In the oil price comeback story, the trade lost the battle but will eventually win the war. Oil failed to hold the breakout over the key 7300 a barrel resistance as omicron worries and a rash of late-day apathy sunk the close.
Omicron is still a major risk factor as well as uncertainty over the Chinese economy after a default by China Evergrande Group (OTC:EGRNY) yesterday. The report said Hong Kong is tightening quarantine requirements for US travelers and that’s also a negative factor. The UK started to make people work from home.
Yet oil is coming back on reports the Biden administration had a lucid moment by saying that a US oil export ban is not going to happen. Perhaps it was because a bipartisan group of lawmakers sent a letter to explain to them that an export ban would have the opposite impact on gasoline prices and would only serve to put US oil workers out of work, shut down US oil production and ultimately only give more power to OPEC and Russia in the global oil market.
The Biden administration is starting to realize that their pullback in oil and gas dominance has made the world a less safe place. Russia is on the border of Ukraine and China is acting aggressively with invading Taiwan. Iran is enhancing their nuclear capabilities but other than that everything is kind of cool. Traders are watching with interest the increasing tensions between Russia and Ukraine.
Oil also worried that China’s Evergrande Group has defaulted on a coupon payment raising concerns of a slowdown in China’s oil demand. Yet right now China oil demand is rising and should continue to rise as we head towards the end of the month.
In the United States, we are seeing oil and demand is back to where it was before the virus. Javier Blas of Bloomberg points out that passenger vehicle traffic levels in US interstate highways have returned to pre-covid levels (last data point is the week ending Dec 5). On a 4-week rolling average, miles driven are up 0.3%, the first positive rate since March 2020. Blass says that omicron may – or may not – change the trend
That is the reason why the oil products look pretty strong. I think both gasoline and heating oil look like they can be bought and from a seasonal perspective they generally had a good amount of support going into the end of the year. The Moore Research Center points out that there are different spreads that if you buy heating oil between Dec. 12 and Dec. 24 it would have made money 15 out of the last 15 years for an average profit of $1482.00.
Moore Research Center also points out that if you would have bought spreads for RBOB gasoline it would have made money 14 out of the last 15 years for an average profit of $869. Of course, past performance is never a guarantee of future results but both these spreads do look pretty good especially after the break that we’ve seen in recent weeks. Call me for specifics.
Natural gas is also mounting a comeback. The key still is weather forecast intentions in Europe. We know the global market is very tight and there’s no room for error. US production numbers have been rising but it seems like that at least for now, we have found a bottom after the major sell-off due to the warm weather forecast. The key for this market is going to be weather and in the last half of the month if it turns colder look for natural gas prices to come back in a big way.