Crude oil [May contract] closed lower on Wednesday following today's stocks report that showed crude oil supplies increased more than expected. The low range close sets the stage for a steady to lower opening on Thursday.
Stochastics and the RSI remain bullish signaling that a low might be in or is near. Closes above the 20 day moving average crossing at 104.07 are needed to confirm that a short term low has been posted. If May renews the decline off March's high, the 38% retracement level of the October-March rally crossing at 97.84 is the next downside target.
First resistance is the 20 day moving average crossing near 104.07. Second resistance is the reaction high crossing at 105.49. First support is last Tuesday's low crossing at 100.68. Second support is the 38% retracement level of the October-March rally crossing at 97.84.
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Natural gas [May contract] closed lower on Wednesday as it extended the multi year decline. The low range close sets the stage for a steady to lower opening on Thursday. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term.
If May extends the multi year decline, monthly support crossing at 1.620 is the next downside target. Closes above the 20 day moving average crossing at 2.147 are needed to confirm that a short term low has been posted.
First resistance is the 10 day moving average crossing at 2.023. Second resistance is the 20 day moving average crossing at 2.147. First support is today's low crossing at 1.940. Second support is monthly support crossing at 1.620.
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Gold closed lower [June contract] on Wednesday extending the decline off last week's high. The low range close sets the stage for a steady to lower opening on Thursday. Stochastics and the RSI are bearish signaling sideways to lower prices are possible near term.
If June extends the decline off February's high, the 75% retracement level of the December-February rally crossing at 1595.00 is the next downside target. Closes above the reaction high crossing at 1685.40 are needed to confirm that a short term low has been posted.
First resistance is the reaction high crossing at 1685.40. Second resistance is the reaction high crossing at 1699.60. First support is this month's low crossing at 1613.00. Second support is the 75% retracement level of the December-February rally crossing at 1595.00.
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Wednesday, April 18, 2012
Williston Basin Crude Oil Production and Takeaway Capacity are Increasing
Crude oil production from the Williston Basin (primarily the Bakken formation) recently increased to more than 600 thousand barrels per day (bbl/d), according to Bentek Energy, LLC (Bentek), testing the ability of the transportation system, oil pipelines, truck deliveries, and rail to move crude oil out of the area (see chart below). The current price gap between Bakken crude oil and West Texas Intermediate (WTI) shows the effects of this constraint. Bentek projects more transportation capacity coming online in 2012, potentially alleviating this constraint.
Due to pipeline capacity constraints, Williston Basin producers rely on rail and trucks to move additional crude oil out of the region. Because of these transportation constraints, Bakken crude oil currently sells at a discount of $7.50 per barrel to WTI. This discount was as much as $28 per barrel in February 2012 and is expected to continue as long as transportation constraints persist.
Currently, North Dakota has only one refinery, which processes about 58 thousand bbl/d of crude oil. Crude oil is delivered to other markets using a combination of pipeline, rail, and truck. Delivery capability as of April 2012 was: 450 thousand bbl/d by oil pipeline; 150 thousand bbl/d by rail; and small volumes by truck. However, in 2012, incremental additions to rail and oil pipeline capacity for the Williston Basin could total 350 thousand bbl/d.
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Due to pipeline capacity constraints, Williston Basin producers rely on rail and trucks to move additional crude oil out of the region. Because of these transportation constraints, Bakken crude oil currently sells at a discount of $7.50 per barrel to WTI. This discount was as much as $28 per barrel in February 2012 and is expected to continue as long as transportation constraints persist.
Currently, North Dakota has only one refinery, which processes about 58 thousand bbl/d of crude oil. Crude oil is delivered to other markets using a combination of pipeline, rail, and truck. Delivery capability as of April 2012 was: 450 thousand bbl/d by oil pipeline; 150 thousand bbl/d by rail; and small volumes by truck. However, in 2012, incremental additions to rail and oil pipeline capacity for the Williston Basin could total 350 thousand bbl/d.
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Tuesday, April 17, 2012
Another Oil Price Shock, Another Global Recession?
Brent crude ended trading above $120 a barrel on Friday, April 13, while WTI crude on NYMEX for May delivery settled at $102.83 a barrel. Oil has traded above $100 for all but a couple of days in the past year (see chart below). This persistent high oil price has many concerned to start threatening a nascent recovery of the global economy.
Studies show that historically, around 90% of US recessions post World War II were preceded by oil price shocks. The most recent occurrence took place when oil more than doubled in price from January 2007 to July 2008 due to a sharp increase in Chinese demand. The pullback of US consumer and corporate spending already put a drag on economic growth before the subprime induced financial crisis closed the deal on the Great Recession.
