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Crude Oil Market Shows Signs Of Rebalancing

Seeking Alpha

Jul.23.17 |

Summary

Saudi Arabian inventories reach relatively low levels.

We can envision crude oil moving to lower lows, but perhaps not before it retests its downtrend resistance line near $49.

Our proprietary value indicator and option expiration price magnets suggest that crude oil is undervalued in the short run.

Last week, John Kemp wrote an article titled Saudi Arabia empties domestic crude tanks which in our view provides hard evidence that the long awaited supply-and-demand re-balancing is taking place. Mr. Kemp writes, “Saudi crude stocks have fallen by 30 million barrels since May 2016 compared with a drawdown of just 6 million barrels in the United States over the same period.”

While many pay close attention to the US EIA data, the reduction in Saudi Arabian crude oil stocks have received less attention, and this metric is perhaps more meaningful. We encourage readers to read the whole article. One chart from the article is included below; it shows that the days of storage of Saudi Arabian crude oil (on a demand basis) have fallen to levels not seen since 2011-2012.

We believe that over the long run, supply and demand dynamics have definite impact on world oil prices. In the short run, however, we believe that technical factors and money flows have more of an influence. We will now evaluate five factors to determine our swing-trade investment positioning in crude oil (shown below). We are currently looking to establish a long position in crude oil near $45/bbl, which would be approximately $9.25 in the United States Oil fund (USO).

Minor Crude Oil Correction

BARRON’s

Crude oil spot prices have fallen so far on Thursday, following

yesterday’s climb to a six-week high.

West Texas crude oil futures have fallen 0.87% to below $47 per barrel so far Thursday, after climbing to a

six-week high Wednesday on better-than-expected U.S. inventory data.

United States Oil (USO) and iPath S&P GSCI Crude Oil Total Return (OIL) have tumbled 0.67%

and 0.20%, respectively. Meanwhile the Energy Select Sector SPDR (XLE) has climbed 0.18%.

Photo by Spencer Platt/Getty Images
Photo by Spencer Platt/Getty Images

Speculation that Saudi Arabia will consider cutting exports by one million barrels per day should

be taken with a grain of salt, says RBC Capital MarketsMichael Tran. In a report he published today he said:

The upcoming shutdown of the 900 kb/d Manifa field to address a technical issue helped to fuel the headlines. While there is no shortage of headline noise that we know to be true is that the Saudis are making good on their pledge to reduce exports to visible regions. Saudi crude shipments to the US averaged over 1.2 mb/d this year leading up to the late May OPEC meeting, which compares to 820 kb/d in subsequent weeks. The latest print saw exports to the US flirt with near all-time lows of 524 kb/d. The shift in Saudi export policy has paved the road for US stock draws, but exports are being funneled elsewhere given that notional Saudi exports remain in line with levels seen throughout the year.

Crude is making a comeback

Here’s how high it can go: Technician

These charts show why crude could drive the next rally: Technician

These charts show why crude could drive the next rally: Technician    18 Hours Ago | 02:47

Call it the crude comeback.

Oil is tracking for its second positive month of the year, and with the commodity now up 12 percent from its late June low, technician Scott Redler says we could be witnessing a major turnaround for crude and it could be a key driver for the markets this summer.

“What I’m seeing is a bounce in crude, which has pretty much been in a range all year, and crude and energy stocks have been laggards for all of 2017,” Redler, chief strategic officer at T3Live, said Tuesday on CNBC’s “Futures Now.” Crude is down more than 12 percent this year while oil equities have fallen 13 percent.

“So for the first time potentially, it could be a focus to help the S&P actually get up to that 2,500 level because [the most recent rally has been] driven mostly by big-cap tech.

Redler turned to the charts to make his case for a bigger rally for crude. While oil has been in a “downtrend” this year, Redler stresses that the commodity has still stayed above “support” and has recently bounced back to its 50-day moving average. As a result, Redler believes that if oil can still hold $45, there could be room to run up to $51, back to its highs in May.

And a bounce in crude would be positive for energy stocks, as he sees the sector heading back to its May high.

“If we can hold just $63 in the XLE, we might be able to take back the 50-day moving average around $66, and get a little bit of a bounce to about $68,” he said. That’s a 4 percent rally from current levels. “[This would] be a nice move for traders, and that would also help the broader indices.”

In other words, Redler sees energy stocks bouncing up to the 100-day moving average in the XLE.

Crude was up by more than 1 percent Wednesday.

Vietnam announces crude oil reserves plan

Hellenic Shipment News

Vietnam must reach crude oil stock levels that are equal to no less than 90 days of net imports following International Energy Agency (IEA)’s criteria by the year 2020.

The target was set in Việt Nam’s development plan for its crude oil reserves system and other petroleum products by 2015 with a vision to 2035, which was recently approved by Prime Minister Nguyễn Xuân Phúc.

Accordingly, oil reserves at refineries, including crude oil and petroleum products in the normal operation, have to meet 25 days of production or 30 to 35 days of net imports. The reserves must have a minimum level of 15 production days for crude oil and 10 days for petroleum products.

The storage of commercial petrol and oil at import depots, which is carried out by petrol and oil trading enterprises, will ensure stable domestic market demand.

Specifically, commercial petrol and oil reserves in the 2017-25 period should be at a minimum level of 30-35 days of net imports.

The crude oil and petroleum products reserves system would be distributed according to production and consumption demand in regions nationwide, while optimising investment spending, management and operation.

Scale, investment progress and the kinds of crude oil warehouses should be suitable with manufacturing capacity, product structure and business plans of refineries.

The scale and development progress of the oil warehouse system should meet petroleum consumption demand of each region in the development periods.

The location of national oil reserve warehouses should ensure national defence and maximise efficiency of crude oil transport lines from refineries to consumption areas.
Source: VNS

Second Indian Company Buys U.S. Crude

Oilprice.com

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

Oil

Bharat Petroleum has become the second Indian refiner to start buying U.S. crude oil, after Bharat purchased 500,000 bpd of Mars and the same amount of Poseidon crude, to be delivered between late September and early October, according to Reuters.

Indian Oil Corp., the country’s top refiner, was the first Indian company to purchase US crude, purchasing 1.6 million barrels of Mars crude last week.

An unnamed source said that the seller was Shell, the operator of the Mars field and the Poseidon pipeline system.

Both deals follow a visit last month by India’s PM Narendra Modi to the U.S., at which President Trump said that the U.S. is looking to expand its international reach by starting oil and gas exports to India. The price of the U.S. sour crude blends that Indian refineries are showing an appetite for is “reasonably competitive,” according the Bharat Petroleum’s head of refineries, R Ramachandran.

So far, India’s biggest suppliers of crude have been Middle Eastern producers, Asian ones, and producers from Africa, but now the world’s third-largest consumer of the commodity is looking to diversify its sources of crude as U.S. and Canadian crude become more competitive after an overhaul at Indian refineries that made heavier crude blends a new favorite since they are cheaper than lighter ones.

The US-India energy cooperation doesn’t stop there—it also includes Indian energy companies signing more than US$30 billion in long-term contracts for U.S.-produced liquefied natural gas, including from Louisiana and Maryland, and an upcoming trade mission of U.S. technologies that can optimize the performance of India’s oil refineries.

U.S. crude oil exports have been on the rise, hitting a record-high 1.3 million bpd in the last week of May, with the average for that month at 1.02 million bpd. Besides Asian nations, European countries and a few South American ones were among the importers of American crude. Canada was the top importer, buying 372,000 bpd from its southern neighbor in May.

By Irina Slav for Oilprice.com