Weekend Nov 12
Not Too Late to do the Right Thing Now
Oil prices consolidated gains on Friday having soared over the past week on rising tensions in the Middle East.
Oil prices received a boost after top exporter Saudi Arabia detained hundreds of individuals in a corruption investigation and after rising tension between the kingdom and Iran.
Brent crude, the global oil benchmark, rose 0.3% to $64.12 a barrel on London’s ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were up 0.1% at $57.21 a barrel.
Wall Street Journal Energy Report Friday November 10, 2017
Here is the big picture. An overbought oil market at $110 a barrel in 2014 finally collapsed. Price bottomed in February 2016 around $25, an 78% collapse. Nearly two years later, prices have regained the resistance level of $55 for WTIC and over $60 for Brent. Is it time then to buy, sell, or hold?
The price structure has the form of what technicians call a reverse head and shoulders formation. The head is the low point of $25 and the two shoulders are around $45-50. The key here is whether price can break through what is called the neckline around $55. In fact price is doing just that.
And various momentum indicators suggest that price has put the 2008-2016 bear market behind. We now appear to be embarking on a broad based commodity rally of which oil is a part. Yesterday the Dow Industrials dipped a couple hundred points (yes Virginian stock prices can actually fall) but energy shares and energy prices held firm. That is an encouraging divergence..
Many believe that supply and demand, that inventory thing, has a bearing on price. That was certainly not true in 2013-14 but let’s take a look anyway.
Total US Crude stockpiles are at the lowest level since 2015. So all this blather about over supply from the Permian and Eagle Ford is just that.
Gasoline supplies are also at their lowest since 2015. And that supply figure continues to decline. But the energy sector is much more than just gasoline. Distillate fuel oil represents diesel, heating oil, and jet fuel. Those inventories are in the bottom of their five year range. Charts at the US Energy Information Administration, eia.gov, provided this information.
Finally both oil and natural gas production appears to be leveling, again despite numerous reports of over production.
Meanwhile we have no lack of negative mood developments all of which are positively supportive to higher oil prices. The US has three aircraft carriers and at least one nuclear submarine off the Korean peninsula. Various Saudi princes are in splendorous hotel jail. Iran has launched a missile at Saudi Arabia. And demand appears to be growing for more refined products as the Far East shifts from bicycles to powered scooters to automobiles.
What about other commodity prices? The Commodity Research Bureau CRB index is also stirring. It also bottomed in February, 2016 just under 160. Now it needs to take out resistance at 200.
The 1970s were a period of commodity price increases amid massive political discord. The stage is once again potentially set for a return to inflationary price increases. This past week suggests that negative mood is rearing its head in the political arena. It appears we now have at least three political parties. That would be the Democrats, the 38% supporting Trump, and the rest of the Never Trumpers (former Republican Party). None of these groups like or respect the other two.
Unproven allegations abound as Democrats surge in the two races held this past week. Chuck Schumer has over 300 House bills bottled up in the Senate with filibustering. Will tax reform actually pass or die like repeal and replace ACA? We’ll continue reporting on all these issues.
For now the overall stock market is over bought and commodity prices appear to have the wind in their sales.
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