Expectation of a Crude Production Cut Could Spark A Short Covering Rally

Oil producers will discuss a potential freeze on production  again at an informal  meeting in Sept. 26-28  in Algeria. Last week, The Russian President Putin told Bloomberg it would be the right decision to strike an agreement between oil exporters to support the market. Traders remember how the  last oil exporter meeting in Doha failed to find an agreement causing oil prices to correct down sharply, hence  less expectation this round.

This blog believes that this specially arranged meeting could surprise with a decision to freeze or cut production, because most of the oil major exporters are already producing at maximum capacity. A surprise decision could spark a short covering rally that could cause oil prices to rise at least another $10 to $54.

At the meantime the downside is supported  by expectation of a cut at Algeria. This blog is bullish on oil for the next 2 weeks.

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Crude Oil

Oil prices continued to rally on expectations that OPEC and other  producers will agree to freeze production at an meeting in Algeria next month at the International Energy Forum on September 26-28. Saudi minister expressed it’s intent to discuss the current market condition and explore ways to support prices. Though crude oil supplies are exceeding recent estimates by a wider margin, traders are currently focusing on potential freeze talks. From the chart, WTI Crude could rally towards $48.50 before retreating.

All posts and charts are for educational and illustration purposes only

Crude oil

All posts and charts are for educational and illustration purposes only

WTI Crude Oil Rebound is nearing its Final Stage

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Crude Oil and Keppel Prices Diverges

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Crude Oil

All posts and charts are for educational and illustration purposes only

Crude Oil

All posts and charts are for educational and illustration purposes only

Crude Oil

All posts and charts are for educational and illustration purposes only

Crude Oil

All posts and charts are for educational and illustration purposes only

Crude Oil

All posts and charts are for educational and illustration purposes only

Crude Oil

All posts and charts are for educational and illustration purposes only

Crude Oil

All posts and charts are for educational and illustration purposes only

Crude Oil Multi-year Support

All posts and charts are for educational and illustration purposes only

Crude Oil

All posts and charts are for educational and illustration purposes only

Crude Oil

All posts and charts are for educational and illustration purposes only

Crude Oil

All posts and charts are for educational and illustration purposes only

Crude Oil

All posts and charts are for educational and illustration purposes only

Crude Oil

All posts and charts are for educational and illustration purposes only

Crude Oil - Breakdown on the Weekly Chart

Crude Oil has dived almost 20 percent in two months,  the first time since July crude went below $100 a barrel . The latest dip was part of a broad sell-off in commodities as well as fears of a global economic slowdown. Oil prices climb usually  higher when economic activity picks  up. I  think this time may be different.

First, supply. America’s supply  shale gas and oil has been outstripping estimates. Eventually, the American energy revolution may spread gobally.

Second,  Alternative energy has been found after years of high crude prices. New vehicles worldwide are more fuel effiecient. China’s growth is moderating,  moving away from oil-intensive heavy industry and construction towards consumption and services.

Third, cheap natural gas is replacing crude’s monoploy in transport fuel. Energy consumer are currently paying $95 for a barrel of oil, can get the same amount of energy from American natural gas for around $25.

The change in dynamics may continue to cause crude to trade at or below $90 even if global growth picks up.  I stay bearish on oil related stock like Ezra, Keppel and Semarine

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Cost Of New Oil Supply

Research by veteran petroleum economist Chris Skrebowski, along with analysts Steven Kopits and Robert Hirsch, details the new costs: $40 - $80 a barrel for a new barrel of production capacity in some OPEC countries; $70 - $90 a barrel for the Canadian tar sands and heavy oil from Venezuela’s Orinoco belt; and $70 - $80 a barrel for deepwater oil. Various sources suggest that a price of at least $80 is needed to sustain U.S. tight oil production

Robin's comment : When Crude oil falls below $80 a barrel, rig builders like keppel and semmarine will come under pressure!
 

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