Crude: One more day

April 11, 2017 09:51 AM

In case you weren’t watching, Wednesday is only a day away. 

No, tomorrow is not the premiere of yet another Kardashian reality show spinoff. What happens in the next 24 hours is that Venezuela is going to come due on about $3B in debt payments. This is almost like one of those thrillers where the lead character has only a day left to come up with the money that he owes the big bad loan shark. The only difference here is that there’s a lot of oil at risk here that might just be going away for a long time. Most people tend to overlook the importance of Venezuela and it’s oil. It was Venezuela that was the third best importer of oil to the U.S. back in the oil boom of the 2000’s. They were usually neck and neck with Mexico and sent oil to America at about a 1mm b/d clip. Of course, those days are long gone. Canada has since tripled its imports of crude to the U.S. and Venezuela has fallen back to about 720K b/d, That’s the number we’ve seen over the past year and it’s likely to fall further. 

We’re not even getting to the part where we used to bring in refined products from Venezuela too. Back when gasoline prices were well over $3/gal, we were bringing in several cargoes a week from the Venz refineries. The Amuay Refinery in Venezuela was once the prize jewel of the country. It was the third largest refinery in the world at 940K b/d and was a cornerstone of the country’s oil income. Through the years, it’s suffered major setbacks with fires, explosions and delayed maintenance. What has once been the cash cow of Venezuela, now is one of the reasons that they are so strapped for cash. Venezuela has become one of the largest importers of gasoline and has spent a lot of money in the process. Back a week ago, there were stories of tankers that were full of gasoline adrift in the Caribbean. Though not confirmed, I’d probably guess that these were headed to Venezuela, but ran into credit issues that stopped them in their tracks. 

Venezuela always has it’s crude to use as leverage when times are desperate, but I’m looking at some numbers here and I’m thinking there’s, even more, trouble ahead. So far this year we’ve seen Venz imports of crude to the US top 1mm b/d twice and pretty close to t third week at 975K b/d. In 2016 we only saw them manage one week over the magic number. I know the teeming millions are thinking this is because oil prices have been so good so far, but I think that the country is selling everything out of reserve. I think that if that Government is thrown out, it’s going to look a lot like Iraq did in 2003. While everyone is thinking that they are maintaining their oil production, things are going to be a lot worse than we’ve known. It really wasn’t that long ago that Venezuela was producing close to 3mm b/d (2014, 2.8mm), but it fell back hard on the decline in oil prices and has never recovered. That’s the thing about conventional oil production, it’s hard to stop and expensive to get it back to prior rates. Unfortunately, Venezuela doesn’t have the money to make this happen. Their major sovereign debt payment is due tomorrow and they may be borrowing money to pay that back. The hole gets deeper, but it’s not yielding anything that they were expecting. 

Crude: And another month bites the dust. It’s hard to believe that we’re already moving along to the CLK7 contract. We now pivot past the last month of the year and that should be worth something to everyone trying to play the cash and financial markets. We kick off with resistance here at 5358, 5460 and 5549. We’ll look back lower to support at 5213, 5172 and 5055. We’ll also change the lead spread and the front spread moves up to CLK7/CLM7 and starts with resistance at –38, -22 and –10. Support comes back to –48, -60 and –75. Let’s get this week done right and the new contract back in play. Don’t lose your way; follow the Dollar, follow the dream. 

Gasoline: OK laziness has been set aside and I’m moving ahead of the RBK17 contract. We can start with resistance here at 17555, 17760 and 17935. Support looks below to 17365, 17180 and 16966. The front spread moves to RBK7/RBM7. Resistance at +80, +185 and +240. Support to +10, -70 and –145. The RBK7/CLK7 gets resistance at 2110, 2188. Support falls to 2052, 1980. 

Distillate: The calendar keeps us moving and we are focused on the HOK17 contract. We’ll get resistance here at 16484, 16659, and 16870. Support looks back to 16260, 16045, and 15885. The front spread bumps up to HOK7/HOM7. Resistance here looks at – 52, +40. Support holds down to –78, -90. The crack moves up to HOK7/CLK7 Resistance at 1658, 1713. Support back to 1588, 1510. 

Macro Fundamentals: So much for all that hype on the Unemployment number. Only slightly less exciting was Fed President Yellen’s talk yesterday. I’m almost sympathetic about former Fed President Lacker. At least he was try-ing to keep things interesting in wickedly wrong way. This Fed has to be one of the quietest and most vanilla we’ve seen in history. Not that the economy is any different right now. Still, it would be nice to have something to think about other than oil basics. Speaking about boring, we get the JOLTS number at 10:00 a.m. EST and I think someone still cares about that. 

About the Author

Carl Larry is Director of Business Development Consultant for Oil and Gas at Frost & Sullivan. Follow him on Twitter (@oiloutlooks) or on his website. He can also be reached at