There has been a lot of information cluttering the market over the past week or so, none of which is substantial enough to have any drastic long-term implications about which way this market may or may not go:
- Oil rig counts in the U.S. increased for the first time in 13 weeks. According to Baker Hughes, U.S. shale oil producers turned one additional rig site back online last week as $40/bbl is a more comfortable level for production and output. Nothing to get too excited about however, as the rig-count has fallen more than 70% in the past year.
- The March “production freeze” meeting slated for March is now scheduled for April 17th in Doha, Qatar. The question still remains whether Iran will chime in or not.
- Last Week the U.S. Dollar index took a significant hit after the Fed declared it would keep interest rates steady. With the USD weakened, foreign investors bought more April crude, which propped up the market enough to counter the strength that the rig count news brought.
A very interesting topic that goes overlooked is floating storage. Floating storage is exactly what it sounds like. Buyers that have access to oil storage purchase cheap crude when a market is low and also in contango, and then sell high-priced futures contracts against the floating physical product to make a profit. Now, this typically only works when the market is in “super-contango” and also when there is global oversupply. Over the last few months that has been the case, but more recently the spread between current month’s crude price and future month’s crude prices has been decreasing.
According to an article by Bloomberg, this may be a sign that the global oil glut may be coming to an end. With U.S. production close to dropping below 9 million bbls/day, OPEC and non-OPEC members soon to meet about a production freeze, and two Middle Eastern pipelines unexpectedly halted in mid-February, the global oil surplus might not be as big as once perceived. “Your probability of having a containment issue, of blowing out storage, is starting to decline,” Jeff Currie, New York-based head of commodities research at Goldman Sachs Group Inc. said to Bloomberg.
Currently, WTI is trading up $0.64 at $40.08, heat is down 51 points to $1.2340 and RBOB is up $.0183 to $1.4456.