Oil: Is It 2014 All Over Again?

Lior Alkalay - INO.com Contributor


In the past two weeks, crude oil futures took a beating; WTI futures ended last week at $46.47 per barrel while futures for Brent crude, the global benchmark, closed at $49.47 per barrel. Both WTI and Brent contracts have now concluded a 15% and 16% fall from their respective peak prices, closing at their lowest point since the deal between OPEC oil producers and 13 non-OPEC oil producers was signed. And the outlook for oil is not encouraging as a broader analysis of both the fundamentals and technical at play reveal a worrisome pattern—a pattern of an oversupplied oil market, ready to nose dive, as it did in 2014.

At the heart of the matter, as in 2014, is the US shale oil industry. Only this time around the US shale industry is significantly more competitive. According to Ron Ness, president of the North Dakota Petroleum Council quoted by Reuters, “the cost of extracting oil at Dunn County, North Dakota, is as low as in Iran” and “the cost of producing a barrel of oil is at $15 and falling" That figure is truly nothing short of dramatic! True, the production cost at Eagle Ford and Permian Delaware facilities is higher than Dunn country. And yet this figure underpins a very important change. In the next oil slump, shale producers won't be under the same pressure to cut production. Meanwhile, oil production in America has risen to 9.29 million barrels a day and is expected to surge to 10 million barrels a day by 2018. All the while, crude oil inventories are stubbornly high. The latest data from the EIA shows crude oil inventories were at 527.8 million barrels, at the higher end of the 5-year range. In fact, as the EIA chart below shows, US crude oil inventories have been persistently above the 5-year range for some time, suggesting demand for crude in the United States is too weak to accommodate the rising supply from shale oil. Continue reading "Oil: Is It 2014 All Over Again?"

What OPEC Cut Is Priced-Into The Crude Oil Market?

Robert Boslego - INO.com Contributor - Energies


As all seasoned traders know, oil futures contracts reflect the market’s probability-weighted price expectations. In addition, I believe that the market provides a risk premium to the long side which underprices oil to some extent.

One important question now is how much of a potential OPEC/Non-OPEC cut is already priced into futures contracts? The answer determines the risk-reward to being long or short, depending on the outcome of the 171st OPEC Meeting on November 30th.

Before going further, there is no definitive financial theory or procedure of telling specifically. So I have to make some informed guesses based on possible outcomes and past market reactions. Continue reading "What OPEC Cut Is Priced-Into The Crude Oil Market?"

Copper Waits If Oil Keeps Upside; China Is In Focus

Aibek Burabayev - INO.com Contributor - Metals


Chart 1. Crude Oil-Copper Correlation: Gap Widened

Crude Oil-Copper Correlation
Chart courtesy of tradingview.com

Another attempt by oil to close above the psychologically important $50 level (black dashed horizontal line) has failed. This was the third and a good try, and it was after a good correction in July, which makes bulls nervous as they lose their patience. Copper couldn’t keep the correlation gains achieved in July as it didn’t follow the rising crude last month and on the contrary, it moved the opposite way below the $2.2 level. The gap between them widened.

It’s not all bad news. There are at least two positive factors: Continue reading "Copper Waits If Oil Keeps Upside; China Is In Focus"

Freeport-McMoRan Could Double Amid Strong Copper

Aibek Burabayev - INO.com Contributor - Metals


Copper advanced 15 cents or 7% higher from my previous post and it looks like we are going to see much more strength as it was just a warming-up.

Chart 1. Copper-Oil Weekly: The Metal Tries To Catch Up Consolidating Crude

Chart 1. Copper-Oil Weekly: The Metal Tries To Catch Up Consolidating Crude
Chart courtesy of tradingview.com

The comparative chart above became a tradition. This time, there are no dramatic changes on it and the only drama here is the failure of crude oil to surpass the first strong barrier at the $50 mark (black dashed horizontal line). Oil has been stuck in a $5 range between $45 and $50 levels. We are at a crucial point as soon we will know for sure if it was a strong correction in oil before another huge drop to the $26 low or below or is it a consolidation before the break through $50 and then $60 barriers within a new uptrend. Continue reading "Freeport-McMoRan Could Double Amid Strong Copper"

Copper Bites The Dust Behind Strong Oil

Aibek Burabayev - INO.com Contributor - Metals


All of the top commodities have rebounded amid the dollar's weakness recently, but copper didn't follow the pack to make gains. I think we should take a chance as this misbehavior will not last for long.

Chart 1. Copper-Oil Correlation: Huge Divergence!

Copper-Oil Correlation
Chart courtesy of tradingview.com

The crude oil is very strong these days, although last time we have been witnessing its comparative weakness to copper. It looks like the Double Bottom reversal pattern is still making the game for oil with the first strong barrier at the $50 level.

This time, copper overreacted to the short-lived drop of crude hitting the $2.06 area, and this gap that we can see on the chart above kept at the following strong rebound. And then another weird thing happened – crude oil had a minor pullback and continued its upward move while copper overreacted again down to the previous low area at $2.06, this time with even larger divergence. Now look at the left part of the chart, the current gap reminds me the one-year-old situation – oil had stalled at the end of May 2015 while copper overcame it with a new high and then it dropped sharply to run down crude. Therefore, there is a high probability of copper catching up soon with the current oil price corresponding to $2.40-2.50 copper price levels.

Let's look at the copper chart below to find it out. Continue reading "Copper Bites The Dust Behind Strong Oil"