Shorted
Oil prices bounced back as record speculative shorts started to get nervous and wanted to protect recent profits. After plunging yesterday to the 2009 low, prices rebounded and closed higher. While oil fell short of a technical key reversal, it did put the shorts on notice that oil may stop being a one way bearish street. Now with another dip in prices, many are wondering if that dip is going to further reduce non-Opec output and the truth is, it probably will.
That may be one reason the OPEC Secretary-General Abdullah al-Badri is saying current low oil prices will not continue and will change in a few months or perhaps a year. He also said that the decision by the U.S. to export oil will have little impact on prices.
Well maybe, but make no mistake about it, OPEC is not happy that the U.S. may wake up and be competitive against the cartel instead of allowing the cartel to use its advantage to try to drive U.S. producers out of business.
This comes as a lifting of the export ban is becoming more likely but not a sure thing as President Obama says he is still opposed to it and will veto it. Yet Bloomberg News reports that, “House Democrats are now open to lifting the 40-year-ban on U.S. crude-oil exports, negotiating with Republicans in hopes of extracting trade-offs in exchange for a top Republican priority, a Democratic leadership aide said Monday. Bipartisan leaders in the Senate were already near a deal and faced resistance from House Democrats and some Republicans. On Monday, House Democrats said they were willing to discuss a plan, depending on what concessions they would get in exchange, the aide said. Such a plan would likely be constructed to allow Congress to pass the legislation without House Democratic votes, the aide said.”
The oil market is also preparing for what should be another drop in U.S. oil supply. The American Petroleum Institute will probably show another drop in supply as refiners and oil companies reduce crude inventory for year end tax purposes.
Yet falling prices do have an impact. Dow Jones is reporting that according to the London-based Energy Aspect non-OPEC supply growth has fallen from 2.2 million barrels a day at the start of the year to 0.4 million b/d today. U.S. shale oil is expected to drop by at least 0.5 million b/d in the first six months of 2016, while other producers in Brazil and the Caspian region are also facing falling output.
Bottom line is that in the short term the bears still have control but with the Fed meeting ahead, the possibility of a short exodus is rising so beware for the short covering rally to continue.
Warm temperatures drove natural gas to a 13 year low yesterday as no one seems to be even dreaming of a White Christmas. The low prices are impacting production and if the weather changes at any point, we could see a price spike. Thomson Reuters Analytics forecasted that U.S. gas production in the lower 48 states would fall below year-ago levels for an 11th day in the last 12, with output expected to hit 73.0 billion cubic feet per day on Monday versus 73.6 bcfd a year earlier. Output hit a record of 76.5 bcfd over the summer. They also point out that we are exporting a record high of 4.1 bcfd to Mexico and that the front-month will remain in oversold territory for a sixth day in a row, the longest streak since July 2014.