Shale predictions and price predictions, sometimes they just do not get it. According to an article in today's Financial Times, OPEC is shocked by how many hedge funds really have no clue about how the oil market works. OPEC’s Secretary General Mohammad Barkindo, who met with hedge fund managers, seemed shocked that many of them had no "basic understanding" of oil and were less savvy than was widely assumed.
You can talk about shale oil and rig counts all you want but you must also talk about oil in storage or the lack thereof. My buddy Matt Smith at Clipper Data points out that Saldanha Bay in South Africa is home to one of the world's largest crude storage facilities, and it has seen its supply almost emptied out.
Concerns over a trade war have put downward pressure on the stock markets and the U.S. dollar. The markets sold off sharply yesterday and shares have opened weaker again today. The dollar has sold off against the yen and the euro, although it is holding its own relatively better against other currencies, most notably the commodity currencies.
A potential trade war and Russian meddling, not in an election but to try to influence U.S. energy policies, is all the rage in the financial markets today. U.S. stocks plummeted after President Donald Trump slowed the market with the timing of his announcement that he would impose a 25% tariff on steel imports and 10% on aluminum.
It’s "sunshine on the shoulder" season as U.S. refineries slow runs to 87.8% of capacity, running just 15.9 million barrels, the lowest level of the year as seasonal maintenance flips into high gear. The trade seemed disappointed that the overall 3-million-barrel build in crude oil supply was higher than expected. That is what should you expect when seasonal maintenance is happening.
From glut to shortages. During downturns in major commodity markets, there is a tendency to get all doomy and gloomy about the future and get locked into a lower than longer mentality. That kind of short-term thinking has engineered a major bottom in petroleum, and now that type of thinking may have an on impact natural gas.
Even as crude oil supply may rebound this week the tightening global oil supply is becoming more apparent. Global demand fed by low prices and OPEC compliance has seen the global overhang of oil practically disappear. We saw more support from geopolitical issues as Libya declared a force majeure after an attack at its southeastern oil field Al-Fil.
After falling for the past two days, the price of WTI crude oil has bounced back off its lows to trade flat to slightly firmer at the time of this writing on Thursday morning. However, WTI still remains in the red three and half days into the week. As a reminder, oil prices rallied last week and made back a significant chunk of their losses from the week before, but not enough to turn positive on the month. At $61.30 per barrel, WTI thus remains more than $5 or 8% below the high of $66.62 hit on Jan. 25.
Crude oil prices are getting rattled as the fear that rising interest rates will slow down surging U.S. and global demand. High-yielding auctions and Fed minutes, that stated the obvious, was enough to send stocks and oil and the 10-year Note on a wild ride. At first, the market took the Fed's promise of gradual rate increases as a positive but later deemed that the Fed was still hawkish. Yet, the real surprise is that the market is surprised that the Fed can read economic data.
Ten years ago, the market was fretting, everyone was worried about "peak oil,” and now the focus is on peak demand. Instead of the world on a collision course of fighting over the last drop of oil, now it seems that we have turned the world upside down and now we are seeing predictions that oil demand will peak. The latest peak demand forecast comes from BP, which is predicting that the demand for oil will peak before 2040.