looking for a place to bounce this is a good one technically. It also has extreme bearish momentum. The RSI is oversold, but starting to rebound from levels not seen since 2012. The MACD is at 4 year lows as it continues to the downside. Only the late 2014 low is deeper, when the price of oil fell 60% in 6 months.
There are only minor signs that the drop might end. First is that RSI reversing. Also a 3 day pause in the price action with a slight upward movement. But this could also be a bear flag as well, digesting before another leg down. Volume has been light on the upward drift re-enforcing the bear flag view. Should it continue lower the next target would be an 88.6% retracement to about 46.
Crude Oil capped a long run higher with a top at the end of September. The last 3 months of that run had already transitioned to a sideways channel, but the September high literally put a cap on the rally. Since then it has been diving to the downside. It confirmed that top when it passed the August low, but it did not seem to notice as it continued lower. Today it sits at a 52 week low.
But crude oil prices are also at a 61.8% retracement of the rally that took it to that September high. If the price was looking for a place to bounce this is a good one technically. It also has extreme bearish momentum. The RSI is oversold, but starting to rebound from levels not seen since 2012. The MACD is at 4 year lows as it continues to the downside. Only the late 2014 low is deeper, when the price of oil fell 60% in 6 months.
There are only minor signs that the drop might end. First is that RSI reversing. Also a 3 day pause in the price action with a slight upward movement. But this could also be a bear flag as well, digesting before another leg down. Volume has been light on the upward drift re-enforcing the bear flag view. Should it continue lower the next target would be an 88.6% retracement to about 46.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Oil Price - Nov 16
MY TAKE:
> OPEC+ meeting in Vienna on Dec 6 will result in an agreement of curb production. Saudi Arabia did what Trump asked them to do and now they will do what is in their best interest. They are "Nationalist" too.
> The current surplus is nowhere near a "glut". It is temporary, caused by soft demand that happens every year in September & October + Saudi Arabia exporting more oil (primarily from storage) to please Trump.
> Demand for heating oil in U.S. and in Europe will increase demand (happens every year) and weekly storage reports should be less bearish and then bullish in December.
> Those waivers from the U.S. sanctions against Iran will expire in the spring. Plus, demand for oil always picks up in spring as refiners turn their attention to summer blend gasoline (which require more crude oil to make)
> OPEC+ meeting in Vienna on Dec 6 will result in an agreement of curb production. Saudi Arabia did what Trump asked them to do and now they will do what is in their best interest. They are "Nationalist" too.
> The current surplus is nowhere near a "glut". It is temporary, caused by soft demand that happens every year in September & October + Saudi Arabia exporting more oil (primarily from storage) to please Trump.
> Demand for heating oil in U.S. and in Europe will increase demand (happens every year) and weekly storage reports should be less bearish and then bullish in December.
> Those waivers from the U.S. sanctions against Iran will expire in the spring. Plus, demand for oil always picks up in spring as refiners turn their attention to summer blend gasoline (which require more crude oil to make)
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Oil Price - Nov 16
From Bloomberg
Wall Street’s been abuzz about — and confused by — Tuesday’s epic plunge in the oil market. Any number of theories are flying around. But analysts at Goldman Sachs Group think they’ve uncovered one of the actual main culprits: a rush by Wall Street banks to cover their exposure to oil producers’ hedges.
U.S. oil prices plunged 7.1 percent on Tuesday, the most in three years, before recovering on Wednesday.
Goldman analysts blamed the rout on a combination of momentum trading strategies, and selling from financial institutions which had helped arrange hedges on behalf of oil producers. Goldman is itself one of Wall Street’s top commodity banks.
“Increased selling of crude oil futures by swap dealers as they manage the risk incurred from existing producer hedging programs” was a key contributor to the rout, analysts including Jeff Currie said in a note.
Producers often lock in their price exposure by buying put options from banks. As prices fall toward the level where the options pay out, the banks are then forced to sell ever greater numbers of futures to hedge their own risk.
Goldman didn’t single out any producers that have locked in their oil price exposure, but there are only a handful of hedging programs large enough to trigger wild market swings.
The first is the Mexican government oil hedge, the largest sovereign program to protect oil revenues and the largest derivatives deal of its kind on Wall Street. The second is the hedging activity of U.S. shale producers.
Mexico alone hedges about 250-to-300 million barrels of crude a year purchasing put options from half-a-dozen or so banks and trading houses, including the likes of Goldman, JPMorgan & Chase Co., Morgan Stanley and Citigroup Inc. In the U.S. oil patch, the deals are much smaller, but on aggregate companies hedge even bigger volumes.
Mexico’s hedge in particular has roiled the oil market in the past, including in 2008-09 when Wall Street banks had to sell millions of barrels of futures in a falling market to protect their own positions, according to people with direct knowledge of the trading at the time.
Wall Street’s been abuzz about — and confused by — Tuesday’s epic plunge in the oil market. Any number of theories are flying around. But analysts at Goldman Sachs Group think they’ve uncovered one of the actual main culprits: a rush by Wall Street banks to cover their exposure to oil producers’ hedges.
U.S. oil prices plunged 7.1 percent on Tuesday, the most in three years, before recovering on Wednesday.
Goldman analysts blamed the rout on a combination of momentum trading strategies, and selling from financial institutions which had helped arrange hedges on behalf of oil producers. Goldman is itself one of Wall Street’s top commodity banks.
“Increased selling of crude oil futures by swap dealers as they manage the risk incurred from existing producer hedging programs” was a key contributor to the rout, analysts including Jeff Currie said in a note.
Producers often lock in their price exposure by buying put options from banks. As prices fall toward the level where the options pay out, the banks are then forced to sell ever greater numbers of futures to hedge their own risk.
Goldman didn’t single out any producers that have locked in their oil price exposure, but there are only a handful of hedging programs large enough to trigger wild market swings.
The first is the Mexican government oil hedge, the largest sovereign program to protect oil revenues and the largest derivatives deal of its kind on Wall Street. The second is the hedging activity of U.S. shale producers.
Mexico alone hedges about 250-to-300 million barrels of crude a year purchasing put options from half-a-dozen or so banks and trading houses, including the likes of Goldman, JPMorgan & Chase Co., Morgan Stanley and Citigroup Inc. In the U.S. oil patch, the deals are much smaller, but on aggregate companies hedge even bigger volumes.
Mexico’s hedge in particular has roiled the oil market in the past, including in 2008-09 when Wall Street banks had to sell millions of barrels of futures in a falling market to protect their own positions, according to people with direct knowledge of the trading at the time.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
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Gabriel Oak
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Re: Oil Price - Nov 16
Inverse is true on the way up where the short gamma position is hurting the providing banks and they need to buy futures as oil rallies
Re: Oil Price - Nov 16
whatever the various explanations are for the huge one day drop it didn't end up recovering hardly at all which says to me the fundamentals at least for the majority of investors is very bearish