Oil flat today
I did a video recently where I talk about the importance of watching markets that aren’t moving and aren’t grabbing headlines.
At the moment, that’s oil. WTI is flat today and looks like it will stack up another doji star on the chart. It’s normally one of the most-volatile assets but it’s been stuck in a sub-$5 range since March 18.
I’m a big time oil bull and I have been for many months but this is the kind of chart that makes people on both sides of the trade worried. A break is inevitable and the longer it stays here, the more likely it is to be a violent one.
Platts’ survey today showed OPEC+ is wavering in its compliance and that Iranian and Libyan barrels continue to increase (they’re not subject to quotas). Russia has been particularly lax in compliance.
We’ve got 2 mbpd coming back online through July and the WHO is warning about rising covid cases and deaths globally.
On the flipside, the US reopening is looking impressive in almost every way. Gasoline and travel demand is way ahead of where almost anyone thought it would be and will keep getting better. At these levels of production, global inventories are being drawn down.
So there are two trades (from my perspective):
- Hang onto longs and hope the trend continues
- Cut longs and hope to buy back cheaper
If it’s #2, the question is where to buy? The area around $52-54 looks attractive but a flush to $48 would be the real pain trade and a magnificent level to buy oil or oil companies.
Weekly crude oil inventory
- crude oil inventories -3.522m vs -1.436m estimate
- gasoline inventories +4.044M vs -0.221M estimate
- distillates, +1.452K versus +0.486M estimate
- Cushing OK crude, -0.735M
- crude oil implied demand 17667 versus 17370 last week
- gasoline implied demand 9573.3 versus 9431.1 last week
- distillates implied demand 4756.6 versus 4815.9 last week
WTI crude oil futures trading down $0.31 among 0.51% of $59.02
Slow return of oil to the market
OPEC+ is debating a gradual increase of 350K bpd in May, 350K bpd in June and 400K bpd in July, according to a report.
WTI touched the lows of the day at $58.91 shortly before this as the Saudi effort towards a two-month rollover failed and talk of a Saudis reversing their 1 mbpd voluntary cut did the rounds.
The market likes the sound of this slow increase in production but that will also depend on what Saudi Arabia does afterwards with the 1 mbpd voluntary cut.
Update: Another report is saying Saudi Arabia has proposed bringing back 250K bpd of its production in May, the same in June and the final 500 kbpd in July.
This will not be news to anyone following along. OPEC+ meeting is on April 1 (JMMC meets the day before)
Market consensus is for another rollover of OPEC production cuts. OPEC (especially Saudi Arabia) have been cautious on the demand recovery and that will not change at this meeting:
- renewed lockdowns in Europe
- the US is looking better (accelerating vaccination efforts)
- on the supply front, there is still plenty and the disruption from the Suez blockage will pass in coming weeks
OPEC+ is ‘likely’ to make a similar decision to the last meeting on April 1, according to 4 Reuters sources.
They say some had hoped to reverse cuts but more covid and lockdowns are delaying those plans.
The report also notes that Iran is increasing shipments and defying US sanctions.
WTI is at the highs of the day, up $2.92 to $60.72.