Rob Haworth, a senior investment strategist at U.S. Bank Wealth Management has summed up the global crude market perfectly: “There’s been a lot of big news and little movement.”
The market is currently trying to swallow a lot of very conflicting information. On one end of the spectrum you have the Baker Hughes rig count report last week which showed a nine rig increase over the previous week. This increase, from the lowest level in more than six years, supports the elasticity of the U.S. crude industry, in that when the barrel price approaches $50, shale producers in the U.S. are ready and able to turn on the spigot. Although, even with the increase in rig count, according to EIA data released on June 2, stockpiles here in the U.S. fell 1.37 mbpd and production declined as well.
Putting pressure on the market, however, is the result of last week’s OPEC Summit. OPEC once again decided to stick to its plan of unconstrained production in its belief that the crude market is improving. Not quite sure of that rationale though. Yes, the global supply glut has slightly decreased since the turn of the New Year; however, the recovery of lost output due to recent world events such as the Canadian wildfires will over supply the market once more and put downward pressure on prices. Additionally, Iran has feverishly been pumping oil into the market and is recovering from the sanctions much faster than anticipated. Estimates show it currently exporting 3.5mbpd.
So why is the market gaining ground this morning? A few reasons come to mind. First, since Friday morning the Niger Delta Avengers have executed two separate pipeline attacks, on one owned by Shell, the other Eni SpA, and have threatened to shut down Nigeria’s entire oil production, thus decreasing the global over-supply. Moreover, last week’s dreary non-farm jobs report showed a mere 38,000 jobs were added in the month of May versus an estimated 164,000. This brought the U.S. dollar index down approximately 1.94%, which was bullish for the price of crude.
We will be honing in on many factors this week in order to gain a better understanding of which way the market will go. The Federal Reserve’s Janet Yellen will be speaking today following last week’s jobs report. DOE and EIA stats this week will better show the effects of the Canadian wildfires, which have been burning for over a month and at one point had output down 1mbpd. Most important will be the turmoil in Nigeria. If the Avengers continue, global oil supplies will surely take a hit and we could see this market bounce significantly.
As of 11:11 A.M the market is trading up $1.19 to $49.81 for Crude. HO is also up $0.0140 and RBOB is down $0.0077.