Crude Oil Prices - October 14

[dan_s]

The big drop in WTI this afternoon was caused (99% sure) by margin calls on traders that were over extended on long contracts. Lots of traders (on margin) went big on the long side when all the stuff started with ISIS. WTI was over $100 in June when the COT report showed a large increase in long contracts. WTI ran up to $107 on the buying. They could have cashed out with a nice gain. Some did, but those that got in late hung on thinking the violence in Iraq would take oil much higher.
The plan might have worked except when the U S dollar ran up, oil went down. Today was "Come to Jesus" day for a lot of trader. IEA taking the oil demand forecast down again killed them.
There is no "Oil Glut". Global inventories are lower today than at this point last year. U S shale production is up, but North America is the only place with growing production. Demand is soft, but still up 700,000 bbls per day YOY. Saudi Arabia is not over-producing to gain market share. Most of this drop in price is the result of a "Perfect Storm".
Seasonal demand for oil will tighten supply/demand soon.
Here is something to think about: The COT report now shows traders holding a lot of open short positions. Those positions MUST be covered before the contract expiration day.
This will take some time to work out. WTI may drop into the $70's for awhile, but if I'm right, this will not last much longer (45 days). A drop in the dollar, an early cold wave or OPEC announcing a production cut COULD motivate a lot of traders to cover those shorts.
Oh BTW, ISIS is moving south, getting closer to some of the largest oil fields in the world!

HOUSTON, Oct. 14
By Paula Dittrick
OGJ Special Correspondent

Crude oil prices settled lower on the New York market and in London Oct. 13 while dropping yet again in early Oct. 14 trading after the International Energy Agency reduced its forecast for global oil-demand growth for 2014.

Paris-based IEA on Oct. 14 trimmed its 2014 oil-demand growth forecast by 200,000 b/d to 700,000 b/d—its lowest in 5 years. The revision came in the IEA Oil Market Report (OMR) for October.

“Clearly there’s downward pressure on prices,” said Antoine Halff, head of the IEA’s oil industry and markets division. “If you look at the balances of the next few quarters, we see potentially more supply growth than demand growth.”

The OMR for October cited lower expectations of economic growth. Global oil demand growth for 2015 was forecast to rise tentatively to 1.1 million b/d, IEA said.

[mikelp]

lots of hedge funds getting squeezed here that are long oil. Have to think this has become a game of chicken amongst the OPEC producers, and who will cry "uncle" first and start cutting production. Just wait til ISIS surrounds Baghdad and begins to march on Iraq's southern oil fields, katy bar the door.