The Phil Flynn Energy Report
Oil prices have been in a stalemate between the bulls and bears, with fleeting victories on either side of the equation.
Global oil supplies have been tightening but fears of a worldwide second wave of Covid-19 is raising demand fears.
The stakes are high that OPEC + as the Joint Ministerial Monitoring Committee, meets online today. There is a push by Saudi Arabia and Russia to extend cuts through 2021 and pressure members who have cheated on reductions to continue to make up the difference. They also have to talk about an adjustment to make up for the return of Libyan oil supply. No decision is expected today, but a surprise announcement of a cut extension could break us out of this trading range. A deal may be critical to continue to drain global oil supply, mainly because we see signs that U.S. producers will try to raise output again.
In its weekly rig count, Baker Hughes said that the number of active U.S. rigs drilling for oil rose by 12 to 205 this week. The increase followed increases in each of the last 3 weeks. The total active U.S. rig count, meanwhile, was up 13 to 282.
U.S. output was down significantly because of Hurricane Delta and should rebound this week. Yet will it recover to pre-hurricane levels of over 11 million barrel of oil a day (bpd)? HFI Research says that it will not. They say that the real-time U.S. oil production reading indicates a level of 10.783 million bpd into October. With September U.S. oil production now set at approximately an 11 million bpd average, the implied decline rate between August and September, excluding shut-ins, is around 500,000 bpd. Consensus has U.S. oil production flat around 11 million bpd for the next year. This will prove to be too optimistic. The consensus production forecast will only come true if WTI is closer to $60.00 per barrel.
We should see draws across the board on crude oil, gasoline, distillates. Demand improvements have been a factor. China and India say great demand, and in the U.S., an uptick in distillate demand was supportive.
I still believe that oil is bottoming. Look for a global supply deficit to lift prices.
Natural gas is setting up for an up week as winter comes in and liquified natural gas exports resume. Look to put on bullish strategies.
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