Crude Oil's $70.00 Test Was Met With Resistance And Profit-Taking

June 8, 2021 11:50 AM
Crude oil prices seem to have lost their mojo as the $70.00 test was met with resistance and profit-taking
China’s attempt to cool commodity prices may work in the short term, but in the long term, it’s like taming a wild animal
It was merger Monday in the oil industry
Energy Report

Energy Report

The Phil Flynn Energy Report 

$70.00 Slip

Crude oil prices seem to have lost their mojo as the $70.00 test was met with resistance and profit-taking. It doesn’t help that there’s not a lot of new news. There were concerns about a drop in Chinese imports, but we all know that’s most likely temporary. There was also news about the resumption of the Iranian nuclear talks, but it still looks like a longshot when it comes to lifting sanctions. 

There’s a story from Bloomberg about 6.0 million barrels of oil in floating storage that doesn’t fit the bullish case for oil and, based on market structure, doesn’t even make sense. That said, what looks bearish short term may be more bullish.

China’s attempt to cool commodity prices may work in the short term, but in the long term, it’s like taming a wild animal: when it turns on you, you’d better watch out. The same goes for when we get our crude oil data, which should show a sizable drop in U.S. crude supply and also should be enough to give the market a boost. In the short term, the lack of news is giving bears a point to get back some losses, but they’d better get them while the getting is good.

The AFP reports the following:

The United States, which has for two months been holding indirect talks with Iran on the future of a tattered 2015 nuclear deal, said Monday it was not even sure if Tehran really wanted to come back into compliance.

"We've been engaged in indirect conversations, as you know, for the last couple of months, and it remains unclear whether Iran is willing and prepared to do what it needs to do to come back into compliance," Secretary of State Antony Blinken told the House Foreign Affairs Committee.

"We're still testing that proposition," Blinken said.

He says he worries that Iran has been leapfrogging ahead with its dream to get a nuclear weapon and, while he blames the U.S. withdrawal from the 2015 accord, the reality is that Iran was still going to get a nuclear weapon under the old deal.

It was merger Monday in the oil industry. Marketwatch reported the following:

Shares of Contango Oil & Gas Co. MCF, +4.27% rallied 5.0% in premarket trading Tuesday after the oil and gas company announced an agreement to combine with KKR & Co. Inc.'s KKR, -2.29% Independence Energy LLC in a stock deal that values the combined company at about $4.8 billion. KKR shares gained 1.2% ahead of the open. 

Under terms of the deal, Independence will merge with an operating subsidiary of a new parent company, which will become publicly traded, and Contango will become a wholly-owned subsidiary of that operating company. 

The deal is expected to be "highly accretive" to financials, including adding about 15% to Contango's cash flow per share in 2021 and adding 50% to 2022 cash flow per share. Synergies are estimated to be more than $20 million. 

KKR Energy Real Assets head David Rockecharlie will be chief executive of the combined company, and Contango Chairman John Goff will be chairman of the combined company. 

Contango's stock has soared 145.4% [year-to-date] through Monday, while KKR shares have climbed 33.7% and the S&P 500 SPX, -0.08% has advanced 12.5%.

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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.