Energy Prospectus

Remember this rule: Oil prices NEVER go straight up or straight down.
The oil price you see is the front month NYMEX contract.
Speculators do set the oil price in the short-term. Many of the traders with "long" positions have big gains in those contracts. They tighten up their stop loss orders, so there can be some wild moves as a few sellers can trigger a lot of automated sales.
What happened today is that as the price dropped buyers (some of them shorts covering) came in and reversed the selloff.
IMO the fundamentals support a higher oil price. Each close over $70 sets that price as a support level. There is STRONG SUPPORT at $67/bbl for WTI. - Dan
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Investing.com - Crude oil prices settled higher on Thursday amid ongoing expectations that new US sanctions on Iran would trim global crude supplies while flaring tensions in the Middle East also supported sentiment.

On the New York Mercantile Exchange crude futures for June delivery rose 22 cents to settle at $71.36 a barrel, while on London's Intercontinental Exchange, Brent rose 19 cents to trade at $77.40 a barrel.

An exchange of missiles between Iran and Israel in Syria overnight added a further risk premium to oil prices – a trend that is expected to continue, Price Futures Group analyst Phil Flynn said on Thursday. "This backdrop of increasingly high tensions in the Middle East are even more supportive as US oil inventory shows big drops in supply against robust and near record-breaking demand," Flynn said.

The tensions between the two nations come in the wake of United States’ decision to leave the Iran nuclear deal, widely expected to weigh on Iran crude exports.

The Information Energy Agency warned Thursday the restoration of sanctions on Iran “may have implications” for the market balance. < It takes a $Billion budget to come up with brilliant statements like this. - Dan

The US Treasury Department said earlier this week countries should “reduce their volume of crude oil purchases from Iran during [the 180 day] wind-down period.”

Crude oil prices had come under pressure earlier in the session after energy information provider Genscape reported Thursday crude stockpiles at the Cushing, Oklahoma storage hub, as of Tuesday rose 479,644 barrels to 39.56 million barrels, according to analysts. < Crude oil at Cushing is WAY DOWN from where it was a year ago. Cushing can hold over 64 million barrels of oil.

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Wall Street Journal: Venezuela’s Brewing Oil Shock May Be Bigger Than Iran’s - Two threats could further disrupt Venezuelan exports, possibly taking as much crude off the market as the renewal of Iran sanctions
By Spencer Jakab May 10, 2018

The oil headlines this week have all been about Iran, but the slowly unfolding disaster in Venezuela may be even more significant.

Less than two weeks before a controversial snap presidential election that would almost certainly give incumbent Nicolás Maduro a six-year term, the country’s main source of export revenue could take another drastic tumble. S&P Global Platts estimates the country’s recent crude production was 1.41 million barrels a day, at least a 30-year low except for a crippling 2002-2003 strike. And over half a million barrels below what it was a year ago.

Under PressureVenezuela oil production, million barrels a daySource: OPEC 2014-2017 using secondary sources;S&P Global Platt's estimate for Apr2018

Venezuela faces two risks that, if both come to pass, could cut its oil output by more than the biggest estimates of what could happen to Iran if sanctions were reimposed. The risks stem from Venezuela’s dependence on importing lighter varieties of crude to mix with the heavy oil it produces, and its need for products imported from the U.S. to enable its thick oil to be transported.

The first situation is playing out in the Dutch-administered islands of Curaçao and Bonaire, where Venezuela’s state oil company owns refining and storage facilities. U.S. producer ConocoPhillips is attempting to take physical control of those facilities after winning an arbitration award against Venezuela for seizing its assets in 2007. Venezuela appears to be telling its suppliers not to ship oil to these facilities for fear ConocoPhillips will seize that too, potentially shutting down refining.

The second situation would play out if the U.S. halts exports to Venezuela of a product called diluent, which allows the thick oil to be transported. Such a move would imperil half or more of the country’s remaining production. U.S. Vice President Mike Pence has already called the presidential election a sham.

