The bull market marches on for energy futures this morning with the big 4 petroleum contracts all reaching fresh 3+ year highs and only a sell-off in equity markets seeming to stand in the way of more gains today.
While outright prices have broken out to new highs, the discount of WTI to Brent has hit a new 3 year low as US transportation infrastructure is once again having a hard time keeping pace with rapidly increasing production, while the rest of the world is worried about looming production cuts from Iran and Venezuela.
Venezuela’s situation continue to slide from bad to worse as ConocoPhillips made a move to seize assets in the Caribbean over the weekend, which is likely to further reduce the country’s output as it limits the logistical capability to bring oil to the global market. Is there a silver lining to this move? If the seizure of the Curacao refinery is held up, it could eventually mean an increase in refined product supplies, since the numerous issues faced by PDVSA are keeping that plant operating well below capacity.
So where to from here? $76.60 would mark the 61.8% retracement of the 2014 price collapse for WTI, and is also close to where we saw prices bottom out in 2011 and 2012, so it looks to be a good target for the next few weeks. For those looking for lower prices, 10 year treasury yields just pushed back north of 3% this morning, which has sparked a sell-off in stock markets, and if fear sets back in there’s certainly no guarantee that energy prices will keep up the rally.