Oil traders historically have had a bad time when they have tried to fight the Fed. The Federal Reserve’s 50 basis point rate cut along with a dot plot that says there are more to come should have hedge funds think twice before pressing the downside in this environment.
That is not to take away from the hedge fund's ability to influence prices on big, short-term price moves like they did on this recent manic Labor Day holiday crash, But history now is against them making that a massive speculative short play more dangerous. Fed rate-cutting cycles have eventually always led to higher oil prices.
The reasons for that are clear. The Fed cuts rates and the dollar weakens and that pushes up oil prices.
The cost of carry for oil and gas producers because of lower interest rates is less so producers can produce less oil and gas and make more money.
That situation should reduce production a bit as many producers look to improve margins and costs.
Now that does not mean they will not produce more as prices go up, but it will be more from a position of strength, not one of being forced to keep up cash flow.
And while prices may be subject to short-term technical situations like becoming overbought or even oversold the reality is that when the Fed cuts rates it changes the fundamentals and historically it’s always proven to be bullish over time if not immediately.
Oh sure. There will be those who will tell you this time is different.
They might say that because of the rise of electric cars, or a slowdown in China, or peak demand, or whatever. I am sure when you look back on that you might see how that might be incorrect.
This is sort of like when Janet Yellen said when she was Vice Chair of the Fed that QE would not increase commodity prices. Or when others said that because of shale oil production prices of oil may never trade above $30 again. Yet history is against these negative predictions about oil prices during rate-cutting cycles.
So, until we see a major slowdown in global oil demand that is currently over 107 million barrels a day or unless you see electric car sales explode, do not fall in the trap of fighting the Fed.
As I wrote the day after the Fed Chair Ben Bernanke announced Quantitative Easing in 2008, “I Fought the Fed And the Fed won".
It went like this:
Here comes Ben with his big guns.
I fought the Fed, and the Fed won.
They needed money, so they printed some.
I fought the Fed and the Fed won.
An oldie but a goodie for these interesting times. If you want to see why war and terror are on the rise, all you must do is follow the oil.
Iran the funder of Hamas Hezbollah and Houthi rebels have funded chaos, pain, and bloodshed around the globe as er the Biden Administration turned a blind eye to oil sanctions and gave the member in good standing of the ‘axis of evil” billions of dollars to spread their terror.
And while the Biden Administration tries to convince us that they are enforcing sanctions, it really is to mislead you.
Dan Tsubouchi at Energy Tidbits points out that Iran is easily avoiding sanctions in a charade that is embarrassing to the Biden Administration. Iran is shipping it oil to China and China just reclassifies it as Malaysian oil.
China oil import data Saudi oil imports from Iran is zero in August according to China but oil imports from Malaysia in Aug was 1.77 mmb/d vs total Malaysia production of 400,000 mmb/d.
If I were Malaysia, I would ask China for payment for all that oil they shipped. I am sure the check is in the mail.
Crack spreads still are weak but seem to be turning around so the products could get a little bit of a rally the stock market is coming up on major resistance.
We could see a bit of a pullback that could put a little bit of downward pressure on yet oil has closed in a very good bullish technical position.
Oil broke the downtrend and the seasonality for oil should start to improve.
‘Position going into winter and we should rally into mid-November.
Natural gas prices are hanging in there.
The debate about overproduction exceeding supplies versus a situation where people see the longer-term outlook for natural gas futures attractive at these levels.
Reuters reported,
“The CEO of U.S. natural gas producer EQT on Wednesday said U.S. prices for the fuel will remain below $3 per million British thermal units in the short term.
As prices fell to multi-year lows earlier this year, EQT curtailed 1 billion cubic feet per day (bcfd) of its gas output. Several rival U.S. shale gas producers also cut drilling to stem overproduction.
Toby Rice, CEO of the largest U.S. gas producer, said at the Gastech energy conference that he expects production curtailments to ease by next year as demand for U.S. liquefied natural gas exports rises.
Weather will be the key and Fox Weather is warning that we could see another tropical storm in the Gulf of Mexico and maybe more than one. Fox Weather reports that ‘a potentially impactful threat brews in the Caribbean as system expected to track into Gulf of Mexico.
Fox Weather says that: The growing concern is linked to a phenomenon known as the Central American Gyre, which has historically contributed to tropical storm formation in the Caribbean or Gulf of Mexico in the early spring or autumn.
As tropical activity in the Atlantic Ocean quiets down again, attention is shifting back to the Caribbean and Gulf of Mexico, where there are increasing signs of atmospheric conditions favorable for the development of possibly the next named storm sometime next week.
The National Hurricane Center is now officially monitoring the area for tropical development. The agency is giving medium odds of development for now within the next seven days. Further development may loom beyond seven days, according to the FOX Forecast Center.