Energy economist Philip Verleger estimates the Conoco spat could cost Venezuela as much as 500,000 barrels a day in exports, which is the upper end of the estimated impact of reimposed Iranian sanctions. An embargo could hurt even more. Don’t look east for oil’s next wild card, look south.


Full article: https://www.wsj.com/articles/venezuelas ... mail_share

Phil Flynn at 9AM ET

Rockets’ Red Glare

Oil has taken off like a rocket as Israel strikes Iranian targets in Syria in response to rocket fire overnight. Israel says it targeted Iran’s military infrastructure in Syria, in response to an Iranian rocket attack on the occupied Golan Heights. This comes as Iran lashes out in every direction in response to the U.S. backing out of the Iranian nuclear accord. This backdrop of increasingly high tensions in the Middle East are even more supportive as U.S. oil inventory shows big drops in supply against robust and near record breaking demand.

The Energy Information Administration (EIA) reported that U.S. crude supply fell by 2.197 million barrels last week. The drop in crude supply came as we saw a big drop in oil imports that fell by 1.22 million barrels a day last week, even as U.S. refiners slowed for more seasonal maintenance. The EIA reported that crude oil refineries operated at 90.4% of capacity running only 16.5 million barrels of oil per day. < Refinery throughput needs to ramp up to 17.5 million barrels per day if there is any hope of meeting increasing demand for transportation fuels this summer.

That hurt gasoline production that fell to a still respectable 9.9 million barrels a day as gas demand was at a seasonal 9.97 million barrels of gasoline per day. Gasoline will continue to rise in the coming weeks, so refiners are going to come out of maintenance to keep up.

Yet they can’t focus just on gasoline. Distillates like diesel and jet fuel on hand are at historically low levels. The EIA reported that distillate fuel inventories fell by 3.8 million barrels last week putting supply in the lower half of the average range for this time of year.

U.S. crude oil exports fell by 271,000 barrels a day last week, and U.S. production rose by 84,000 barrels a day to 10.7 million barrels. U.S. Crude exports averaged 1.88 million barrels a day last week and have a daily average for the year of 1.64 million barrels a day, a 118% increase over the year-ago export total.

So, the U.S. market is tight and the tension surrounding Iran and Israel will add to the oil risk premium. The larger issues of underinvestment in recent years means there is not a lot of spare production capacity left around the globe.

The International Energy Agency is also raising the alarm, but says that they will come to the rescue. In a press release they said that:

“In recent months, oil market dynamics have been shaped by strong growth in demand, compliance by countries party to the Vienna agreement to cut output, and the crisis in Venezuela, leading to tighter overall market conditions. The restoration of sanctions on Iran, which exports 2.5 million barrels of oil a day and is the world’s fifth-largest exporter, may have implications for the market balance. The International Energy Agency, whose mandate is to support and safeguard global energy security, is monitoring the situation very closely. As ever, the IEA stands ready to act if necessary to ensure markets remain well supplied.”

But will Saudi Arabia act? The Kingdom wants $80 a barrel for oil. The FT reported that Saudi Arabia will not act unilaterally to increase oil supplies following renewed U.S. sanctions on Iran’s energy industry, a Gulf source familiar with Riyadh’s thinking said on Wednesday, with any rise in output to be coordinated with Russia and other producers.

The comments, which came as Brent oil crested $77 a barrel for the first time since 2014 on fears of a drop in Iranian exports, are a signal the OPEC kingpin is not willing to turn its back on a growing energy alliance with Russia, with whom it has worked with since early 2017 to manage output and help prices recover. “Any action will be taken in co-ordination with other producers,” the person said, adding that Saudi Arabia was already in talks with Russia and other producers including the UAE.

We should not be shocked that we are at this point in the oil market. Growing global demand and tightening supply only makes prices go higher. Shale oil can’t cover growing demand and disruptions of supply, but thank goodness they are producing what they are or the global economy might be in a heap of trouble right now. < As I said several times during my presentation at the Mick Law Energy Conference in Dallas on May 7th: "It is a myth that U.S. shale oil can meet global demand. U.S. shale oil production will peak by 2020 and it will take a level of drilling much higher than we have today just to hold U.S. production flat."