Over the last 2 months or so we have seen a complete 180 in the way oil prices move. The fundamental, supply/demand driven, dollar index inversion, market information that oil prices typically adhere to and move off of have gone out the window, and instead, daily information being pumped into the marketplace has taken over. Daily OPEC compliance, domestic oil rig counts, and President Trump’s first week or so in office, have turned crude oil investing into the truest form of speculation.
The most recent information shared with the market, stemming from Petro-Logistics, shows that after the first month of implementing the OPEC supply-cut deal, 900,000 bbls/day have been taken out of the marketplace. In a world of oversupply this is great; however, this estimation shows a compliance rate of roughly 75%. Still, this is a step in the right direction for an oil price rebound. Russia, Saudi Arabia, Kuwait, and Algeria are just a handful of many who have made bigger, and some even faster, cuts than originally stated.
Yet, all of these cuts are being overshadowed by the increased production here in the U.S. Oil rigs are continuing to rise week by week. Last week we witnessed another increase (+15), which brings us to 566 active oil rigs. This number is 250 rigs higher than the low of 2016. This continued increase, coupled with annual refinery turnaround season, will significantly increase crude bbls into the marketplace. Additionally, last Tuesday President Trump signed two executive orders to continue and complete both the Keystone XL and Dakota Access pipelines, using American made pipes of course. Both of these factors may be catalysts to start another shale boom here in the U.S.
Let’s continue on with President Trump here for a moment. Last week we saw the Dow hit an all-time intra-day high, closing at a record high level after Trump took office and the bulls hit the ground running. However, late last Friday President Trump signed an executive order that temporarily closes America’s doors to seven nations, and this morning traders, investors, and market analysts clearly have rising concerns about the economy, as seen by the Dow, NASDAQ, S&P 500, and pretty much the stock market as a whole falling.
Who will reach the bottom first? Oil and refined products will continue to weaken if OPEC data continues to show an “underperformance” on declared crude oil cuts, and U.S. oil supply will continue to rise as new pipelines will bring new opportunities for drilling. The economy and the market will also drop significantly if, as Peter Cardillo, chief market economist at First Standard Financial believes to be true, “the Trump worries are now beginning to set in.”
WTI crude is currently down $0.37 to $52.80, RBOB is down $0.0175 and ULSD is down $0.0054.