The Phil Flynn Energy Report
Oil prices collapsed in what can be described as a post-Thanksgiving turkey shoot. Computer algorithms took suspect headlines and in turn picked-off bullish positions like turkey hunters in a petting zoo. Sure, there were headlines that Saudi Arabia was tired of carrying the load for OPEC and reports that Russian oil companies proposed not to change their output quotas as part of a global deal until the end of March but almost a three-dollar break, 5%?! Give me a break.
The real reason why oil and products got hit so hard on black and blue Friday was because they could. Light volume and a lot of sell stops were gobbled up leading to an extreme and ridiculous move. The magnitudes of the move raised a lot of eyebrows as to why we saw such a big move on a short day that lacked any real news. It raises comparisons to other massive selloffs on holiday sessions. We just have to go back to last year when we had holiday massacres in the marketplace. Producers and users of the product want to know if this is going to become the norm in this computer-driven marketplace.
We all know that Russia plays hard to get ahead of these OPEC deals. Russian oil companies play bad cop. Oil minister Alexander Novak is in the middle and Russian President Vladimir Putin plays good cop. So to sell off 5% is ridiculous. Some are worried that as Oil Price reported, "Russians have a grievance about the pact that they are likely to take up with their OPEC allies. Russia is expected to discuss with its OPEC partners the exclusion of gas condensate from its cap, as condensate isn’t exported, while it is included in Russia’s oil production statistics, Novak said last week.” Speaking on Thursday, Novak said that Russia hasn’t asked OPEC+ yet to exclude gas condensate from the calculations. Russia tries to fully comply with the cuts, but it is unable to do it because of increased gas condensate production, the minister noted according to the oil price.
There still are bullish fundamentals. Especially considering the fact that oil demand is strong and getting stronger. And supplies, based on forward demand cover, are the tightest they have been in years.
And the talk of a slowdown in Chinese demand has not happened, not to mention that China reported good economic data. China’s official purchasing managers’ index rose to 50.2 in Nov, up from 49.3 in Oct, the first time it has been above the 50-point threshold, separating expanding activity from a contraction since April. That means we will see Chinese oil demand improve even more. These are just some of the fundamentals of the oil market.
As far as OPEC is concerned, the Wall Street Journal reports, "Saudi Arabia will push for an extension of oil-production cuts through mid-2020 at a producers’ summit this week in an effort to prop up Saudi Aramco’s initial public offering share price, Persian Gulf officials said. But talks over boosting compliance to agreed cuts—a key condition for the kingdom to deepen its efforts—are being overshadowed by growing unrest in the Middle East. The Saudi-led Organization of the Petroleum Exporting Countries is set to meet with a 10-nation coalition led by Russia on Dec. 5 and 6 in Vienna to debate to extend a pact to curb production by 1.2 million barrels a day beyond the agreed end of March 2020. The debate is likely to be heavily influenced by the IPO of state-run Saudi Arabian Oil Co., as Aramco is formally known, which is set to announce the pricing of its shares on Dec. 5 ahead of its roughly $25 billion listings. Fearing that uncertainty could lead to a sharp drop in oil prices, the kingdom wants an agreement to extend production cuts to at least June 2020, Persian Gulf oil officials said.” Stay tuned.
Natural gas also got hit hard on black and blue Friday. Andrew Weisssman of EBW analytics says that, "Natural gas was crushed last week, with the front-month contract suffering one of its largest losses of the year. More than half of this loss occurred in light trading last Friday, and could be partially reversed on Monday. With pipeline scrapes over the weekend indicating that US gas production is continuing to surge and warmer-than-normal weather expected for much of December, significant further declines are possible for NYMEX gas between now and Christmas. Rising nuclear demand and the Thanksgiving holiday squeezed out 1.3 Bcf/d of power sector natural gas demand last week. Falling natural gas prices, however, may boost coal-to-gas switching by 1.0 Bcf/d from November to December.”