Analysts generally see the $120-130 level as a price that would prompt consumer and corporate to cut back on spending sharply, and hurt the recovery and growth of key economic sectors. A recent Reuters survey of 20 equity strategists put $125 a barrel as the point economy and stock markets could start to suffer.
The most recent study on the link between oil price and economic recession came from energy industry consultancy Wood Mackenzie (WoodMac) published earlier this month. The chart below from WoodMac illustrates "the mechanism" of how an oil price shock would derail the global economy.
According to WoodMac's model,
However, the difference between now and 2008 is that when oil spiked to almost $150 in 2008, there was a strong demand from China and a real shortage of supply, whereas the current world oil market is a lot more balanced than the current Brent oil price suggests.
IEA (International Energy Agency) said in its monthly report that there had potentially been a rise in global oil stocks of 1 million barrels per day (bpd) over the last quarter, and the impact on prices had not yet been fully realised. Reuters quoted the IEA that:
Meanwhile, Saudi Oil Minister Ali Al Naimi said on Friday, April 13 in a statement during a visit to Seoul that
Typically, oil price shock occurs when price goes out of the normal range. Currently, oil is not trading at an unprecedented level as in the case of 2008, which is hard to hit given the projection of a subdued global GDP, weak oil demand outlook, and an eventual resolution of the Iran situation.
Thus we believe oil has gotten way ahead of itself, and could experience a correction later this year and in the next three years or so. End user behavior change is starting to manifest, and the latest CFTC trading position reports already showed that money managers cut their net-long position roughly 12% in light, sweet crude-oil futures and options (see chart above). (Brent already went down to $118.57 on Monday, April 16.)
So no, unless something totally unexpected shocks the oil price into no man's land, WTI and Brent are unlikely to hit the levels that could possibly bring about a global recession any time soon. In fact, among the major possible drivers of a global recession, European economic and debt crisis looks to be the greater risk than an oil price shock.
Posted courtesy of AsiaBlue at Econmatters
Studies show that historically, around 90% of US recessions post World War II were preceded by oil price shocks. The most recent occurrence took place when oil more than doubled in price from January 2007 to July 2008 due to a sharp increase in Chinese demand. The pullback of US consumer and corporate spending already put a drag on economic growth before the subprime induced financial crisis closed the deal on the Great Recession.
Analysts generally see the $120-130 level as a price that would prompt consumer and corporate to cut back on spending sharply, and hurt the recovery and growth of key economic sectors. A recent Reuters survey of 20 equity strategists put $125 a barrel as the point economy and stock markets could start to suffer.
The most recent study on the link between oil price and economic recession came from energy industry consultancy Wood Mackenzie (WoodMac) published earlier this month. The chart below from WoodMac illustrates "the mechanism" of how an oil price shock would derail the global economy.
According to WoodMac's model,
".... the US will fall into recession within 12 months if WTI increases to $130 per barrel and the price remains elevated. If WTI reaches $150 per barrel and remains elevated, recession will be more pronounced with US GDP estimated to contract 0.4% in 2013."U.S. domestic petroleum products are priced off of Brent since WTI has become a less relevant oil price marker due to the inventory glut at pipeline capacity challenged Cushing, OK depressing the WTI price. So using the current spread between WTI and Brent of around $15-$20, WTI $130 would suggest Brent at about $150 range. Brent futures already hit $128.40 a barrel, the highest since 2008, in early March, but has since given back some of the gains..
However, the difference between now and 2008 is that when oil spiked to almost $150 in 2008, there was a strong demand from China and a real shortage of supply, whereas the current world oil market is a lot more balanced than the current Brent oil price suggests.
IEA (International Energy Agency) said in its monthly report that there had potentially been a rise in global oil stocks of 1 million barrels per day (bpd) over the last quarter, and the impact on prices had not yet been fully realised. Reuters quoted the IEA that:
"Easing first quarter 2012 fundamentals have seen prices recently lose most of the $5 per barrel they gained in March. The muted impact so far is partly because much of this extra supply has been stockpiled on land or at sea."Rather than reflecting market fundamentals, dollar prices for Brent crude, up more than 15% this year, has been pushed up mainly by fears about Iran, and the loss of supply from three relatively small oil producing countries--Syria, Yemen and South Sudan--adding to the supply worries. In other words, the oil price is bid up primarily by trading actions on the geopolitical factors (chiefly Iran).
Meanwhile, Saudi Oil Minister Ali Al Naimi said on Friday, April 13 in a statement during a visit to Seoul that
“We are seeing a prolonged period of high oil prices. We are not happy about it. (The Kingdom of Saudi Arabia) is determined to see a lower price and is working towards that goal.”
