Monday, May 16, 2016

"The Oil Market Disruptions That Are Sending Oil Soaring"

While we haven't yet had the guts to start calling a top in WTI, Slope of Hope suggests we may be approaching one:
Crude continues to be strong, this time driven by mayhem in Nigeria and Venezuela (which I find oddly more comforting than if it were central bankers doing the meddling). The next important level to watch is 47.93, the former “lower high”, which also corresponds quite closely to what would be a bullish breakout of the wedge. I hope this doesn’t happen, but that’s the level to monitor!

June futures $47.66 up $1.45 with a $47.85 high (daily and 7-month)

And from ZeroHedge:
The reason why oil has resumed its ascendant ways today is due to yet another focus, this time from the sellside, on the various disruptions in the oil market, following notes from Goldman, Bank of America, and Morgan Stanley according to which the millions in barrels of oil taken offline as a result of the Canada wildfire and persistent Nigerian supply problems will push the market into equilibrium much faster than originally expected.

To be sure, this is nothing new: the mainstream media has been pointing this out for weeks with Reuters highlighting the supply loss in a handy table just last Friday.

Still, now that the sellside is pushing for an even flatter oil strip - recall that Goldman's full note said that while the market may get into balance faster than expected, a surge in low-cost production by OPEC members will result in lower prices in 2017 - the market has no choice but to follow.
So for those who missed it, here is the visual representation of the current oil supply disruptions courtesy of Goldman.
Large supply disruptions have pushed production sharply lower since mid-March
Key planned and unplanned outages since mid-February (kb/d)
This is what Goldman said:
The recent roll-over in production is the result of somewhat offsetting cross currents. (1) Production has rolled over faster than we had expected in China, India and non-OPEC Africa more than offset upside surprises in the US and the North Sea. (2) Transient but recurring disruptions have more than offset larger than expected Iran and Iraq production. And while some of the disruptions will stop such as maintenance, fires and strikes, some are likely systemic, for example in Nigeria, and we now expect production there will remain curtailed for the remainder of the year. Net, this leaves us expecting a sharp decline in 2Q output.
So with the Canadian disruption now contained, the fate of the "oil disruption rally" is now in the hands of Nigerian militants who are responsible for "systemic disruptions" taking about half a million barrels per day offline....MORE