Friday, September 27, 2013

Oil: "WTI heading for its third weekly decline in a row"

Here is this week's action via FinViz:

$103.16 last. Brent $108.73 down 48 cents.
From the CME:
The oil complex is heading for a mixed performance for the week with WTI lower for the third week in a row while Brent and HO are around unchanged with the spot RBOB contract still showing a gain for the week. The week has been driven by a cautiously changing sentiment on the geopolitical front offset a bit by the ongoing and massive quantitative easing program in the US.

Yesterday the UN Security Council permanent members passed a resolution requiring Syria to surrender their chemical weapons. If Syrian does not comply a new resolution will have to be passed imposing enforcement which Russia currently opposes. For the moment Syria will continue to move to the background insofar as acting as an upside price driver for the oil complex.

The much talked about high level meeting between the west (P5+1) and Iran also took place yesterday in NYC. As a sign of possible progress yesterday's meeting was the highest level meeting with Iran and the West since prior to the 1979 Islamic revolution. Reportedly it was a constructive meeting with some saying a window of opportunity has opened for a peaceful resolution to the Iran's nuclear situation. Whether or not this is the beginning of a quick resolution is still a big question mark. For now about 1.1 million bpd of Iranian oil remains shut-in but the negative rhetoric from both side seems to have stopped.

On the economic front mixed data out of the US yesterday as initial jobless claims dropped by 5,000 to the lowest level since 2007 but the updated Q2 GDP came in unchanged at 2.5 percent versus many in the market expecting an upward revision. The economic data out of the US yesterday as well as over the last week or so still supports the US Federal Reserve continuing with their massive QE program for now.

The November Brent/WTI spread has remained in a widening pattern and within the $4.50/bbl to $6.70/bbl trading range. The spread has mostly discounted the conciliatory comments from Iran and comments that a new deal resolving the nuclear stand-off will come about soon. All signs still suggest that it will take time for any deal to be negotiated. In addition if a deal is negotiated it is still going to take Iran some time to restore its crude oil production & exports to the level that was in play prior to the sanctions.

As such the Brent/WTI spread is still trading with a geopolitical risk premium even as Cushing crude oil stocks continue in a steady destocking pattern. With Cushing stocks continuing to decline and with additional takeaway capacity coming on stream over the next 3 to 6 months the likelihood of another huge surplus in Cushing is a low probability event....MORE
There's a lot of oil out there and if Libya and Nigeria get their acts together there will be a lot more.
July 9
The Set Up For a Collapse of Oil Prices
From Petroleum Economist:
Replay of 1986 price collapse looms
03 June 2013
Chatham House warns that the price of oil is heading for a crash similar to the one in the mid-1980s, when world oil prices fell by over 50%, writes Damon Evans 
August 23
Looking For a Major Move in Oil
Crude is up $1.74 at $106.77.
Our medium term mental map is a fake-out shake-out, i.e. higher to suck in some buying and then a 10-15% drop, back under $100.
There is a lot of oil sloshing around and Asia isn't going to be needing it for a while....
August 30
Chartology: "This Pattern Often Leads to Lower Crude Oil Prices"

September 5
Libyan Anarchy Has Taken 1.2 Million Barrels/Day Off the World Market
September 11
Oil: Goldman Says Lower Syrian War Risk Offset By Rising Backwardation
September 24
"What an Iranian olive branch could mean for oil" (Kaminska wins)
September 25 
Goldman Sachs: "Bakken shale production will surprise Wall Street" and Carl Icahn does a drive-by (CLR; OAS; ARII; TRIN)