“Fundamentally the market remains balanced — there is no lack of supply. Saudi Arabia has invested a great deal to sustain its capacity, and it will use spare production capacity to supply the oil market with any additional required volumes.”Naimi earlier this year indicated $100 a barrel as an ideal price for producers and consumers earlier this year.
 |
| Chart Source: Reuters.com |
Typically, oil price shock occurs when price goes out of the normal range. Currently, oil is not trading at an unprecedented level as in the case of 2008, which is hard to hit given the projection of a subdued global GDP, weak oil demand outlook, and an eventual resolution of the Iran situation.
Thus we believe oil has gotten way ahead of itself, and could experience a correction later this year and in the next three years or so. End user behavior change is starting to manifest, and the latest CFTC trading position reports already showed that money managers cut their net-long position roughly 12% in light, sweet crude-oil futures and options (see chart above). (Brent already went down to $118.57 on Monday, April 16.)
So no, unless something totally unexpected shocks the oil price into no man's land, WTI and Brent are unlikely to hit the levels that could possibly bring about a global recession any time soon. In fact, among the major possible drivers of a global recession, European economic and debt crisis looks to be the greater risk than an oil price shock.
Posted courtesy of AsiaBlue at Econmatters
President Obama Looks into Oil Manipulation … Pure Political Theater
And speaking of higher, crude oil [May contract] closed higher on Tuesday as it extended the rally off last week's low. The high range close sets the stage for a steady to higher opening on Wednesday. Stochastics and the RSI are bullish signaling that a low might be in or is near.
Closes above the 20 day moving average crossing at 104.25 are needed to confirm that a short term low has been posted. If May renews the decline off March's high, the 38% retracement level of the October-March rally crossing at 97.84 is the next downside target.
First resistance is the 20 day moving average crossing near 104.25. Second resistance is the reaction high crossing at 105.49. First support is last Tuesday's low crossing at 100.68. Second support is the 38% retracement level of the October-March rally crossing at 97.84.
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Monday, April 16, 2012
Crude Oil Up on Weaker Dollar, Seaway Pipeline News
Oil closed up $0.16 a barrel at $102.99 today. Prices closed nearer the session high today and saw more short covering and bargain hunting. A lower U.S. dollar index supported crude today. However, a six week old downtrend line is still in place on the daily bar chart. Bulls and bears are on a level near term technical playing field.
Gold futures closed down $11.20 an ounce at $1,649.00 today. Prices closed near mid range today as the bulls are fading again. Bears are working on re establishing a six week old downtrend on the daily bar chart. The bears have regained the slight near term technical advantage.
Natural gas closed up 3.6 cents at $2.016 today. Prices closed nearer the session high today and saw tepid short covering in a bear market. Prices Friday hit a contract and 10 year low. The bears have the solid overall near term technical advantage. There are no early clues to suggest a market low is close at hand.
The U.S. dollar index closed down 33 points at 79.72 today. Prices closed nearer the session low today. Bulls and bears are on a level near term technical playing field amid choppy and sideways trading. Bulls' next upside price breakout objective is to close prices above solid technical resistance at the April high of 80.38.
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Sunday, April 15, 2012
ONG: Gold Weekly Technical Outlook For Sunday April 15th
In the bigger picture, price actions form 1923.7 high are viewed as a medium term consolidation pattern. Fall from 1792.7 is viewed as one of the falling leg inside the pattern and should head back to 1478.3/1577.4 support zone. Nonetheless, we'd still expect strong support from 1478.3/1577.4 support zone to contain downside to finish the consolidation and bring up trend resumption to another high above 1923.7 eventually. On the upside, break of 1696.9 resistance will now argue that fall from 1792.7 is finished and turn focus back to this resistance instead.
In the long term picture, with 1478.3 support intact, there is no change in the long term bullish outlook in gold. While some more medium term consolidation cannot be ruled out, we'd anticipate an eventual break of 2000 psychological level in the long run
Comex Gold Continuous Contract 4 Hour, Daily, Weekly and Monthly Charts
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Friday, April 13, 2012
Crude Oil Ends The Week on a Sour Note
Natural gas [May contract] closed slightly higher due to light short covering on Friday. The high range close sets the stage for a steady to higher opening on Monday. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term. If May extends the multi year decline, monthly support crossing at 1.960 is the next downside target. Closes above the 20 day moving average crossing at 2.218 are needed to confirm that a short term low has been posted. First resistance is the 10 day moving average crossing at 2.078. Second resistance is the 20 day moving average crossing at 2.218. First support is today's low crossing at 1.959. Second support is monthly support crossing at 1.620.
