Longs Beware!
Updated
Prices have gone up since June on geo political tensions between Iran and US, OPEC curbing production, and Just this week worries about tropical storm barry (possibly hurricane barry) making landfall in Louisiana. To some it looks as if we hit the bottom and are going to make a new high for the year. Before you go long, let me offer some contrarian points to give you some alternative context.
1.) Global slowdown of growth and trade: Less capital production and trade mean less oil consumption. Despite OPEC's commitment to curb production it might not be very effective if we continue to see trade dominate headlines in negative ways.
2.) Geo-Politics: Yes its true we've seen some price surges on tensions in the Straight of Hormuz with Iran. However the bigger picture seems to be in the opposite direction. If you look at when Trump reinstated sanctions on Iranian oil exports back in Nov 4, 2018 the price has dropped and stayed below $75. Since Trump scuttled the Iranian nuclear deal, suppressing prices on Iran's top export (Oil) has been a key priority. Trump has been encouraging oil production in the US (now the worlds leading oil producer) to appease voters for re-election and in hopes it will force Iran to renegotiate a deal under his terms. Look for a continuation of this sympathetic ear to drilling, pipeline access, and campaign promises to keep prices lower to "ensure national security via energy independence". If you still prefer goin long, Iranian escalations provide excellent long scalps. As long as Trump doesn't start a war with Iran, don't expect a real reversal on geo-political headlines.
3.)Hurricane whiff: There's no doubt tropical storm Barry (possibly hurricane) will cause damage to Louisiana. However, most of the offshore rigs and port refineries have been built to withstand hurricanes lower than category 3 without much issue. Flooding may delay the refineries from getting back online or regaining full capacity, but they won't cause long lasting infrastructure damage. This might still sound bad but of the 5 million barrels that are exported in the gulf only about 700,000 of them come from Louisiana. (majority is from Texas) In spite of the bad weather the majority of refineries in Louisiana are expected to continue operations at some capacity over the coming days. I will say its only the first hurricane/storm of the season and its kicking off early. With climate change increasing the intensity and frequency of extreme weather, the possibility of a big storm wreaking real havoc on the oil market will hold merit till November. Keep your eyes peeled on these weather updates for long scalp opportunities.
Agree? Disagree? Let me know what you are thinking! Wish everybody a safe and happy weekend.
1.) Global slowdown of growth and trade: Less capital production and trade mean less oil consumption. Despite OPEC's commitment to curb production it might not be very effective if we continue to see trade dominate headlines in negative ways.
2.) Geo-Politics: Yes its true we've seen some price surges on tensions in the Straight of Hormuz with Iran. However the bigger picture seems to be in the opposite direction. If you look at when Trump reinstated sanctions on Iranian oil exports back in Nov 4, 2018 the price has dropped and stayed below $75. Since Trump scuttled the Iranian nuclear deal, suppressing prices on Iran's top export (Oil) has been a key priority. Trump has been encouraging oil production in the US (now the worlds leading oil producer) to appease voters for re-election and in hopes it will force Iran to renegotiate a deal under his terms. Look for a continuation of this sympathetic ear to drilling, pipeline access, and campaign promises to keep prices lower to "ensure national security via energy independence". If you still prefer goin long, Iranian escalations provide excellent long scalps. As long as Trump doesn't start a war with Iran, don't expect a real reversal on geo-political headlines.
3.)Hurricane whiff: There's no doubt tropical storm Barry (possibly hurricane) will cause damage to Louisiana. However, most of the offshore rigs and port refineries have been built to withstand hurricanes lower than category 3 without much issue. Flooding may delay the refineries from getting back online or regaining full capacity, but they won't cause long lasting infrastructure damage. This might still sound bad but of the 5 million barrels that are exported in the gulf only about 700,000 of them come from Louisiana. (majority is from Texas) In spite of the bad weather the majority of refineries in Louisiana are expected to continue operations at some capacity over the coming days. I will say its only the first hurricane/storm of the season and its kicking off early. With climate change increasing the intensity and frequency of extreme weather, the possibility of a big storm wreaking real havoc on the oil market will hold merit till November. Keep your eyes peeled on these weather updates for long scalp opportunities.
Agree? Disagree? Let me know what you are thinking! Wish everybody a safe and happy weekend.
Note
Wow great opportunities today! I was anticipating a gradual slide in prices this week but then we got Trump's trade war update. He confirmed what most have already predicted, the trade war isn't going away anytime soon. I would go even further and say a deal won't ever materialize, but that's for a conversation for a different post! Worries about demand were already increasing with China and India posting econ data confirming the slowdown. We also got more relief on the Iran front with Sec. of State Pompeo stating Iran was ready to talk to the US over its missile program. All of these new developments have been good news for shorts. Watch out for the EIA numbers tomorrow. Shipping interruptions are normal after storms so a inventory build up should be anticipated. Forecast is up but still negative at -2.694. However, API came out this afternoon at -1.401 foreshadowing a bigger build than forecasted which would be good sign to stay short. Did you nail the short today? What do you see on the horizon? Good luck out there tomorrow!Note
Crude has taken a quick and hard beating the last few days. It looked time forme to bail out of my short and reassess. I haven't been giving the geo-political headwinds much weight but they keep happening and it appears we are set for a ramp up in tensions after the US downed an Iranian drone in the Sea of Hormuz. If you are in short trying to play longer timeframes be careful! My rule of thumb is to weigh your current profit as a percentage of your target price and then compare it to your expected time frame. EX. if your target was $50 and you got in at $60, liquidating your position (or atleast some) for 50% of your target in one week is more sound than risking days, weeks, months etc for that extra 50%. When you know a markets fundamentals you know your risk, so stay diligent out there and best of luck!
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