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Page added on August 12, 2017

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Oil’s Most Likely Direction Is Down

Consumption

Oil’s recent rally has run out of steam, and the path of least resistance continues to be lower for the beleaguered market.

U.S. oil futures have encountered resistance at the $50-a-barrel level, and face a deluge of challenges in breaking above the current range. While bullish storage signals have lifted prices more than 14% since oil fell into a bear market in June, analysts and traders are skeptical that they will rise much further.

One problem is a lack of confidence in the Organization of Petroleum Exporting Countries, which, along with several producers outside the cartel, had hoped to boost prices by curbing output by a total 1.8 million barrels a day.

However, prices have recently been trading close to or below levels seen right before the deal was made in the last months of 2016.

Light, sweet crude for September delivery settled on Friday at $48.82 a barrel on the New York Mercantile Exchange, down 1.5% for the week. A popular exchange-traded fund that tracks oil prices, the United States Oil fund (ticker: USO) is down more than 14% year to date.

Countering OPEC’s efforts to mitigate a global supply glut, U.S. shale companies ramped up production in response to the initial price jump, locking in higher future prices and restarting wells. Meanwhile, compliance among OPEC members has been slipping, as official July data showed total production rising.

“OPEC hasn’t been able to do 100% compliance,” says Tariq Zahir, managing member of commodity trading advisor Tyche Capital Advisors. “Once we go a few months from now, I wouldn’t be surprised to see other countries cheat…or even pull out of the deal.”

In May, the global cartel agreed to extend the deal through March 2018, but prices sold off as traders looked for longer or deeper cuts to combat shale’s rise. The speed at which shale drillers responded to higher prices took many industry watchers by surprise, and continues to unnerve some investors as they watch for increases in production data and the U.S. rig count.

In its short-term energy outlook report, the U.S. Energy Information Administration forecast that U.S. crude-oil production will average 9.9 million barrels per day in 2018, an all-time record. The last production record set was in 1970, at 9.6 million barrels per day.

“What this year shows is that the supply elasticity of U.S. production is very high,” says Robert Boslego, managing director of Boslego Risk Services in Santa Barbara, Calif., who put on short positions in oil futures after OPEC’s meeting in May. “Its whole strategy of just reducing production to get prices higher is really a failed strategy,” he adds.

Analysts have also warned that a move above $50 a barrel could increase hedging by U.S. producers, which sell future barrels when oil climbs to guarantee prices and revenue. In a report on Monday, Citi research analysts said producers have already added to crude hedges as U.S. prices have approached $50.

“The most important litmus test is, will crude be able to clear $50,” says John Saucer, vice president of research and analysis at Mobius Risk Group. Prices have “much more to do with how much hedging is being done” than OPEC right now, he added.

On Wednesday, the U.S. Energy Information Administration reported that crude inventories fell for the sixth week in a row, down 6.5 million barrels in the week ended on Aug. 4. However, an unexpected rise in gasoline stockpiles put a damper on the good news. The amount of gasoline in storage rose by 3.4 million barrels in the week ended on Aug. 4, raising concerns about slowing demand even as drivers hit the road for summer vacations and travel.

Speculative investors have started returning to the market in recent weeks. According to data from the Commodity Futures Trading Commission, bullish bets outnumbered bearish bets by 280,109 contracts in the week ended on Aug. 8, down slightly after reaching the highest net long position since April in the previous week.

However, analysts and OPEC noted that the positioning change has mostly been investors covering short positions, rather than adding bullish bets.

Bearish sentiment has been quick to take over oil prices, after speculators built up net bullish bets to a record position and got burned in the first half of the year. If doubts start to permeate the market again, investors unwinding bullish bets could lead to another steep and sudden drop for oil.

Barron’s



10 Comments on "Oil’s Most Likely Direction Is Down"

  1. paultard on Sat, 12th Aug 2017 10:30 am 

    sorry can’t find the post where i reported to der that i put some thought into subject of cattle multilation and still the answer is no. not biting it.

    it’s creepy and shocking. that’s how they open your mind so you can easily accept their poison. fear is how to make you programmable.

  2. paultard on Sat, 12th Aug 2017 10:37 am 

    remember i was a paultard and i was deep into this stuff. like a moth i went for strange and novelty stuff and the intarweb has tons of it.

    this is why i don’t like maktard. he lets fear have total control over him. fear never done me any good and it took a financail and sanity toll over me. it almost gave me lead poisoning if u know what i mean. i decided that fear will stop its reign over me and that’s that

    i’m so stupid. i hate being a tard.

    of all the place he went to the phhils where he has a very high value for abu sayaf. they could put his price at a few millions. he thinks his buddy are good people. i love the maktard i want him to go back home.

