Columbus Day Crash
Oil prices got crushed on light volumes and worries about the potential for more supply and perhaps less demand. While yesterday’s move was probably overdone based on the news, today’s news is showing the predictive nature of the futures market. Oil’s initial weakness came from OPEC production report that was the highest levels since 2012, and a private forecaster Genscape from suggesting a big 1.1 million oil supply increase in Cushing Oklahoma. Today, it's reports from the International Energy Agency (IEA) and from China that are providing headwinds for oil.
The IEA, which previously had to raise their oil demand forecasts of their last couple of reports, now has gone the other way in lowering demand forecasts. According to the IEA's latest monthly market report for October, global demand growth is expected to slow from what had been a five-year high of 1.8 million barrels a day in 2015 to a more modest 1.2 million barrels a day. This is significant, even though their projections on demand have not been right this year.
China import export data seemed to be mixed up, but weighed on oil sentiment. September imports fell k 20.4 percent to $145.2 billion in dollar terms, missing expectations, yet exports came in better than expected. And it seems that their demand for crude stays strong, as their crude purchase volumes were 8.8 percent higher than last year.
Oil also is seeing some weakness from the fact that the Iranian parliament passed the Iranian nuclear deal. The USA today reported that the deal was supported by 161 lawmakers while 59 voted against it and 13 abstained. Another 17 did not vote at all, while 40 lawmakers did not attend the session, IRNA reported. It now goes to the senior clerics and then to Iran's Supreme Leader Ayatollah Ali Khamenei.
The Wall Street Journal is reporting that oil companies are finding that they can't cut any more jobs than they already have amid the oil-price downturn, so they're using across-the-board wage cuts, hiring freezes and bonus caps to preserve sufficient staff for their businesses to succeed, Chester Dawson and Benoit Faucon report. Energy-company layoffs world-wide have topped 200,000, says consulting firm Graves & Co., and more cuts are expected because crude shows little sign of rebounding soon.
We feel with oil producers on the ropes we will see more cut backs in output! Use the weakness to put on new bullish long term strategies!