Oil Prices Moving Higher Until Early Morning Tweet From US President

After pulling back from multi-year highs to end Thursday’s session, Oil prices were moving higher once again overnight until an early morning tweet from the US President, calling out OPEC for inflating prices, sent prices lower.

It’s not clear if the 3:57am timing of the message was a result of insomnia, or intentionally planned to coincide with the meeting of OPEC and friends taking place in Saudi Arabia this morning.

The early headlines coming out of Jeddah suggest that the Saudi’s want to keep the output cuts in place, while Russia wants to start increasing production again.

Meanwhile, the committee formed by the cartel last year to track compliance with output cuts reported Thursday that the plan had all but eliminated the global glut of oil inventories.

The battle of words, whether they come on the sidelines of a meeting, snapchat, or any other medium, are likely to keep traders on edge today, but it may not change any longer-term trends unless a major change in the current policies of either the oil importers or exporters is made.

There was an explosion and fire at the Valero refinery in Texas City Thursday.  No injuries occurred and the gulf coast cash markets don’t appear to have reacted at all to the news as it’s unclear what units may have been affected.

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Strong Follow-Through Buying Following A Technical Breakout In Oil Futures

We’re witnessing strong follow-through buying following a technical breakout in oil futures this week.  WTI and Brent are up around $1/barrel so far today, threatening the $70 and $75 marks respectively after a bullish DOE report helped them punch through chart resistance Wednesday.

Refined products are joining in on the rally, with RBOB gasoline futures reaching new highs for the year, while ULSD futures are just 2 cents away from 3-year highs of their own.

Although the inventory changes weren’t large by historical standards, yesterday’s DOE report had plenty for the bulls to feel good about.

Total crude inventories held below the 5-year seasonal average for a 4th straight week.  the US Oil output estimate set yet another record at 10.54 million barrels/day.

Total US petroleum demand estimates surged by more than 1.5 million barrels/day last week, led by a gasoline figure that outpaced even the best “driving season peaks of the past 10 years.

Total diesel stocks held below their 5 year average for a 6th straight week, and reached their lowest total since the wake of Hurricane Harvey.

The bears will note that weekly demand estimates are notoriously unreliable, but it’s hard to argue with the 2018 average demand that’s held well above the 5-year seasonal range in spite of some very challenging weather conditions across the country.  The bears will also note that US crude oil production hit yet another new record at 10.54 million, but it seems that until the export flows are unable to clear those incremental barrels, traders are content to focus on inventory instead of output.

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Energy Complex Moving Higher Once Again

The energy complex is moving higher once again, after surviving another sell-off attempt Tuesday morning, aided by a strong move in US equities, and inventory declines.  WTI hit a fresh 3-year high at $67.85 in the past few minutes, after bottoming out at $65.56 right about the time US stock markets opened for trading yesterday morning.

Tuesday’s reversal and this morning’s follow through put both WTI and Brent on the cusp of breaking through the upper end of the April range, and adding another $3/barrel or more to their 3 year highs.  The first test to confirm this breakout will be for WTI to hold above the $67.70 range today.

The API was said to report inventory draws across the board last week, with crude oil stocks down 1 million barrels, gasoline down nearly 2.5 million barrels, and distillates down 854 thousand barrels.  The DOE report will be out at 9:30 central, and may well be the catalyst for crude prices to either make their next break to the upside, or run out steam once again.

The battle over a new Canadian oil pipeline reached a new level this week when Alberta & Saskatchewan threatened to halt oil deliveries to British Columbia, unless the coastal province started cooperating with plans to get oil to its ports.  Besides being an interesting study in provincial politics, this issue could have direct impacts on US refiners that are running Western Canadian crudes, and benefitting from the discounts caused by the delivery bottlenecks.

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Energy Prices Sliding For 2nd Day

Energy prices were going nowhere this morning, with little in the way of news to drive the action after Monday’s Syria sigh of relief selloff.  Another wave of selling picked up around 7:40am central after WTI fell back below the $66 mark which appears to have triggered some stops.

While energy prices are sliding for a 2nd day, US stock indices are pointing to another strong open as investors seem to enjoy getting to talk about the pending earnings reports instead of the potential for war.

If the pullback continues this week, both oil contracts look like they have $3/barrel to fall before hitting longer term support, which could mean 5-10 cents of downside potential for refined products.  That said, we remain within striking distance of multi-year highs, and the charts are showing the potential for WTI to make a run at $70, and Brent to have a shot at $75 if the bulls can find enough momentum to break through last week’s peak levels.

The EIA released its monthly drilling productivity report Monday, and showed an increase in per-rig and total production rates for all of the country’s major shale plays.

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Oil Prices Pulling Back From 3-Year Highs

Oil prices are pulling back from the 3-year highs set last week and stock markets are rallying after the Friday night missile strikes in Syria did not escalate further.

It seems like when the market is focused on a trade war, equity and energy prices are moving in tandem, while when they’re focused on a real shooting war, the asset classes will move in opposite directions.  There are legitimate fundamental argument for both reactions – a trade war may be bad for demand while a real war could be bad for supply – so it’s likely we could stay in this pattern until both stories move off the front page.

7 more oil rigs were put to work last week according to Baker Hughes’ weekly report.  That brings the total number of active oil rigs in the US to their highest level in 3 years, just in time to capitalize on prices that are at their highest level in that same span.

Money managers still like betting on higher Brent crude oil prices, with the net long position held by the speculative category of trader reaching a new record high last week.  They are less enthused about the US contracts, making small reductions in ULSD, WTI and RBOB for a 2nd week, although those net positions remain well above their previous 5 year range.

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