the daily chartist

Crude Oil recap for 13.01.2016

published 3 years ago
WTI Daily

Crude Oil continuing its slide towards $30 with determination. Oversupply procedures from OPEC aren't stopping any time soon. Rumors about an emergency OPEC meeting (started from Nigeria) were quickly dispersed as OPEC countries and Iran informed the media, that there weren't such a request sent to them. The acceleration in selling was supported with yesterday's US weekly EIA oil inventories which came up at +234K vs +2000K expected. In details:

  • Prior was -5085K
  • Gasoline +8438K vs +2500K exp
  • Prior gasoline build of 10576K wa the largest on record
  • Distillate +6136K vs +1500K expected
  • Prior distillate build 6308K

 The report from API shows a large draw in oil and continued big builds in gasoline and distillates. The massive oversupply of both undermines demand for oil, casting a darker shadow on crude (and brent's) price to go up. 

 US oil shale industry is in rapid retreat also - production expected to fall by more than 1 mln barrels per day. The report from EIA shows that:

  • Output peaked at 9.7 mln barrels a day in April of 2015
  • Fell to 9.2 mln by December 2015
  • Is expected to bottom out at 8.5 mln barrels a day in November to this year
  • With the biggest declines in South Texas's Eagle Ford filed production is expected to decline by 15% and in North Dakota's Bakken expect a fall of 16%
  • EIA expects prices to rebound somewhat this year - forecast West Texas intermediate oil will average $38.54 a barrel in 2016 and $47 in next year

 Oppenheimer & Co.'s Fadel Gheit adds:

  • U.S. banks highly expoed to the collapse in the shale industry
  • Banks sitting on a mountain of junk bonds that are fast losing value, but they are reluctant to call loans and put companies out of business for fearing of triggering even larger loses

 An honest opinion there...

 Following the EIA's report Exxon announced to shut Texas refinery for up to 90 days. The reason is the data revealed in the report, showing an abundance of gasoline and distillates. That might be why Exxon has planned to shut a 130,000 barrel per day refinery in Beaumont, Texas for the mentioned time period. With these developments in Crude, Barclays adjusted their price for Oil. They now expect Brent and WTI to both average $37/barrel in 2016, down from their previous forecast of $60 and $56, respectively. 

 So in short? Stay short. From all of this we see that business is shifting to gasoline products, closing rigs and refineries in the oil branch thus limiting or lowering the production output. The bottom in oil will come when everyone stops or limits their production quotas, especially the Oil Cartel. But this isn't going to happen any time soon. Price currently will finds itself between $35.67 and $30.89. We could see a narrow range for several days to a week before a catalyst forms for either the price to go up towards 37.53 and 43.06 and be subdued by the refreshed bear strength and the overall rapid oil production.