Oil and Gas Market Summary 10/3/16 – Oil Rally Gains Steam

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Oil prices daily podcast discusses all of the news, events, and trends influencing oil prices each day.

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Links:

Oil Prices Daily Newsletter for 10/3/16

Crude oil price climbs to 3-month peak FT

Shale oil firms hedge 2017 prices in droves on OPEC rally Bloomberg

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Transcript:

Hello and welcome to the Oil Prices Daily Podcast.

Doug Stetzer here bringing you your daily recap of all the latest news, events and trends influencing oil prices.

Oil Prices Daily is hosted on the EKT Interactive Oil and Gas Podcast Network and sponsored by Oil 101, a free online introduction to the oil and gas industry.

Join over 3,500 members of the Oil 101 learning community today at www.ektinteractive.com.

Okay, so let’s take a look at what happened in oil prices for today, Monday, October 3rd, 2016.

November crude settled up 57 cents or 1.2% to 48.81, so again, one of the really key things we were keeping an eye on was whether this rally would be sold into and whether it could gain any momentum and it certainly looks like it has.

One of the things to keep in mind is that in the last 2 days, trading volume has been pretty light. Today, only around 775,000 crude oil futures contracts changed hands, and again anything less than a million these days is pretty light, so that’s a pretty light day.

Friday, also pretty light.

However, the price action itself is pretty encouraging as far as bulls would be concerned. In the sense that if you look at the intraday chart on today’s newsletter, you’ll see that prices came in overnight pretty strong above 48.50 and then fell in the morning down below $48, around 47.90 and then staged a nice just slow and steady rally through the whole rest of the day back above 49 at one point and again settling at 48.81.

If you looked at Thursday and Friday, there was a nice resistance level around 48.30 and it looked like the market was going to punch above that and then maybe fail.

However, the sellers just couldn’t get hold of the market. There was no real panic and the market was able to stage a nice rally, end on a high note and keep this 4-day rally alive, again punching through some pretty nice numbers above 49, and looks like it’s on its way to 50 just looking at the charts.

Now, of course this was all started by the OPEC deal. Now, everyone’s had the weekend and the week to digest this information.

We’ve been talking about where some of the problems in the deal lie and they’re starting to become pretty well analyzed again, the idea that if they’re going to cut, yet some of the producers are allowed to regain production levels from earlier, then where are these cuts actually going to come from?

Where the cuts are going to come from is the big question for the November 30th OPEC meeting in Vienna. Now, one of the things I saw today that I thought was pretty interesting and it was, there was a couple of different analysts taking this point of view which is the idea that just the fact that OPEC was able to come away with a production deal is significant in and of itself.

They haven’t been able to do this for over 10 years, and signals that they are back into the supply management business potentially.

To read a quote out of a Financial Times article, the quote comes from an analyst at Societe Generale or Soc Gen.

It goes like this.

“The real significance of last week’s framework OPEC Production agreement is not the size of the implied or actual output cut, but the fact that Saudi Arabia and OPEC have returned to active market management.”

He states that it’s difficult to overstate the importance of this change. That is one of the trends perhaps underlying this market that more and more people are just seeing this change of tone as significant enough to put a floor under the market.

Now, of course, will it also put a cap on the market?

Potentially, as prices rise, as we’ve spoken about, of course. Some of these non-OPEC producers are going to jump on board and this gets into a story that I saw today that we had actually spoken about on a podcast last week which is this idea that 2017 prices as an average if you look at the whole strip is over $50.

It was over, getting towards $51, and so there was a story today out of Bloomberg saying, “Shale oil firms hedge 2017 prices in droves on this rally.”

Again, not really surprising if you are right there as far as profitability and able to manage your production, you’re loving this rally.

You’re loving the ability to lock in oil for 2017 in the low to mid-fifties. It’s very important. You can go to your bankers. You can get a lot of financing with that stuff in place. The hedging programs are in effect.

As far as other news stories coming out today, of course just continued OPEC analysis, people again continuing to dig into this and see where the risks lie.

Two news stories today that I saw that were worth reading on this subject out of oilprice.com, “Why Libya could completely derail OPEC’s deal,” speaking there about some consolidation in the ports, in the political situation, how Libya may be able to obtain some degree of stability in its OPEC production that will lead to a rise in exports there.

Really interesting piece.

Another one, “Iran oil exports hit pre-sanctioned high on run-up in condensate shipments” and this is out of Gulf News. Iran’s really trying to get up towards 4 million barrels a day production.

This article was talking about how condensate shipments ,particularly to Asian customers, were on the rise and actually were above production levels, meaning that they could be drawing on floating storage.

Finally, just something else to keep in mind, and this was out of Market Realist, just a note that the US oil rig count has risen by 109 from the lows in May and I believe it’s on a streak of increases of 14 out of the last 15 weeks.

That’s even predating the most recent run-up in oil prices of course, but showing that if producers get these bounces as they did in June and then again in August and now we’re seeing one again coming into October, they get these opportunities to hedge and lock in prices that really they can continue to operate efficiently.

They can ensure that their production levels will be steady and they’ve gained a lot of efficiencies over the last couple of years as they’ve renegotiated oil field services contracts and things like that.

Very interesting as we approach $50, I expect that we would see more and more of this hedging activity, and will be interesting to watch if this market settles into perhaps a new range with OPEC co-operation, yet capped by non-OPEC production, perhaps of a 50 to 55 type range as opposed to a 43 to 48 type range.

Of course, we’ll just have to see how this continues to play out, but right now, the market looking strong.

I would expect momentum players or technical players, quantitative funds are really liking this move, and that could lend some support to this market as well.

Trading volume remains light and we would like to see a little bit more volume really getting behind this move in the future.

That’s going to be it for today.

Remember, get our concise recap of all the news and events that are influencing oil prices each day by going to oilpricesdaily.com and subscribing to the newsletter.

Of course, you can also subscribe to this podcast on iTunes. All right, thanks a lot, and we will talk to you tomorrow.

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