Oil and Gas Market Summary 9/29/16 – Rally Continues for Oil Prices

Oil Prices Daily

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

Be sure to visit today’s oil prices daily newsletter for links to all news stories and sources mentioned in this podcast.

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Links:

Oil Prices Daily Newsletter for 9/29/16

Oil marches higher on OPEC optimism; analysts question deal Reuters

Why you should be skeptical of OPEC s new plan to hike global oil prices Vox

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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 3500 members of the Oil 101 learning community today at www.ektinteractive.com.

Okay, so let’s talk about what happened in oil prices for today, Thursday, September 29th, 2016.

November Crude up 78 cents or 1.7% to settle at 47.83. One of the things that we were looking for today was to see if there would be any follow through on yesterday’s move after the OPEC announcement, and the market had a pretty strong day.

Again, settling up almost 2%. The high was 48.32, which when you look at the daily chart, came right at prior highs from early September, the last time we had a nice spike up.

The volume was good with 1.2 million contracts trading hands, so a strong day, good follow-through.

Definitely, technically a good day to continue higher on that breakout. If you look at the daily chart, I’ve drawn a longer term trend line on there that the highs of the day came right in near that trend line.

We did settle below that for now, but it kind of gives you a look at what some of the next resistance levels are. Again, prior highs at 48.30 or so, and then next ones after that ride up at $50.

A big technical level, psychological level, and very interesting to see if the market can continue to gain momentum and test that level.

Of course on the heels of this OPEC news, in the news today really no further details coming out about the deal. I think they were just happy to get that meeting behind them and come out of there with something.

Really most of the analysis talking about the myriad of ways that this deal can fall apart before it’s implemented at the Vienna meeting at the end of November.

A lot of time before anything get’s ratified and officially made, and a lot of reasons why it could fall apart.

Some of those reasons of course being OPEC itself, they have gone home with incentive to produces as much as possible before any cuts have to be made.

That will be interesting to see what actual production is over the next few months. Certain members only really agreed to this deal because basically they were exempt from any cuts, such as Iran, Libya, Nigeria.

Who are all looking to boost production actually, as they recover from different reasons, sanctions, supply disruptions, and political reasons. You wonder where these cuts are going to come from and some of the stories today focusing on Iraq.

They are in this group of people that are looking to boost production not cut production.

A few stories singling them out as really having the potential to torpedo this whole deal. Again, all it takes is a headline or a press release out of one of these members saying they’re not going to do it, they’re not going to play along to really scuttle the whole thing.

The idea here is that Saudi Arabia really being the only country with room in their production to make this cut, so it’s a matter of is Saudi Arabia willing to cut the million barrels or more if some of these countries gain in production?

Are they willing to cut it all from their own production? It just remains to be seen.

The next sticking point in this whole thing of course is whether it will even matter.

Have they shot themselves in the foot by boosting oil prices to levels where US shale production will kick back in, regardless of what they do? There of course in the news letter today is links to a few stories on this approach, with really some strong comments coming out of the likes of Goldman Sachs and other analysts on this point.

Which have some interesting quotes, for example,

“OPEC has declared a truce on oil prices. But relentless improvements in shale technology will keep Saudi’s awake at night wondering if they have made the right choice.”

Out of Goldman,

“If this proposed cut is strictly enforced and supports prices, we would expect it to prove self-defeating medium term with a large drilling response around the world.”

By around the world basically, all of non-OPEC countries and mostly US shale production.

Oil prices have rallied over 6% since the announcement yesterday, there’s been a nice boost in the front of the curve.

Taking a look at what it’s doing to the back of the curve, if you look at 2017, the average price is now inching towards $51 a barrel, and for 2018 getting close to $53 a barrel.

From a defensive standpoint, if you have marginal production starting to look good above 50, what I would expect you see is some of these players coming into the financial markets to hedge, lock production, lock prices in at $51/52 dollars a barrel if it starts getting there for the rest of 2017.

Then they’re in good shape if they can lock in that, they live to play another day, they know what they’re going to do for the next year. That may start putting a cap on prices.

Again, all it takes, one member torpedoing this deal to send things spiraling again.

As far as my favorite stories that I came across today, really nothing off topic, the main story that I would really like to point people towards today is out of VOX.

It is titled Why You Should be Skeptical of OPEC’s New Plan to Hike Global Oil Prices.

True to VOXs format, it’s a very long form article that talks about why OPEC wants to cut back on oil production, why they might fail, how we got here, why oil prices plummeted since 2014, really just getting into all the variables coming into play here.

If you’re new to following this or maybe you’re on of the members of our Oil 101 community, this type of article really does a good job of giving you the big picture of what’s going on, some of the history, and again, why you’re starting to see a lot of skepticism coming out as approach $50.

That’s going to be it for today.

Thanks a lot for listening.

Of course, get our concise recap of all the news and events that are influencing oil prices each day by going to oilpricesdaily.com and signing up for the news letter.

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Thanks for listening to the EKT Interactive Oil and Gas Podcast Network, and we will talk to you tomorrow.

Have a good night.

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