Gold [June contract] closed lower on Friday and the low range close sets the stage for a steady to lower opening on Monday. Stochastics and the RSI are neutral to bullish signaling sideways to higher prices are possible near term. Closes above last Monday's high crossing at 1685.40 are needed to confirm that a short term low has been posted. If June extends the decline off February's high, the 75% retracement level of the December-February rally crossing at 1595.00 is the next downside target. First resistance is last Monday's high crossing at 1685.40. Second resistance is the reaction high crossing at 1699.60. First support is last Wednesday's low crossing at 1613.00. Second support is the 75% retracement level of the December-February rally crossing at 1595.00.
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Thursday, April 12, 2012
EIA: U.S. Imports of Nigerian Crude Oil Have Continued to Decline in 2012
The trend of declining crude oil imports into the United States continued in the first month of 2012. There has been a particularly sharp decline in imports from Nigeria due to the idling in late 2011 of two refineries on the East Coast, which were significant buyers of Nigerian crude, and reduced imports by refiners on the Gulf Coast. Prior to the idling of the refineries, Nigeria typically accounted for about 10% of the crude oil imported into the United States; in January, that share dropped to about 5%.
In January 2012, imports from Nigeria totaled just 449 thousand barrels per day (bbl/d), a 54% (519 thousand bbl/d) decrease from January 2011, marking the lowest monthly import total from the country since 2002. One third of this decline was the result of two idled Philadelphia area refineries. ConocoPhillips' Trainer refinery (idled in September 2011) and Sunoco's Marcus Hook refinery (idled in December 2011) imported a combined 173 thousand bbl/d of Nigerian crude in January 2011. Most of the remaining decrease in Nigerian imports was the result of several Gulf Coast refiners reducing Nigerian imports in favor of domestically produced crude.
The idled refineries were suited to run light-sweet crude oils, and Nigerian crude oils tended to match well with that requirement. However, because of their quality, Nigerian crude oils are often expensive compared to heavier or more sour crude oils used by many of the Gulf Coast refineries.
Additionally, Nigerian crudes are currently expensive compared to some of the inland domestic light sweet crudes of similar quality such as West Texas Intermediate (WTI), Bakken, and Eagle Ford. Given the growing production from the Bakken and Eagle Ford formations and associated transportation constraints, these inland crudes have been selling at a discount to waterborne crudes on the Gulf Coast, providing refiners in that area further incentive to switch from imported crude to inland, domestically produced crude when available.
Preliminary weekly data indicate the trend of decreasing Nigerian imports continued in February and March with March imports averaging just 301 thousand bbl/d, which, if confirmed in the monthly data, would represent a 64% decrease compared to March 2011.
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In January 2012, imports from Nigeria totaled just 449 thousand barrels per day (bbl/d), a 54% (519 thousand bbl/d) decrease from January 2011, marking the lowest monthly import total from the country since 2002. One third of this decline was the result of two idled Philadelphia area refineries. ConocoPhillips' Trainer refinery (idled in September 2011) and Sunoco's Marcus Hook refinery (idled in December 2011) imported a combined 173 thousand bbl/d of Nigerian crude in January 2011. Most of the remaining decrease in Nigerian imports was the result of several Gulf Coast refiners reducing Nigerian imports in favor of domestically produced crude.
The idled refineries were suited to run light-sweet crude oils, and Nigerian crude oils tended to match well with that requirement. However, because of their quality, Nigerian crude oils are often expensive compared to heavier or more sour crude oils used by many of the Gulf Coast refineries.
Additionally, Nigerian crudes are currently expensive compared to some of the inland domestic light sweet crudes of similar quality such as West Texas Intermediate (WTI), Bakken, and Eagle Ford. Given the growing production from the Bakken and Eagle Ford formations and associated transportation constraints, these inland crudes have been selling at a discount to waterborne crudes on the Gulf Coast, providing refiners in that area further incentive to switch from imported crude to inland, domestically produced crude when available.
Preliminary weekly data indicate the trend of decreasing Nigerian imports continued in February and March with March imports averaging just 301 thousand bbl/d, which, if confirmed in the monthly data, would represent a 64% decrease compared to March 2011.
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Wednesday, April 11, 2012
Crude Oil, Natural Gas and U.S Dollar Commentary For Wednesday Evening
Gold futures [June contract]closed down $1.70 an ounce at $1,659.00 today. Prices closed near mid range in quieter, consolidative trading. The key outside markets were in a bullish posture today, as the U.S. dollar index was weaker and crude oil prices were higher. That did limit the downside in gold today. The bears still have the slight near term technical advantage in gold. A five week old downtrend is in place on the daily bar chart.
Natural gas [May contract] closed down 4.4 cents at $1.987 today. Prices closed near the session low again today and hit another fresh contract and 10 year low today. The bears have the solid overall near term technical advantage. There are no early clues to suggest a market low is close at hand.
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