Another commodity trading year is upon us and New Year’s resolutions across the western hemisphere are cloaked with purpose and resoluteness. Many have vowed to exercise more, eat healthy and save money. Even though only about 8 percent of these New Year’s resolution ambitionists persevere with their said goals, it is nonetheless a feeling of excitement and optimism of what might be. Market participants in the energy sector are most likely seeking that same sensation of excitement for less volatility and more stable prices, more clarity in supply/demand across the globe, transparency with trade talks/tariffs, pellucidity with Iran sanctions and possibly a reverse course in actions to avoid a further global slowdown or even a recession. If, however, the first 2 trading days of 2019 for the WTI futures contract for February delivery price action is any indication of what lies ahead, we are in for more of the same rollercoaster ride of uncertainty, high volatility and event risk price movements. The first trading day of the year brought on an intraday range of $3.43 a barrel or a 7.18% intraday move. Today, as of 12:30pm EST, we have already seen a 4.51% move or a $2.14 a barrel intraday trading range.
Oil markets were up early, then flat and currently trending slightly down in trading Monday morning after comments from the United Arab Emirates energy minister suggested that the global oil market was “correcting” and he “expected everyone” to reduce oil supply under the agreement reached earlier this month in Vienna. Details of that agreement calls for OPEC and its allies to reduce output by 1.2 million barrels per day starting in January 2019. In addition to the OPEC decision, the Canadian province of Alberta mandated a production cut of 8.7% or 325,000 bpd due to limited pipeline capacity in that region. Additional price support was also coming from the latest U.S. rig count data which showed drillers reduced rigs in the week ending December 14 to 873 which was the lowest it’s been since mid-October. “This, when combined with Saudi Arabia is to cut exports to the United States to draw down inventory builds should provide a short term base despite global slowdown fears, which continue to resonate” said one analyst based in Singapore. Without major headlines today some notable things to watch this week are:
Oil prices seem to be looking for a solid footing this morning as news continues to point towards an upcoming supply cut. Oil prices have lost almost a fifth of their value in the last 30 days due to oversupply concerns, signs of decreasing demand growth and the potential global economic impact of a growing trade war between the United States and China. Another wild card is the unknown political impact of the Saudi Arabian murder case of Washington Post journalist Jamal Khashoggi.
As some of the political machines of the mid 1800s coined the jocular phrase of “vote early and vote often”, I can’t help but think about all the spirited voters racing to their local polling establishments today and how the energy and equity markets have reacted to midterm elections of the recent past. Over the past 21 midterm elections, the party of the incumbent president has lost an average of 30 seats in the House and an average of four seats in the Senate, with only twice having gained in both houses. Below is a chart depicting the post-midterm election WTI crude oil price action of the past 4 midterm elections to the end of those respective calendar years:
After the NYMEX started the morning slightly down and flat, RBOB and HO futures are now mixed as geopolitical news continues to be digested throughout the world. The top three issues impacting commodity prices continue to be the upcoming Iranian oil export sanctions in which there are conflicting reports as to the lost daily volume thus far, the recent murder of Washington Post journalist Jamal Khashoggi and the ongoing trade dispute between the U.S. and China.