Ships that pass in the night

Daily Energy Markets Analysis

Crude oil prices were under pressure after Mario Draghi magic seemed too eased off. Oh, sure, after Mario Draghi said he was disappointed with growth and the lack of inflation, oil got a bounce off of increased European Union quantitative easing expectations. Yet, when Asian and European stocks gave up the gains, oil prices falter until a headline came out about those Chinese Military ships that are moving off of the coast of Alaska.

The Wall Street Journal reported that "five Chinese navy ships had passed through U.S. territorial waters as they transited the Aleutian Islands, but said they had complied with international law. Analysts saw the passage as significant as Beijing has long objected to U.S. Navy vessels transiting its territorial waters or operating in international waters just outside." When the Wall Street Journal flashed the headline oil prices jumped because let's face it, oil prices are jumpy anyway and any head line may move us.

Perhaps today's job report can make us jump. We know that Mario Draghi gave us a boost but can the jobs number can work for or against oil bulls. A strong jobs report may put a September rate increase back on the table for some traders and that may in turn way on oil and oil demand expectations. A crummy report would have the opposite effect as oil traders would prepare for more quantitative easing from the EU and Asia but also a lower rate environment in the United States.

Oil prices also got some support from the fact that OPEC oil production slipped a bit. OPEC crude output declined in August by some 220,000 barrels a day compared with record levels in July according to a report by JBC energy due mainly to a drop in Iraqi production. OPEC output still stands at a hefty 31.4 million barrels a day. There is also growing market and OPEC is quietly planning to make way for the return of Iranian oil. Right now it seems it is going to be more about the logistics and to try to get a sense of just how much oil that Iran can actually produce.

Russian President Vladimir Putin and Venezuelan President Nicolas Maduro met to discuss how to support oil prices, yet failed to announce any real plan. Perhaps they should be talking to OPEC as well because when Russia failed to agree to cut production it began the OPEC price war last November.

Reuters reported, "Both parties noted during the meeting that such unstable oil prices are not in the interests of the two countries and, of course, the countries should integrate their efforts in terms of coordination to facilitate a boost in oil prices," Kremlin spokesman Dmitry Peskov told reporters. "However, President Putin drew attention to the fact that there could be no direct actions, this is a market process. There are a lot of factors that are having an impact and that should be taken into consideration very carefully." 

Dow Jones says that Russia's Energy Minister Alexander said that the global oil market is set to stabilize by the year end, with oil prices seen hovering at what seems to be "fair levels" between $50 and $70 per barrel, Russia's Energy Minister Alexander Novak said Friday. Novak said oil prices won't return to levels of $100 per barrel in the mid-term. He said although low oil prices have a negative effect on many countries, the world's oil producers won't cut production.

We will see about that.

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