Crude: Seasonal bottom pick

October 9, 2017 09:36 AM
Daily Energy Market Analysis

Oil and product prices pulled back Friday as it became clear that Hurricane Nate would only cause a short-term impact on U.S. oil production and that there was no damage to offshore oil rigs. The fast storm means that production will come back online quickly as the U.S. energy industry will rise to the occasion and continue to do the amazing work they have done storm after storm. Just think that over 90% of oil production in the Gulf was down as personnel was evacuated from a total of 301 production platforms, 40.84 % of the 737 manned platforms last week and already most of that is already back to normal. Let’s hope they get a break from the storms for a while.

The oil market sell-off was exasperated by an apparent flip-flop by Russia about the prospect of another oil production cut. Oil price soared after our buddy President Vladimir Putin suggested that he was in favor of an extension of production cuts which more than likely would have sealed the deal. Yet now it looks like he and Saudi Arabia backtracked on the statement. Not because they won’t extend cuts but It is because they do not want to have the market price it in a cut too early so it looks like a disappointment when they announce the extension at the November 30th OPEC meeting.

OPEC Secretary-General Mohammad Barkindo did say that those consultations were underway for an extension of the agreement beyond March 2018 and that more oil-producing nations may join the supply pact and said that producers may have to take some “extraordinary measures” to ensure the market is in balance in the long term.  That may mean an even larger cut or perhaps forcing Libya and Nigeria into agreeing to a production cap. I think that OPEC wants to give the market strong support as they kick off the strong demand period.  

That is why we feel that this recent sell-off is setting the strange for a seasonal low. We are looking to lock in positions ahead of the traditional seasonal rally. As the global oil market gets in balance and the lack of investment in oil means that spare oil production capacity next year could be the tightest it has been in almost a decade. That means oil price will become more sensitive to geopolitical events in the future. We felt that we are close to making a seasonal bottom pick that may get us closer to the low for the rest of the season. Global demand is rising and supply is falling and spare production capacity is going to tighten.

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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.