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:
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:
Hydraulic Fracturing is the process of stimulating rock to capture gas from shale formations in the Earth, and is also one of the main reasons the United States is on its way to be a world leader in energy production. In this technological age, advancements are happening daily and rapidly. One nuance to the oil and gas industry is making the hydraulic fracturing process more seamless, efficient, safer, and less pollutant and that is coming to fruition with the innovation of Electrical Hydraulic Fracturing. So what is Electric Hydraulic Fracturing? The technology is based upon electricity powering pressure pumps and fracking equipment fueled 100% by natural gas fueled by field gas or alternative natural gas sources.
It may be difficult to believe, but WTI crude oil has been stuck in a range for the past 22 trading sessions without catapulting above $70.06 and without collapsing below $66.32. As of the close, 2:30pm EST, WTI crude oil settled down $0.16 to $67.04/bbl. Even with all the headlines of Iran sanctions, global economic outlook darkening, U.S. Dollar rallying, emerging market contagion, (Turkish Lira plunging to a record low vs U.S. Dollar), Chinese economy slowing down?, trade war fears across the globe, and the continuation of the Venezuelan humanitarian nightmare, WTI for September delivery is only down 1% from 21 days ago. In between that trading frame, we had multiple 5% selloffs, a 6% three day rally, a couple of unch’ds (unchanged on the day) and a whole lot of uncertainty.