Energy Prospectus

The February NYMEX contract for West Texas Intermediate (WTI) closed on January 9th at $52.18, which is $8.40/bbl or 19.2% higher than the contracts closing price of $43.78/bbl on Christmas Eve.
Today's $2.40 increase is great, but I would prefer to see day-after-day gains of $0.25 to $0.50 than these big price spikes. IMO today was a short covering rally triggered by the move over the key resistance level of $50/bbl. Once the hedge fund computers start scream "SELL", they feed on themselves.
Looking at the charts, there is no major resistance until $55/bbl. So, we could see a bit of a corrective pullback tomorrow but the fundamentals do support higher oil prices. Everyone knows that the "off the cliff" fall from $76/bbl in early October to under $45/bbl by Christmas was just computer generated trading.
Marshall Atkins at Raymond James says we are on a path to $75/bbl by next Christmas. If he is right, it will be a very Merry Christmas for the upstream companies in our model portfolios.
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From this morning:
All we needed for oil to move off the lows was less FEAR. The front month NYMEX futures contract (FEB) for WTI opened at $49.80 and spiked to more than $51.00 within the first 30 minutes of trading.

LONDON (Reuters) - World stocks extended their gains to hit a near-four week high and oil prices rose on Wednesday on optimism that the United States and China may be inching toward a trade deal, soothing fears of an all-out trade war.

Delegations from China and the U.S. ended talks that had lasted longer than expected in Beijing on Wednesday amid signs of progress on issues including purchases of U.S. farm and energy commodities and increased access to China's markets. Officials said details would be released soon.

"The positive news around the trade talks is giving a boost to risk assets – it's what the global economy needs to see,” said Chris Scicluna, head of economic research at Daiwa Capital Markets in London.

Adding to the upbeat mood were reports that Beijing plans to introduce policies to boost domestic spending on items such as autos and home appliances this year. These come on the back of Friday's monetary easing by the People's Bank of China.

"China are now firmly off the brakes and back on the accelerator," said Karen Ward, chief market strategist for EMEA at JPMorgan (NYSE:JPM) Asset Management.

"The sugar rush that's fading in the U.S., we are going to get that rush coming through in China."

However, details on the outcome of the latest trade talks were scant and sources said the two sides were still far from U.S. demands for structural reforms in China.

In London oil prices roared 2 percent higher in their eight day of gains. U.S. West Texas Intermediate (WTI) crude oil futures (CLc1) have soared more than 20 percent since hitting an 18-month low in late December and have now broken through the $50 per barrel overnight for the first time in 2019.

U.S. bond yields also climbed, with the benchmark 10-year Treasuries yield rising to 2.7386 percent, compared with its one-year low of 2.543 percent hit just before Friday's strong payrolls data.

In another sign of subsiding worries about the U.S. economic outlook, Fed funds rate futures <0#FF:> showed traders are now pricing in a small chance of a rate hike in 2019, a change from late last week when futures markets had priced in a cut.

In currency markets, the dollar index (DXY) softened to 95.835 against a basket of currencies after flirting in early trading with a 2-1/2 month low hit on Monday. The euro traded at $1.1452 (EUR=) while the dollar stood at 108.86 yen .

The "golden rule" says the oil price is way too low: https://www.washingtonexaminer.com/opin ... olden-rule

The Energy Report 01/09/19: The Saudi Oil Put
By Phil Flynn (Jan 09, 2019 08:47AM ET)

You have heard about the so-called Fed put. That is a term that means the Federal Reserve has the markets back. If the markets or economy start to falter, the Fed’s plunge protection team will get into gear and adjust monetary policy to create a floor for the market. That in turn gives investors confidence to take on more risk because even if the market gets weak, the Fed won’t allow it to crash. Now with the recent rebound in oil, traders are now talking about the "Saudi put". That is that Saudi Arabia will not allow oil prices to fall and if it does, they will cut production accordingly. In fact, the Saudi announcement that they want $80 a barrel of oil and that they will reduce their exports by 800,000 barrels a day is sending a signal to the market that the worst for oil may be over.

Of course, it helps that the global stock markets are showing more optimism. So called progress on the U.S. China trade discussions is bringing the risk appetite back into the marketplace and cumulative measures talked about in Asia to boost their economy is changing the pessimism about overall energy demand. A senior Chinese official said China plans to introduce policies to boost domestic spending on items such as autos and home appliances this year. This comes after China lowered their reserve requirement for bank lending that, along with more stimulus should raise oil demand expectations.

This comes as the American Petroleum Institute reported that U.S. crude supplies fell by 6.1 million barrels for the week ending January 4, according to sources. This massive drop in supply is showing that previous cuts by the Saudis are already showing up and this could be the beginning of a massive drain on U.S. oil supplies.

Of course, that is looking forward. In the short term, the big drop in crude was offset by mind-boggling builds in products. The API reported that gasoline stockpiles surged by an astounding 5.5 million barrels, while distillate inventories rocketed by 10.2 million barrels. The post market reaction seemed to shrug off the product build and focus more on the crude draw.

U.S. shale operators are still in pullback mode and with the OPEC cuts about to drain our supplies, the bottom in oil looks solid. Of course, if we see a reversal or panic in stocks that could change, but for now the new oil uptrend will be your friend.

Yet despite the price drop in the big picture, energy supply prospects for the future continue to brighten. Reuters reported that BP (LON:BP) struck black gold discovering two new oilfields in the Gulf of Mexico that could bring an additional billion barrels of oil at an existing field, thanks to new seismic technology.

Reuters writes “ The company has put a heavy emphasis on technology and data processing capabilities in recent years in order to unlock new resources and cut costs. The $1.3 billion Atlantis Phase 3 development will include drilling eight wells and a new subsea production system that will boost BP’s production by 38,000 barrels of oil equivalent per day (boed). It is scheduled to start production in 2020. Together with the new discoveries, BP aims to grow its Gulf of Mexico production from over 300,000 (boed) at present to 400,000 (boed) by the mid-2020s. BP said that new seismic technology helped it identify an additional 1 billion barrels of oil at its Thunder Horse field within weeks, whereas previously it would have taken a year to analyze”. Remember peak oil and you can’t drill your way to energy independence? Neither do I.

Hellenic Shipping News reports that the middle distillates complex in Asia rolled out 2019 on diverging paths. While the gas-oil market has made a strong comeback since plummeting to its lowest level on December 21, co-distillate jet fuel continued to remain sluggish. Market sources said that this trend was likely to continue for the rest of the month, citing diverging fundamentals between the two products.

Despite the Asian gasoil market kicking off the year on a steady footing, some traders cautioned that looking forward, the middle distillate might be on track for a sustained recovery from here . Some traders hold a more bullish sentiment for the Asian gasoil market in the near term, pointing out that volumes flowing out of the region has helped to ease the overhang in supply. “For January, Asia exported over 1 million mt of gasoil out of the region,” a trader said, adding that gasoil might see an overall improvement in fundamentals.

Conversely, the Asian jet fuel/kerosene spot market started the year on a weaker footing, as a glut of surplus cargoes pressured cash differentials deeper into discount territory. While demand has been steady amid the ongoing winter season, market participants continued to point to a ready availability of cargoes from South Korea, and China.