What Happens in the Sweet Spot?

By: Daniel Guttman / June 13, 2016

The recent supply disruptions worldwide have caused quite the surge in crude prices over the last 3 weeks, roughly an 85% increase, and consequently this price surge has yielded an increase in U.S. oil rigs coming back online. The concern on oil producers and investors minds’ is what lays ahead of $50/bbl crude. Clearly the $50 mark is the pivotal threshold for U.S. producers, but is that enough for the majority of U.S. drillers to come back on line? What will the increase in rigs and supply do to an already over-supplied market if the price remains in the sweet spot between $50-$60? Will a crash back down to the mid $20’s prove that history repeats itself?

It is important, however, to keep in mind that U.S. oil rig count currently stands at 328 with is less than 50% of this time last year, and several analysts believe that crude would need to go above $60/bbl for a more significant increase in rigs. Time will surely tell.

 

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The balancing act is just that, a balance. With an increase of rigs and supply, negative pressure is put on prices. The additional rig count data provided by Baker Hughes last Friday sparked a downward trend in the market, which we can see carried over into today’s trading session. Additionally, a strong U.S. dollar index continues to widen the price gap after hitting an 11-month high of $51.23 last Wednesday. Friday night’s crude settle was accompanied by RBOB closing down almost six cents to $1.5596 and HO down 3.5 cents to $1.5160. Market values today continue to trend in the red. Crude, RBOB, and HO are all down $0.20, $0.0296, and $0.0029 respectively. While this post is being generated, the market has responded to the weakening of the dollar. Keep an eye on the DXY ticker today.

On a cash market level, Chicago gasoline made remarkable moves last week in response to strong demand, pipeline maintenance, both planned and unplanned refinery turnaround, and of course the repercussions of the Canadian wildfires. At one point last week, Chicago cash market basis was nearly fifty cents over the NYMEX; settling 44.50 cts/gallon over on Friday. 

 

Our thoughts and prayers go out to the families affected by the act of terror that took place in Orlando, Florida this past weekend. It is among great sadness that our country had to endure such a hate-filled action, and unfortunately these events take place in other reaches of the world daily. May we stand united as Americans and put an end to terror and violence.

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Categories: Daily Market Update


Daniel Guttman

Written by

Daniel Guttman

With a background in wholesale and commercial sales as well as pipeline scheduling, Daniel is currently the Manager, Business Development in the Card Access Fuels department. He is tasked to find new and innovative solutions to increase sales opportunities for the sales team while managing and evaluating internal department processes. He assists with day to day personnel management, customer data analysis, as well as the daily Pacific Pride inventory and pricing direction.


Guttman Energy Daily Market Update Disclaimer – The information contained in this market update is derived from sources believed to be reliable; however this update could include technical inaccuracies or typographical errors and Guttman Energy does not guarantee the accuracy, completeness or reliability of this update. FURTHERMORE, THIS UPDATE IS PROVIDED "AS IS," WHERE IS, WITH ALL FAULTS AND WITHOUT ANY WARRANTY OR CONDITION OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY. GUTTMAN ENERGY ALSO SPECIFICALLY DISCLAIMS ALL EXPRESS AND IMPLIED WARRANTIES. YOU USE THIS UPDATE AT YOUR SOLE RISK. This update and any view or comment expressed herein are provided for informational purposes only and should not be interpreted in any way as recommendation or inducement to buy or sell products, commodity futures or options contracts.


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