Crude: A lot to watch

August 7, 2017 08:19 AM
Daily Energy Market Analysis

Crude oil is lower as the market has a lot to watch as the seasonal summer peak demand time is here. Seasonal wekness in August seems to be overshadowing a jammed packed oil news day. OPEC meets about compliance as the U.S. oil rig count slows. Storms in the Atlantic could impact shipping and Mexican oil production. Gas Buddy reports retail gas prices hit an eight-week high as the Venezuelan military puts down a coup. Hedge funds went long on oil, gas and heating oil for the first time in months according to CFTC data. There are a lot of things that could juice oil, but for the moment the market is taking it all in stride.

OPEC Is meeting in Abu Dhabi with Russia in attendance to try to get to the bottom of why some members are cheating on output. Even though OPEC compliance is better than it ever has been, they want to clamp down. The market also wants to see Nigeria and Libya finally agree to a quota, and that is the main reason why OPEC production has crept back to the highest levels since the production cuts have gone into effect. The Saudis want to make it clear that they intend to do whatever it takes to reduce the global oil supply overhang. 

Venezuela said it put down an attempt by military group to take power away from Nicolás Maduro, who the United States thinks stole power in a “sham election.” The attack at a military base that killed two people raises concerns that Venezuela may end up in a civil war. Poilu is unmoved because oil exports were not disrupted and globally Venezuela is only about 2.8% of supply. Still, a cut off of Venezuelan oil would lead to higher gas prices in the United States.

Gas prices are already risng at the pump according to Gas Buddy. Gasoline prices across the United States continued to move higher over the last week, rising in 46 states to a national average of $2.35 per gallon today--the highest level since June as prices continue to play catch up to crude oil prices that edge closer to $50 per barrel.

Tropical Strom Franklin has formed in the Atlantic and threatens Mexico’s production areas in the Yuckatan Peninsula. A hurricane watch has been issued by the government of Mexico for a portion of the Yucatan Peninsula fom Cheetal to Punta Allen. This does not include Cancún or Cozumel. This means hurricane conditions are possible in these areas. Tropical storm warnings extend over most of the rest of the Yucatan Peninsula, including Cancún and Cozumel. A tropical storm warning means that winds more than 40 mph are expected within 36 hours and that preparations for the storm should be rushed to completion. A tropical storm watch extends southward to Belize City, meaning tropical storm conditions are possible according to the Weather Channel.

A second storm is also brewing. The National Hurricane Center issued advisories on, “elongated area of low pressure located about midway between the Cabo Verde Islands and the Lesser Antilles is producing limited shower and thunderstorm activity. Environmental conditions are forecast to be unfavorable for development during the next several days. Upper-level winds could become more conducive for some gradual increase in organization by late week while the system moves generally west-northwestward across the tropical Atlantic at about 15 mph. Formation chance through 48 hours...low...near 0 percent. Formation chance through five days...low...20%." Stay Tuned.

There are more signs of a shale slowdown. Baker Hughes reported that the U.S. rig count fell by 4 to 954. Oil-directed rigs fell 1 to 765. Gas rigs fell 3 to 189. In the Permian Basin, there are growing conerns that fracking is drawing down too much warter from the area’s limited supply. The Houston Chronicle reports that, “as the oil patch demands more water, West Texas fights over a scarce resource”. They report that since 2011, water demand has gone up by 55 million gallons. By 2020 that could increase to as much as 92 million gallons. That is going to be tough in an area that is mainly a desert and it’s leading to tensions.

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.