Crude oil closed back above $70 a barrel as storms, both real and politically, started to develop. Prices were on the rise after U.S. oil supply fell 2.6 million barrels this week, which raised even more concerns about the market’s ability to replace plunging Venezuelan oil production and Iranian exports that reportedly already are facing falling oil supply. Now, you get Mother Nature involved with more storm activity brewing out in the Atlantic, and you have a very bullish outlook.
Crude oil is being driven by more plotlines than an afternoon soap opera. With upcoming sanctions on Iran, the Fed on pace for gradual interest rate increases, strikes in the North Sea and a big drop in the U.S. oil rig count (which fell by 9 rigs, the biggest drop since May of 201), there is enough drama for both the bulls and the bears.
China is buying our oil and that could be Iran’s worst nightmare. It seems that the Chinese trade talks went nowhere, but despite that fact, China’s demand for U.S. crude oil might rise anyway. According to Reuters “China’s Unipec will resume purchases of U.S. crude oil in October after a two-month halt due to the trade dispute between the world’s two largest economies.”
The dog days of August that have set in on the moves in the commodities have been exaggerated. While crude oil holds the 200-day moving average, after a major seasonal sell-off, the concerns about a serious demand slowdown are most likely overblown. Turkey, of course, is a major oil producer and Consumer. NOT! The fears of contagion, steaming from the stepped upped pressure from the Trump Administration, has been overdone. We are in the dog days, and oil bears have begun licking their chops, mistaking seasonal weakness for a major bear turn in the market.
A bearish American Petroleum Institute (API) report, as well as the continuing drama surrounding Turkey is raising fears of a slowdown in oil demand based upon fears of raising contagion coming out of Turkey. The oil market that tried to mount a major comeback yesterday was thwarted by a risk aversion in the dollar that sunk oil, as well as industrial and precious metals.
The crude oil and petroleum markets took a Turkish bath yesterday, but in doing so it may have washed out the bearishness and put in our seasonal low. The moves in the market seemed beyond crazy because at the end of the day the Turkish currency crisis is a much more political than financial crisis. Oil moved on the Organization of the Petroleum Exporting Countries, lowering its demand forecast and fears of a rise in supply, but it was Turkey that cleansed the market.
Global stock markets are rattled as the President of Turkey, Recep Tayyip Erdogan, is running his economy into the ground, raising contagion fear surrounding other European nations. Initially, crude oil was following the stock markets down, but then turned positive on a report from the normally more bearish leaning International Energy Agency, which is warning that as oil sanctions against Iran take effect, perhaps in combination with production problems elsewhere, maintaining global supply might be very challenging and would come at the expense of maintaining an adequate spare capacity cushion.
Even in long-term bull markets, you are going to have a day like Wednesday. Crude oil and products crashed down to major support as it was hit with a confluence of headlines and bearish weekly Energy Information Administration data. Fears of the impact of sanctions on China, Iran, Russia and Turkey did not help and another big drop in U.S. gasoline demand has some worried that U.S. consumers were showing resistance to higher pump prices.
While the market starts to come to grips with the new sanctions on Iran and a larger than expected crude draw, as reported by the American Petroleum Institute (API), what should concern them is that U.S. crude oil production is not quite what it was fracked up to be.