U.S. crude oil production is at a record high but supplies of oil keep falling. Did you stop to wonder why? Well, there are many reasons, such as record demand, but a larger issue has to do with shale oil. Yesterday’s oil initially rallied on a report that Saudi Arabia was raising crude prices for customers showing that they are confident about demand and not worried about losing market share.
In 2007 crude oil began the year priced at $60 per barrel. By July 11, 2008, it rose to $145.66, which was a nearly 150% increase, and a 31.6% increase in a little more than half a year. Southwest Airlines (LUV) was the only airline that hedged its largest variable cost. Southwest was paying $30 per barrel less than most of its competitors. In a little over five months later, on Dec. 26, WTI had dropped all the way down to $32.34. That’s a 77.8% decrease.
Planes and cars and steel is one thing, but now it’s serious because we are talking soybeans. China decided to hit at the heart of U.S. China trade by taxing the beloved American soybean. The move was viewed by the market as the first real sign that the potential trade war is serious because China loves and need U.S. soybeans. Historically, China introduced the United States to the soybean and we have been happy to sell them back to them.
Crude oil might have hit the gas pedal, but equity investors have been left on the sidelines as energy stocks continue to struggle even as the price of crude rallies. Energy stocks seem like an easy way to play the recovery in crude prices, but the disappointing performance of most energy funds tells a different story.
It ’s often a complicated question, and when it comes to markets, the “why” often takes a backseat to the “what” that is happening and “how” it should be traded. Nonetheless, it can be worthwhile to understand why a market relationship occurs, so that you can adjust more quickly than the competition when the relationship inevitably changes.
The crude oil sell-off was just downright crazy. Oil got caught up in trade war fears, tech wreck fears, OPEC/Non-OPEC compliance fears, and a build in Cushing, Okla., oil stocks, as reported by Genscape. Stocks had the worst start to April since 1929, but really the magnitude of this sell off was a big April’s Fools Day joke that just one day late.
Crude oil prices are on the rise after Baker Hughes reported the U.S. oil-rig count fell by 7 to 797 rigs. After recent increases that might not seem like a lot, traders now know that to keep U.S. shale production rising you must keep on drilling. Steep shale decline rates means you can’t let up or production will start to ebb and fall.
Crude oil ran into tech trouble as the U.S. tech sector is under fire leading to a sell-off in stocks against a backdrop of rising oil inventory. The data breach scandal at Facebook is only one of many quick rising problems for the many tech firms and I am sure somewhere the Winklevoss twins are smiling.
Crude oil prices dipped as trade war fears went away after a private report that appears to indicate that oil supplies may see a big increase this week. Genscape, the widely followed energy market data and intelligence company, reported that oil supply in Cushing, Okla., was up 2.18 million barrels last week. The increase and the fact that some of the Geo-Political concerns did not actually blow up into a supply disruption over the weekend led to a correction in the price of crude.