Crude oil prices pop on freeze talk

September 6, 2016 08:32 AM
Daily Energy Market Analysis

Crude oil prices pop on reports of Saudi Arabia announcing what Russian oil minister Alexander Novak calls a "historic” agreement. The world’s two largest oil producers have a deal to do something, but we are not quite sure what that is. 

Oil prices surged as Russia and Saudi Arabia agreed to make an announcement on the sidelines of the G-20 causing a surge in the oil market as the market speculated that they would agree to freeze production. The Saudis are on board to work with the Russians after they showed displeasure with the Kingdom when Crown Prince Mohamed Bin-Salman reneged on an output freeze agreement in Doha back in April. Even Iran’s oil minister Bijan Zanganeh, according to the Financial Times, has “offered cautious backing to plans to cap production at a meeting of major producers this month, saying he wanted to see prices between $50 and $60 a barrel. He says that "Iran wants a stable market and therefore any measure that helps the stabilization of the oil market is supported by Iran.”

Bloomberg says that the plan is shaping up like this. Russia and Saudi Arabia will freeze output for 3 months or more to start with. The deal will be finalized in September when the terms will be set. Russia says it will be ready to freeze output in two hours if need be. The Saudi energy minister Khalid Al-Falih said that there is no need to freeze output now.

What we have here is the strong possibility that we have a deal. A deal that will be final at the world oil energy forum in Algiers. Bloomberg says that, “Russian Energy Minister Alexander Novak have a number of tools at our disposal for joint actions." We think a deal will get done and that should put a floor under oil.

The Oklahoma earthquakes over the weekend are raising concerns that waste water disposal from fracking may be the culprit. While scientist doubt that the weekend earthquakes were caused by fracking, there will be investigations. If we see stricter regulations on fracking that could reduce output.

The jobs number is supporting oil as the reduction of odds that the Fed can act in September is helping oil as well. Fed speak will be on tap this week. Beware! Oil will get support if the Federal Reserve speakers sound more dovish. If not, we have to watch out for their effect on the dollar.

Oil inventories will be a mover. On Friday Genscape reported another drawdown in Cushing, Okla. That means along with bad weather in the Atlantic and storms in the Gulf of Mexico, we could see a big crude oil drawdown.

Natural gas is looking beyond the heat on hopes that temperatures will cool off and reduce gas demand. Use weakness to postion for a winter time spike.

About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.