“Trying to get that OI–LLL”

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Last week was certainly a “whip-saw” kind of week. With the Chinese Tariffs and Trump’s kneejerk response to his “base” in West Virginia, Crude Oil has been in the cross-hairs. Affected by the money flows between asset classes, there are three arches I’m pondering and thus, there trigger points I’m keeping in mind with Crude Oil.

  1. Tariff imposed on Crude Oil by China, Yay or Nay. “Tariff Tantrum”
  2. Breakout in Price action out of the prolonged bracketed $60-$65 range.
Crude plunged on the same trade war jitters. “There is a risk for oil prices that China uses the bazooka option it has on U.S. crude oil exports [as] China is the main importer (after Canada) of U.S. crude oil, to the tune of about 400,000 barrels per day, Petromatrix said Friday, adding that “if China was to impose counter tariffs on U.S. crude, it would become quickly very heavy for the U.S. supply and demand picture, resulting in U.S. crude oil price pressure that would have a negative impact on global oil prices.”

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Lol and this from Mr. Scott Shellady of TJM Investments…. Mooooo ! “Slowdown or Showdown.”

As for late last week I interested in reports that the production in Texas has increased to a point that the multiple pipelines that carry crude from the Permian Basin are backlogged. Moreover, new pipeline construction can’t keep up with the rate of production in the Permian. Thus, crude that is from the aforementioned region is selling at a widening discount to other crude types and to futures as well.

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However, the situation in Texas pales in comparison to the situation in Canada where WCS crude continues to sell at $15-$20/barrel discount to WTI crude futures where fair value is around $10/barrel. We shall see and hope the situation doesn’t worsen as we move into the summer travel season.

In regards to Saudi Arabia, the Crown Prince continues his travel across the US and has been low-key influential in his visit. That being, he has made himself appear to be a wholly moderate regent, unmaking what once was seen to be an aloof Saudi Royal family, to one that is engaging and based in reality.

Lastly, regarding recent developments from OPEC and the Russian Oil Gaint, Rosneft, the senior management of Rosneft has never been able to enthusiastically embrace the current quota in place and has always wished to be able to produce as much crude oil as it is able to. On Thursday, Rosneft’s spokesperson, Mr. Mikhail Leotyev, said that the comment made late last week by Lukoil’s President, Mr. Vagit Alekperov, that OPEC and Russia should consider establishing a cartel that would increase crude oil production when prices rise and curtail production when prices fell, ” Was not quite senseless.”

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In other words, it was almost so. Such is damning with the faintest of praise, but at least Rosneft’s leaders can see the senselessness of a fully-fledged cartel intent upon trying to stabilize the price. We think not.

Last but not least, regarding the term structure of crude. The continued narrowing of the backwardation in WTI crude, as far as I know, which isn’t very far, signifies a weakness and perhaps we saw such weakness playout on Friday afternoon.

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From Mr. Greer, he points out in Thursday Morning Navigator from TG Macro, ” There’s a double top in both front month, and the June/December spread. That dynamic could put pressure on front-month spreads, especially given the amount of speculative length that lives there (e.g., front month).

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He concludes by saying, “The June/December WTI spread remains firm, if not toward the bottom of its $2.00-$3.00 range.”

Which brings me to my next pontification. Taking lead again from Mr. Greer, the most recent API print, “we exported 2.1 million barrels of crude oil per day- the most ever”. Additionally, Mr. Greer highlights, “Gasoline exports were 966,000 barrels per day, which is seasonally, the highest on record. Refineproductct demand rose to its highest level since November just as total combined crude and product stockpiles hit their lowest levels since March of 2015 when we were still in search of a bottom in the energy markets.” His conclusion is that the data does not paint a bearish picture. I’d agree with him, especially after the pullback on Friday.

In Friday’s C.O.T report, Non-Commercial market participants were shown to trim there Net Long Position by –20,739 contracts. Profit taking or getting out of dodge, I’d surmise.

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As for where I see Crude going in weeks to come. I’d say that we’re building a solid base of support in the middle of the range (e.g., $60-$65) and looking to breakout above the longer-term YoY trend $63.18>, post haist.

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As noted above, and giving creddence to the breaish narritive arch for a moment, Mr. Geer points out that, “imports from Canada are rising as the Western Canadian blockages come undone.” To wit: “Padd2 imports rose to the highest levels since last January, causing stockpiles to ride in the region.” Moreover, “Cushing added 3.7M barrels last week, which was the biggest weekly build since 2009.”

Source:

Heisenberg Report 

CFTC 

TG Macro 

-R.W.N II

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