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?"

Myths About Oil And The Dollar

Robert Boslego - INO.com Contributor - Energies

Oil prices and the dollar have been highly negatively correlated during the oil price collapse. From June 2014 through September 2016, the correlation has been -95%.

In financial articles, it's a commonplace to read that oil prices fell because the dollar strengthened, or oil prices rose because the dollar weakened. This is largely a confusion of correlation with causality.

It is true that there is a linkage. A stronger dollar does render oil prices higher in foreign currencies, thereby adversely affecting demand, a negative factor for oil prices. Continue reading "Myths About Oil And The Dollar"

Fed At Odds With Markets Over Oil

Lior Alkalay - INO.com Contributor - Forex

At long last, the market finally got their long awaited Federal Reserve rate increase. Yesterday, the Fed hiked the Fed Funds rate by 25 basis points, from 0.25% to 0.5%. The Fed's famously watched "dot plot" revealed that most members expect at least four rate hikes in 2016. And investors? If interest rate swaps are any indication, then investors expect no more than two rate hikes next year.

So who is right then? The Fed? Or the market? Continue reading "Fed At Odds With Markets Over Oil"

Government Sells Low

Adam Feik - INO.com Contributor - Energies

What will oil prices be when the U.S. government begins selling tens of millions of barrels of oil from its Strategic Petroleum Reserve (SPR) in 2018?

The House passed a federal budget on Wednesday – which is reportedly on its way to likely Senate passage and Presidential signature – calling for the government to sell at least 58 million barrels of oil from the SPR over an 8-year period beginning in 2018. The SPR currently holds about 695 million barrels in 4 sites along the Gulf of Mexico coast. Per the budget bill, the U.S. may sell up to an additional $2 billion dollars’ worth of oil from the reserve to build new pipelines and otherwise modernize infrastructure. That program would represent an incremental 43.5 million barrels based on today’s prices, bringing the total number of barrels to be sold up to a possible 101.5 million. At today’s rates, that could add about $4.7 billion into the US Treasury.

Or… Continue reading "Government Sells Low"

Is It Time to Take Profits on Oil Refining Stocks? (re-visited)

Adam Feik - INO.com Contributor - Energies

I wrote on February 24th about whether the time had come to take profits on oil refining stocks like Tesoro, Valero, and others. (My conclusion was to hold the stocks for the time being, but to keep a close eye on them).

Since then, oil refiners have continued rising (generally), as oil prices have showed continuing weakness – especially in the last 30 days. Crude oil, of course, is the key input for refiners, so refiners benefit when its raw materials prices are low. Nymex crude fell below $50/bbl Wednesday, having fallen from $61 on June 23, 2015, and from $107 on June 20, 2014 (data from eia.gov).

Here's an updated table showing performance of selected refiners through July 22:

On Thursday, July 23rd, oil and refining stocks both fell. But more often recently, it's been… Continue reading "Is It Time to Take Profits on Oil Refining Stocks? (re-visited)"