The Energy Complex:

I suppose the olde adage is true, ” scared money don’t make no money”. I said earlier this week that I was cautious about the direction in oil prices until the next OPEC meeting on June 22nd. That of course was the “lets leave some on the table, take the money and run” voice in the back of my head talking. Well now, they’re have been some developments in which I’d like to attempt to regroup my thoughts through this post.

First, I came yesterday’s EIA gasoline and distillates weekly stock reports which showed declines in both, in which supports higher energy prices. Secondly, this afternoon came Mr. Greer’s “BREAKOUT TWEET”:

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Granted, $XLE ‘s top holdings are the major oil companies and they not necessarily make money when oil prices rise, so there is that.

Thirdly, was how crude oil trading during today’s session. Where prices held their ground close to multi-year highs, but their choppy price action late in the session to me feels like tomorrow we could see a downbeat finish to the week. More to the the third point, is how July crude oil barley missed posting a negative reversal.

From the headlines came the concerns whether Iranian sanctions will play out have been a major tailwind for Brent crude oil prices, which topped out at $80/barrel today; a level not seen since December 2014.

Additional headline risk came in that the Saudi Arabian and UAE Oil Ministers would meet with Russian officials in St. Petersburg next week to discuss security of supply and establishing market stability (price fixing).

The combined OPEC nations are currently well below their Oil Producer Agreement cumulative quota total, due in part to Venezuelan output falling to multi-year low levels. With the global surplus worked down, this could provide some working room to tweak their output levels if Iranian sanctions lead to a sharp drop in their crude oil exports.

There is no consensus yet on how much Iranian oil will go off-market, however, as some estimates have their exports falling by only 200,000 to 300,000 barrels per day. In addition, the prospect of U.S. crude oil production climbing well above 11 million barrels/ day continues to shadow the market.

The weekly Baker-Hughes oil rig count will come out at midday tomorrow, and expectations are that crude oil rigs will post a 3-year high. To wit: last week’s reading of 844 U.S. rigs is still far below the record high of 1609 rigs set in October 2014.

Rig Count Summary_051118

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Crude Oil Product Fundamentals

The product markets outperformed crude oil early Thursday, but both RBOB and ULSD fell well below their highs for the move as July RBOB ended up with a negative key reversal. Strong domestic demand levels have been a source of strength for both products on their recent upside move.

Average U.S. retail gasoline prices have climbed above the $2.90 level for the first time since the autumn of 2014, which is getting plenty of attention in the mainstream news media.

The North America driving season will start next weekend, which is widely expected to strengthen gasoline demand and sen retail prices even further to the upside.


Petroleum Positioning

While the Iranian sanctions situation will be around for a while, a lack of fresh inflammatory rhetoric could shift focus back towards rising US crude oil production.

Today’s Baker Hughes oil rig count could put pressure on energy prices if there is a sizable weekly gain. In addition, crude oil and RBOB have very large net spec long positions that could fuel additional long liquidation going into the weekend.

Near-term support for July crude oil is at $70.80 while resistance is at $72.20.

Near-term support for July RBOB is at $2.2200:

while near-term support for July ULSD is at $2.2480.

-R.W.N II

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