Shake It Off
Oil is trying to shake off weakness in the Asian stock markets after China's General Administration of Customs reported that China’s December crude imports increased by 9.3% over a year ago, sucking in about 33.2 million metric tons of oil. Also a hint that Saudi Arabia and Russia might be warming to an idea of a production cut. This come as bearish bets on the February $25.00 crude oil put buying hit a record high. The bears are doubling down on an imminent price collapse over $7.00 a barrel by February 17th which by any measure is a tall order.
A big part of that bet is the expectation that demand will fall seasonally, overwhelming storage and supply. Yet for at least this week, even with an expected increase in supply, we should see storage fall in Cushing Oklahoma as Canadian oil sands producers start to cut output. Global rig counts also are beginning to fall and even as OPEC continues to try to add to output, oil production elsewhere is falling.
Yet oil is seeing some support after Dow Jones reported that there are signs that top oil exporter Saudi Arabia and Russia are more flexible now in considering a production cut to help stabilize crude markets. Quoting Iraq's oil minister, "We can see some flexibility [from Saudi Arabia and Russia] but this should be finalized and we should hear some solid suggestions coming from all parts, at least from OPEC because it is useless to go to a meeting without deciding (on a plan)," Oil Minister Adel Abdul Mahdi told reporters on the sidelines of an energy conference in Kuwait City. "Otherwise this will backfire...we have to see something official," he said, adding that Iraq is willing to cooperate on a production cut if others cooperate.
Dow Jones also is reporting that Kuwait's OPEC Governor Nawal al-Fuzaia hinted on Tuesday that the Organization of the Petroleum Exporting Countries is ready to cut production in an effort to stem the persistent slump in oil prices. The governor told an energy forum in Kuwait that the cartel is ready to "cooperate" with others to stabilize the oil market, according to media reports. "OPEC is willing to cooperate with producers outside the group if they show that they are serious about cooperating with OPEC. Non-OPEC producers keep on making statements that they are willing to cooperate, but the reality is different," she said, according to Dow Jones. The FT reported that OPEC Secretary Abdalla El-Badri said future oil production would falter unless countries both inside and outside Opec co-operated to end a supply glut. “It is crucial that all major producers sit down to come up with a solution to this. The market needs to see inventories come down to levels that allow prices to recover and investments to return,” Mr El Badri said in a speech at London’s Chatham House.
Dow Jones is also reporting,
“A downward revision by energy giant Exxon Mobil Corp (N:XOM) on its estimate for China's annual energy demand growth highlights such fear. On Monday, the company cut its forecast for annual energy-demand growth in China by almost a 10th to 2.2% a year through 2025. Over a decade, the revision amounts to more than Brazil's current annual oil consumption. Exxon also predicts that China's thirst for energy will peak by 2030.”
But when are we too bearish? Bloomberg News is reporting that bets that crude oil will retreat below $25.00 a barrel have reached an all-time high as stockpiles continue to grow. Open interest, or the amount of total contracts outstanding, for March West Texas Intermediate crude $25.00 put options rose to 29,023 on Jan. 22, the highest among all March WTI options. The puts expire on February 17th. Front-month WTI futures dropped to $26.19 on the New York Mercantile Exchange on Jan. 20, the lowest since May 2003. Crude stockpiles at Cushing, Oklahoma, the delivery point for WTI futures, climbed to 64.2 million barrels in the week ended Jan. 15, the highest level since the Energy Information Administration started to track weekly data in 2004.