Tuesday Turnaround
Oil prices are rebounding after getting smashed on Monday on hopes for more stimulus and some oil export issues in Iraq. On Monday oil had a hard time finding support as the dollar saw strong buying and a report by Plats that put OPEC production up 300,000 barrels last month to 32.73 million barrels of oil a day which would be an eight year high. OPEC will issue its version of production but also its outlook on demand. This is after comments by Saudi Arabia's energy minister Khalid al-Falih said that oil markets were becoming more balanced and, as a result, prices are stabilizing.
Platts also reported that China's oil demand apparently contracted by 2.7% in May 2016 from a year earlier to 10.88 million barrels per day (b/d), according to a just-released analysis of Chinese government data by S&P Global Platts. Refinery output in May averaged 10.46 million b/d, data from the China's National Bureau of Statistics (NBS) showed June 12. This was a 0.04% decline year over year and a 4.3% drop month over month. However, net imports of key oil products slumped 41.4% from a year earlier to an average 423,000 b/d in May, as exports of transport fuels climbed higher, data from China's General Administration of Customs showed.
Yet this morning with the Bank of England getting ready to cut rates and the victory of Shinzo Abbe in Japan, this means we are going to see a global influx of stimulus which has always proven to give oil demand a shot of adrenaline. We are also seeing support from a Reuters report that oil shipments in Iraq were halted from two export terminals due to difficulties loading oil onto tankers following a pipeline leak.
The U.S. dollar is also taking a break and we might focus on the fact that we should see the API report another drop in crude oil supply. The private forecaster Genscape, is giving us a drawdown of 488,625 barrels at the Cushing, Oklahoma delivery hub for U.S. crude.
The $44.00 a barrel mark for oil is a key technical area. This is the second test of that area. We will look to buy off of that key support. We still believe that long term the structural issues in oil will get the market in balance if the fallout in Europe is not that bad. We did see a warning from the OMF to Italian banks which in another issue that can cause contraction. But with central bankers putting on the juice, it might be time to start buying into long dated calls.
We also are looking for a turnaround in natural gas. The natural gas market took a big hit and I believe it was way over done. While this week’s injection might not be that exciting, we are expecting historically low injections over the next month. We will see record demand as a heat dome starts to settle around the country. The weakness should be bought as we expect a big rebound.
Gasoline prices have been pressured and according to Triple AAA, gasoline prices at the retail level have now fallen for 30 days in a row which is the longest string of price declines since last August through last September of last year. AAA says that gas prices are at their lowest price for this date since 2004. They put the national average price for regular unleaded gasoline at $2.23 per gallon, which is four cents per gallon less than a week ago, fifteen cents less than a month ago.