Latest Market Commentary

July 17, 2018

A combination of more supply and caution about demand in several recent reports again resulted in aggressive selling in the energy market yesterday. The funds have been extremely long in the energy market and the recent sell off has triggered additional selling. Despite the selling, both crude oil and ultra-low sulfur diesel need more downside to help relieve built up support. If the bulls can find support here in the very near term the market does have room for a medium term recovery. 

The Energy Information Agency said in its monthly Drilling Productivity Report that they expect a rise of 143,000 barrels per day for seven major crude oil shale production areas within the U.S. from July to August. 

The International Monetary Fund (IMF) reported yesterday that growth is slowing in the euro area, Japan, and the UK. IMF warned that a further decline could escalate from trade tensions. They also said that the trade situation is the greatest threat to global growth. 

The U.S. State Department said it will provide more time and waivers from sanctions for some countries buying crude from Iran. This unknown will add to volatility and many are suggesting this is a political move to keep energy prices lower for the time frame of the mid-term elections. The talks about oil being released from the strategic petroleum reserve is also being seen as part of this political plan to keep prices low into the November time frame and the elections.

The Norwegian oil workers’ strike saw additional workers join the strike on Monday as hundreds of workers walked out in a dispute over pay and pensions. Up to this point the strike has not impacted Norway’s oil production but drillers have warned if this drags on for more than a month some contracts may have to be canceled.

Goldman-Sachs is saying that Brent crude oil will trade between $70 and $80 this year. They said that price may not get as high this summer as they originally forecast because of U.S. waivers on Iran sanctions but it still see Brent crude at $80 by the end of the year.  


 

Tim Danze, MFA Oil Company Hedging Manager