Will geopolitical concerns ignite crude market?

April 26, 2017 09:24 AM

The oil trade has become tedious with a bigger dose of monotonous heaped inside. Not even another conflict with Iran or a drawdown in oil inventory could wake this boring market up out of its tedious movements. Perhaps that may change as the dollar is springing back to life and we get oil inventories and reports that Mexico’s PEMEX is going to spend 134 million dollars on a great oil hedge. Along with that, traders may look at other outside commodity markets that are showing some signs of stress.

The API did report an 897,000 barrel drop in crude oil supply and an even larger 1.97 million barrel drop in Cushing, Oklahoma. Of course some of that drop was because refiners were ramping up gasoline production, allowing those supplies to increase by an impressive 4.45 million barrels. Distillates did fall by a modest 36.000 barrels. So, it was really a mixed bag not really helping the bulls or those bears and encouraging a big rise in malaise to what is almost a disgusting level.

As crude approached oversold territory, you would think we might get at least a little bounce from geo-political risk stories. Fox News reported that a, "U.S. Navy destroyer had another close encounter with an Iranian Revolutionary Guard "fast attack craft" in the Persian Gulf Monday. Two U.S. officials tell Fox News that the Iranian ship came within 1,000 yards of the guided missile destroyer USS Mahan with its weapons manned. The officials said the Mahan altered course to avoid the Iranian warship, sounded the danger signal, fired flares and manned its own weapons. The Iranian ship did not come closer than 1,000 yards and no warning shots were fired. "Coming inbound at a high rate of speed like that and manning weapons, despite clear warnings from the ship, is obviously provocative behavior," said one American official in describing the Iranian actions.

Mexico is hedging on whether oil prices have peaked or not. The FT reports that Pemex, Mexico’s state oil company, has spent $133.5 million on a hedging program, the first in its history, to protect its balance sheet from falling crude prices. The FT says that since 2005, Mexico’s finance ministry has conducted an annual hedging program. It is the market’s largest such oil trade and usually shrouded in secrecy. Pemex’s program was not expected to change that. (It has done a good job with that in the past) “The two things have nothing to do with one another,” a spokeswoman said, indicating that the ministry hedge would go ahead as usual.

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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.