Oil (NYMEX:CLX13) and products did a supply slide as disruption in supply all around the globe seemed to come online all at one time. In Libya, South Sudan, Nigeria and Iraq supply that was slowed or halted is coming back online. In fact it made such a splash that it overshadowed bullish manufacturing data out of China and a dysfunctional Fed that does not know if it is coming or going or tapering or not tapering! On top of it the UN Security Council tried to find a way to rid Syria of chemical weapons assuring that while they are negotiating, it is unlikely U.S. missiles will fly. The oil world is getting crazy and the Fed and the government will make it only crazier.
Libya oil production coming back helped ease tightening supply concerns. Output is expected to hit 700,000 barrels by the end of this week, up from a low of 150,000 barrels early this month according to the New York Times.
The summer driving season has come to a close and U.S. gasoline production is at historically high levels for this time of year. Of course in Nigeria where oil is stolen on what Chatham House says on an industrial scale more problems. Iraq also increased production from its southern oilfields after repairing a leaking pipeline. Dow Jones reports that that Royal Dutch Shell PLC's Nigerian unit said Monday that it has shut down the Trans-Niger Pipeline, or TNP, to repair new leaks at Bodo West and Oloma, which resulted from the theft of crude oil.
Bottom line, the fundamental outlook for oil and products is bearish. Products got hit because the return of Libyan oil means less U.S. exports of gas and diesel. Still the market is on key support so we could bounce — beware!
Reuters says that “Traders were also watching to see how the U.S. Congress and President Barack Obama dealt with looming budget issues that may result in a government shutdown, debt default or a close call that affects investor confidence or economic demand.”
Bloomberg reports crude options volatility rose as the underlying futures slid to the lowest level in six weeks. At-the-money volatility for November options, a measure of expected futures swings and a key gauge of value, was 21.23% at 3:25 p.m., up from 20.08% on Sept. 20. West Texas Intermediate crude for November delivery fell $1.16, or 1.1%, to $103.59, the lowest since Aug. 8, when prices settled at $103.40. Crude declined as confidence increased that the U.S. will avoid a military strike against Syria and as oil production gained in Libya and Nigeria.
CME Options Electronic crude oil options trading is on the rise.
In August, for the first time ever, more than 50% of WTI options were traded electronically over CME Globex. Even when looking at complex deals – or spread trading via RFQ – electronic trading is up in the energy markets. And we’re beginning to see some of the same trends emerge in the natural gas options market.