Thu, 29th June 2017

Anirudh Sethi Report


Archives of “Crude” Category

Market Doubts of Three Fed Hikes This Year Caps Dollar

Bringing forward expectations of a Fed hike from May-June to March was worth something for the dollar, but to get more now, the market may need to recognize the risk of three (or more) hikes this year.  With the strong February jobs growth and a 2.8% year-over-year increase in hourly earnings, rarely does the market’s confidence in an event surpass current expectations for a hike on March 15.
However, the market sees around a one-in-three or a one-in-four chance of a third hike this year. The risks for the updated forecasts from the Federal Reserve seem asymmetrically tilted higher, more rate hikes than fewer by more members.  The hawkishness of regional presidents may be underestimated.  The data and the global climate are conducive for expediting the normalization process.  The hawks will likely feel vindicated by recent developments and may press their case with more vigor.
The focus of the Fed has arguably shifted.  Previously, the issue was whether the data would confirm that the economy was evolving toward the Fed’s targets.  It did.  Rather than focus on the data points per se, officials appear more confident of the direction and resilience of the economy and prices.  They now are looking for opportunities, which helps explain the campaign to prepare the market for the March 15 move.
Still, the dollar’s technical tone has deteriorated, and the risk is on the downside over the next several sessions.   Our working hypothesis is that the dollar’s recovery that began in early February against most of the majors ended and a correction has begun,   For the Dollar Index, this means potential toward 100.75 and possibly 100.40.  The former is the 50% retracement of that rally and coincides with the 100-day average (~100.80). The latter is the 61.8% retracement.  Alternatively, if the Dollar Index has carved out a double top near 102.25, the neckline is around 101.20 (38.2% of the rally is ~101.10).  On a break of the neckline, the measuring objective is 100.
The euro’s pre-weekend rally saw it surpass the 50% retracement objective of its decline from the February 2 high near $1.0830.  That retracement was around $1.0660, and the 61.8% retracement is closer to $1.0700.  The euro’s five-day moving average crossed above the 20-day average for the first time in a month.  The single currency may be tracing out a double bottom at $1.05  The neckline is $1.0630.  The measuring objective is around $1.0760.

Oil Price to Reach $58-60 by June 30, $62-65 by Year End – Lukoil Board Member

Lukoil and PetroChina Board of Directors Member Richard Matzke claims that the price of oil will reach as much as $60 dollars per barrel by the end of June and will be as high as $65 dollars per barrel by the end of the year if stakeholders continue implementing the output reduction deal.

The price of oil will reach as much as $60 dollars per barrel by the end of June and will be as high as $65 dollars per barrel by the end of the year if stakeholders continue implementing the output reduction deal, Lukoil and PetroChina Board of Directors Member Richard Matzke told Sputnik.

“I believe when the present dust settles we will have a $58-60 price by June 31 and $62-65 by December 31,” Matzke said.

The former Chevron vice chairman noted that his position is based on keeping his “ears open” rather than “massive detailed research.”

In November 2016, OPEC member states reached an agreement to cut oil production by 1.2 million barrels per day for the first half of 2017 to support global oil prices.

The accord was supported by 11 non-OPEC states, including Russia, which had joined the deal by promising to reduce oil output by 558,000 barrels per day.

The deal caused the price of crude oil to climb to $55-56 per barrel, boosting optimism in the energy market.

The agreement was reached for a six-month period with a possibility to extend it.

OPEC Panics, Warns US Shale Not To “Assume” Production Cut Extension

All it took for OPEC to panic, was the sharpest drop in oil prices since last summer, sending WTI not only back under $50, but also wiping out all gains since the November Vienna “supply cut” deal.

With the cartel suddenly finding itself in unfamiliar territory, where neither the daily barrage of “flashing red headlines” sparks a headline-scanning algo buying frenzy, nor the alleged production cuts leading to a reduction in inventory (quite the contrary, US commercial stocks just hit a new all time high) OPEC had no choice but to make a  threat to its biggest competitor: US shale companies.

According to Reuters, Saudi energy officials told top independent U.S. oil firms in a closed-door meeting this week that they should not assume OPEC would extend output curbs to offset rising production from U.S. shale fields. The reason for Saudi ire is simple: it is producing less, having shouldered the bulk of OPEC cuts, and yet with prices once again declining, and US shale producers ramping up production, not only are Saudis pocketing less revenue, but they are also are permanently giving up market share to US producers whose production in recent months has soared, especially in the Permian, where breakeven costs are as low as $30 for some producers. 

CRUDE -Crucial Update


It’s Bloodbath……………………….as expected (Tons of Money Minted in hrs only )

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Private oil inventory data shows bigger than expected build in crude stocks

The official data (from the US Energy Information Administration) is out  Wednesday morning, US time.

Until then its over to this private survey  
The forecast (Reuters poll) is for a 1.9 million-barrel build for last week. This would be the ninth consecutive weekly increase in stocks, already at record highs.
Crude stocks build, gas and distillates draws, Cushing build
This despite the production cuts agreed to between OPEC and non-OPEC producers
  • The agreement expires in June
  • But may be extended
  • Meetings again in May to discuss extending the cuts

Prices reacted instantly by puking lower in both WTI and RBOB but the RBOB draw saw prices reverse…

Iraq says OPEC will likely need to extend output cuts

Iraq talks OPEC cuts

  • Iraq ready to cut in the second half if OPEC decides to extend policy
  • OPEC will likely need to extend cuts
  • Iraq ‘somewhat’ satisfied with oil price, hopes for improvement

A second OPEC cut will put a squeeze on a few producers. Much of the Saudi cut, for instance, was window dressing because a seasonal slowdown was imminent.

OPEC Oil Output Cut Deal: ‘It Has Been More Successful Than Many Thought’

OPEC sealed a deal on November 30, 2016, agreeing to cut its oil output by 1.2 million barrels per day for the first six months of 2017 in an effort to stabilize the oil market and bring oil prices to the healthy range of $50-60 per barrel. The deal went into effect in January.

Eleven non-OPEC countries, including Russia, Mexico and Kazakhstan, later joined the deal, pledging to reduce production by a total of 558,000 barrels per day on a voluntary basis.

“This historic OPEC/non-OPEC agreement is very much on the mindset of everybody,” Yergin said. “It has been more successful than many would have thought.”

He continued that at the conference the stakeholders “are going to be looking ahead to May and June and say what’s going to come after, and then to what degree is the market rebalancing. I think that will be a great question that everybody will to try to assess.”

Qatari Energy Minister Mohammed Saleh Sada said in February that the level of OPEC states’ adherence to the agreement is unprecedentedly high, and while they aim for it to reach 100 percent, it now stands at 94 percent.