Oil is in need of some Prozac. Mood shifts in the oil market are becoming more violent and increasingly lack any trend. Prices spiked to 6389 on the Saudi attacks and broke down to 5099 before recovering into what is now one of the wildest trading ranges in recent memory. Sharp moves in either direction can happen on the headline of the minute, making it very attractive for day and swing traders. Position traders, of course, need Rolaids as the swift mood changes can get your head spinning and stomach churning. Just when you think the trend is down or up, get ready to be flipped around.
On Friday oil prices soared on U.S.-China trade talks. On Monday they sold off as those trade ideal talks seemed to turn into more talks. Today there is more concerns about a slowing global economy with weak import and export data out of China, which one might think would make China want to get done with the so-called phase one of this complex U.S.-China deal. Instead more talks seem to be the talk and oil took another hard drop in overnight trading.
Demand fears are the reason. The International Energy Agency (IEA) cut its oil demand forecast again saying that demand will grow by 1.0 million barrels per day (mb/d) in 2019 and 1.2 mb/d in 2020, both downward revisions by 100,000 bpd from their last estimates. Of couse their demand predictions have not been good.
The market is probably pricing in another big build in supply as refiners in the U.S. are still deep in maintenance. Yet keep an eye on the products, especially distillates, that are falling way below normal. This is the weakest demand period of the year making it harder for on the oil market.
As bad as the market looks today, we are still higher than we were 5 days ago. In another words, oil is just one tweet from turning higher or turning back towards the low.
OPEC, of course, must be frustrated. With the attack on Saudi Arabia, the compliance rate to production cuts from OPEC plus Russia deal hit 200%. OPEC’s total production slumped by 1.318 million bpd from August to 28.491 million bpd in September, according to the secondary sources in OPEC’s closely watched Monthly Oil Market Report. This comes a day after Saudi Arabia and Russia agreed to a long-term pact on oil cooperation and signals that OPEC and Russia may be planning a cut at the December OPEC meeting. OPEC Secretary-General Mohammad Barkindo said that OPEC and its allies are committed to maintaining oil market stability beyond 2020.
Oil traders should be watching to see if the White House extends waivers for Chevron (NYSE:) and 4 other service companies to work in Venezuela. The waiver ends October 25th. S&P Global Platts said that Venezuelan oil production, already averaging a historic low near 600,000 b/d, could quickly plummet below 300,000 b/d if the Trump Administration allows a waiver for Chevron and four U.S. oil services companies to expire next week.
Natural gas got support from a colder than normal 15 day forecast. Any sign that we are backing off from that forecast will cause to fall back. Buyer beware.