Oil Prices End Volatile Day Higher After EIA Stats – Oil and Gas Market Summary 10/13/16

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 10/13/16

Oil ends higher; traders cheer drop in US output, even as supplies tick up MarketWatch

Weekly Petroleum Status Report Highlights EIA

US Petroleum Balance Sheet EIA

Saudi Arabia, where even milk depends on oil, struggles to remake its economy NYT

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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 welcome back to the daily podcast.

A really interesting day today. One of those days that, if you had just looked at the net move in crude oil prices, you might think that it was just a slow day.

Up $.26 November crude or just half a percent to settle at $50.44. If you looked at that you’d be like, “All right, here we are. We are hanging out above $50.”

Which is true and still looking strong. However, a really surprising day and the story of it is told in the Intraday Chart where you can see what happened when the EIA report came out today posting a much larger than expected build in crude oil inventories.

EIA Weekly Report

Expectations, consensus estimates were for a build of about 700,000 barrels but the EIA came out with a build of 4.9 million barrels in crude oil inventories. Twice as much as what the API had posted yesterday and really caught everybody off guard.

Looking at that headline number, the market dramatically sold off. Very quickly and hit a low of $49.36. Here you are thinking, “We’ve broken $50, went through $50 yesterday but we keep settling above” and this headline number was enough to send things into a tailspin.

Again, if you look at the Intraday Chart, you’ll see that the market snapped right back as traders decided to focus on draws in both products. Both gasoline and distillates drew and a contraction in oil production in the lower 48 as stated in the US Petroleum Balance Sheet.

Of course, the links to both the weekly petroleum status report highlights and the US Petroleum Balance Sheet from the EIA are in the show notes.

One quote I thought summed this up pretty good, out of Market Watch. This article, of course, in the oil prices daily newsletter.

“The details of the report favored the bulls as lower 48 production fell below the 8 million barrel per day mark that we have been monitoring as a benchmark level”.

It took a few moments to get past the headline number and for people to dig into some of the details of this report.

Lower 48 production at 7.969 million barrels a day and of course Alaskan production was up this week but I guess that 8 million barrels a day threshold is something to keep an eye on in the future to see as prices have rallied and hedges have been put in place, whether an increasing rig count or an increasing US domestic oil production starts to become a trend.

That caught some people off guard and of course was all that was needed to support the market in this environment of strength based on OPEC production cuts.

Here we are staying above $50. A bit of a [inaudible 00:04:03] and on heavy volume today 1.36 million crude oil futures contracts trading. Again, not a quiet day by any means.

Very volatile.

Very strong volume and really strong for the market to stay above $50 here but technically the chart’s looking like maybe we’re getting into some kind of consolidation here between $49 and $51.5 or so.

We’ll just have to see how this plays out. Any headlines coming out of OPEC have the power to derail this whole thing or keep things moving along.

Although the EIA news was definitely the main oil price driver today, there were a lot of really interesting stories out. Of course the analysts are going back and forth and players are going back and forth over where they stand over OPEC and I think it’s interesting to take a look at both sides.

There’s a lot of skepticism in the press due to their historical ability to stick to these kinds of quotas and so there’s a couple of stories outlining that argument. Which of course is something that we’ve talked about a lot.

However, a really successful hedge fund coming out and talking about how they see the deal as something very strong and positive and having a good chance to take oil off the market.

Basically arguing that Saudi Arabia is really in a pinch here and recognizing,

“A prolonged period of low prices is endangering longer term supplies and that by forcing the market into a quicker re-balancing and pushing oil prices higher, they hope to avoid a large supply gap down the road.”

This is Pierre Andurand, a very successful hedge fund trader. Former trader at the likes of Goldman Sachs and Vitol.

Again, I just wanted to include this as a counter argument to a kind of prevailing skepticism over this deal that there’s no way it’s going to happen.

Well, there are people out there seeing the other side and there are people putting a lot of money on that side of the bet and so I thought it would be good to include that in the newsletter.

Probably my favorite news story today that I came across and this really doesn’t have so much to do with oil prices per se in the next day or week but it’s a really great long-form article in the New York Times titled Saudi Arabia, Where Even Milk Depends on Oil, Struggles to Remake Its Economy.

The first paragraph in this thing just blows your mind, which is …

This is what it takes to run a mega-dairy in the scorching desert … 180,000 cows, precisely cooled cowsheds, water pumped from deep underground, feed from Argentina, state-of-the-art refrigeration and 9,000 vehicles to ship it all over the peninsula.

What it’s talking about here is that cheap energy is so ingrained in Saudi Arabia’s economy that these changes that they are, not only proposing but implementing over the last few months as oil prices cratered are just really revolutionary to their economy.

People their whole lives have lived on low domestic oil, low cost domestic energy and that it’s just a …

These subsidies for fuel, water, electricity are just an ingrained part of their economy. It really helps, I think, underlie the previous argument by the hedge fund manager, Pierre Andurand, that there’s some real reasons why Saudi Arabia needs to make this deal happen.

They need revenues. Their whole economy, they’re passing on salary cuts, they’re really undergoing dramatic changes to their economy.

Very interesting when you put these two things together and start taking away maybe a bit picture and replacing … Keeping an open mind as to why this production cut deal may actually happen and that it would be, I think, in general a big surprise to a lot of the market. They’ve talked up the oil prices to the mid 50’s and most people think that’s about as far as they can go.

In that by talking them up, OPEC has already done its job. So if we see a follow through in this production cut and maybe some more trends in US declining production, that could be very supportive to this market.

Now of course the counter argument is as prices rise there’s no way US production will continue to decline. Which I tend to agree with. Again, these numbers just have to be monitored in the coming weeks.

The last article I wanted to mention here of course in the newsletter and this one really is geared towards our Oil 101 audience and the Oil 101 community that we have at EKT Interactive.

It’s called A Crude Oil Trader’s Guide to OPEC and it’s in Daily FX.

I thought it was just a good, short read that gave some quick overview, a brief history of OPEC, a little history into past production cuts and supply management and just some of the reason’s why we’re all so obsessed with every word that comes out of OPEC over the last few weeks as they’ve switched into supply management mode.

It just gives a brief, quick overview of that history.

Again, if you’ve been around the market for awhile. Maybe that one might not be so interesting to you but to our Oil 101 audience, I think they’ll find it to be a good read. Of course, that is in the newsletter.

I also posted it into the Oil 101 LinkedIn group. If you’re interested in checking that out.

That’ll be it for today. Again, don’t let the final prices fool you, it was a heavy traded day.

Very volatile and really interesting for the market to rally back so strongly, settling above $50 but I think that headline number also showed people are quick on the trigger and can be quite nervous to any potentially bearish headlines coming out.

Okay, that’s going to be it for today.

Thank you for listening to the Oil Prices Daily Podcast.

Remember, 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 newsletter there and of course you can also subscribe to the Oil Prices Daily Podcast on iTunes.

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Thanks a lot and we’ll see you tomorrow.

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