  3. bobinget on Sat, 12th Aug 2017 11:08 am 

    Oil is lighter than water. In troubled times, eras of transition, disruptive technologies, a great deal of confusion abounds. Oil may mix with water, for a time.
    WE have been at war in Afghanistan so long our motives for that conflict changed a dozen times.
    Some things, like oil dependency, never change.

    Yesterday, Our Great Beloved Leader qualified Venezuela as a military target. One guess. Why?

    List nations past & current, possible, targets of US military intervention. Locate targets with no commercial oil deposits or pipeline avenue potential.

    Yes, N.Korea and Afghanistan have valuable
    minerals but, are pipelines the real reason we care?

    Back on topic.
    Venezuela will no longer be the third biggest crude exporter to the US. Upshot, oil prices will slowly double until, like in 2008, the burden of $5. gasoline, automation, (AI), will bring down the US ICE economy.

  4. Davy on Sat, 12th Aug 2017 11:53 am 

    “Upshot, oil prices will slowly double until, like in 2008, the burden of $5. gasoline.” ??????

    Got any clarifications bob? Sounds like a past comment I saved for you. One that didn’t play out.

  5. Darrell Cloud on Sat, 12th Aug 2017 12:14 pm 

    I wonder if all the noise about Korea is a cover for the invasions of Venezuela?

  6. GregT on Sat, 12th Aug 2017 1:14 pm 

    Could be Darrell,

    Venezuelan oil imports are far more of a threat to The Empire than North Korea will ever be. That being said, PNAC clearly laid out the importance of the Koreas to continued US global military dominance. In either case, the game is nearly up.

  7. Cloggie on Sat, 12th Aug 2017 1:24 pm 

    https://forexcrunch-wpengine.netdna-ssl.com/wp-content/uploads/2016/06/image1.png

    US oil imports

  8. dooma on Sat, 12th Aug 2017 8:58 pm 

    Heeey, Davy. You are my new bestie now that you show you wanna play. You are really going to enjoy this.

    A better heading for this article would have been ” Oil’s Most Likely Direction Is Down-Just live Davies mum”

    She could suck the chrome off a tow hitch. I loved when she played the rusty trombone on me. I was going to say look it up but because we are best buddies and all now, I will tell you. That is when she used to stick her sweet tongue into my arse and stroke my penis until I came all over her breasts.

    How is your corpulent body going at “Rancho Really Privileged?” I hope you hosted that beautiful flag of your cuntry? The flag that has spread death around the world. Maybe you God-loving peaceful people might be getting ready to spread some more collateral damage to numerous citizens of the FREE world again.

    I got a 6 year old to translate what the Jewish puppet said and it seems like he is not happy. “crash boom bang he said will happen. I think he said a two syllable word but I think that was because of some interference in his’ earpiece. It does have a long way to travel (signal). Israel is a long way away.

    Anyway, you keep wearing those baseball caps, bib and brace overalls, so comfortable when you are carrying a few extra pounds. How did I know that you are a fat cunt? Because apart from people on TV, you all are lol.

    Keep taking all those pills including Lipitor. After all they are keeping you alive. God Bless AmeriCANS. Because the rest of the world hates you.

    Take care my new bestie. Was a good thing you made my blood boil and you thought you were clever for it because I think it bought us closer. Like this one time I was balls deep in your mum’s arse and…ah, we will save that for anther time.

  9. paultard on Sat, 12th Aug 2017 9:03 pm 

    dommtard, the rest of the world doesn’t have anything so they hate usa. eventually all that hate will turn them against one another then we’ll come in and take siberia.

  10. dooma on Sun, 13th Aug 2017 7:34 am 

    Yes, quite an intelligent observation there paul.The rest of the world has been fucked over by the US in one shape or form. The self-appointed international policeman who decides who is allowed to have nukes or not.

    It has nothing to do with envy. And you show the typical signs of an American education.

    Take history for example. I will give you a hint, anyone thinking of having a crack at Russia, it always ends in tears for the invaders.

    And your use of tard must keep you as amused as a piece of paper with P.T.O on both sides.

    Run along now, I think Mrs Paul is home, unless someone just opened a tin of tuna?

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