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Crude oil trading strategy: What oil market participants are watching

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crude oil trading strategy

Crude oil trading strategies require a multi-level approach. Crude oil prices ended July in a second consecutive month of declines due to concerns about rising interest rates and an economic recession globally. Nevertheless, demand for the fuel remains strong enough to support prices above $100 a barrel for Brent. The current trading range of $99-108 a barrel may remain in force this week.

Friday was the last day of September Brent futures trading on the ICE and CME exchanges. Today, the bulk of crude oil trading shifted to the October contract, which traded much lower. As a result, a distinctly bearish candlestick can be seen on Friday’s chart, although it was rising. The discount on American WTI crude oil to Brent has fallen from $10.7 to $5.3 per barrel.

How does oil trading work during geopolitical tension?

The level of geopolitical tension in the world remains elevated. This is bad for smooth international trade, including energy, and can support high commodity prices.

Russian gas deliveries to the EU via Nord Stream remain at 20% of their target. Over the weekend, gas supplies to Latvia were cut off, “due to the buyer’s breach of the conditions of withdrawal.” None of this is directly related to the oil market, but it is an alarming signal to the importing countries that there may be problems with supplies from Russia. It encourages oil trading companies to raise prices.

Over the weekend, U.S. House Speaker Nancy Pelosi, the third person in the U.S. government, flew out on a tour of the Asian region. The intrigue was whether Pelosi would visit Taiwan. Earlier, China had officially demanded that the U.S. cancel the visit and explicitly hinted at the possibility of military escalation in the region if she refused. There was no clear public response, but judging by media reports, no visit to Taiwan is planned. Many people are now building their oil trading strategies on this fact. 

The surprise was the increased tension in Kosovo. On Sunday night, explosions and gunshots were heard in northern Kosovo. Serbia’s army, which does not officially recognize Kosovo as a sovereign state, is on high alert. It is still difficult to assess the impact of these events. Serbia is crossed by the Balkan Stream gas pipeline, which connects Hungary with the Turkish Stream.

OPEC+ meeting

The OPEC+ deal comes to an end in August. The total production quota will increase by 640 thousand bpd, completely canceling all the cuts that were imposed back in 2020. This week is the next meeting of the alliance, where representatives of major oil exporting countries will discuss production policy in September 2022. According to rumors in the media, many members want to continue to increase production.

OPEC’s technical committee will meet Tuesday, August 2, where industry experts will present their estimates of supply and demand in the market. The ministerial meeting will be held on Wednesday, August 3. The focus will be on Saudi Arabia’s position. After a visit to the country by U.S. President Joe Biden, chances are that the kingdom will announce plans to use its spare production capacity. If that happens, oil prices could react negatively to the news and go below $100.

U.S. drilling activity – how it affects oil trading basics

At the end of the week, Baker Hughes has traditionally published data on the number of active rigs in the U.S. and Canada. The number of oil rigs in the U.S. rose 6pc to 605pc, while in Canada it rose 13pc to 137pc. The renewed growth in the number of rigs has a positive effect on US production forecasts, although estimates for the second half of 2022 are still very restrained. Earlier in its July review, the EIA specialists revised downwards the forecast for US production. Production in December 2022 is forecasted at 12.5m bpd against the earlier expected 12.6m bpd.

As of this morning, Brent futures are down 0.9% and trading around $103 a barrel.


Oil dips as investors weigh up US rate cut outlook

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Oil dips as investors weigh up US rate cut outlook
© Reuters. FILE PHOTO: A flare burns excess natural gas in the Permian Basin in Loving County, Texas, U.S. November 23, 2019. Picture taken November 23, 2019. REUTERS/Angus Mordant//File Photo

By Robert Harvey

LONDON (Reuters) -Oil prices extended losses from the previous session on Wednesday, as growing expectations that cuts to U.S. interest rates will take longer than thought outweighed ongoing concerns over attacks on shipping in the Red Sea.

futures fell by 41 cents, or 0.5%, to $81.93 a barrel by 1223 GMT, while U.S. West Texas Intermediate crude futures (WTI) were lower by 39 cents, or 0.51%, at $76.65.

The Brent and WTI contracts fell from near three-week highs on Tuesday, dropping by 1.5% and 1.4%, respectively.

The premium of front-month April Brent futures over September contracts – known as backwardation, and a sign of a tightly supplied market – hit its highest since Oct. 31 on Monday at $3.64 a barrel, though has since cooled off to around $3.37.

“Oil prices took yesterday as day of correction which was inspired by a lack of any further conflict news from the world’s clash points as markets had to settle on what was bothering the macro world,” PVM analyst John Evans said in a note published on Wednesday morning.

Concerns that rate cuts by the Federal Reserve could take longer than thought have weighed on the outlook for oil demand. U.S. inflation data last week pushed back expectations for an imminent start to the Fed’s easing cycle, with economists polled by Reuters now forecasting a cut in June.

“Investors yet again felt a hiccup in pivot prediction as to when the most important central bank of all, the Fed, might alter course,” Evans added.

Minutes from the Fed’s January monetary policy meeting, due at 1900 GMT, will offer further clues on the timing of potential interest rate cuts.

But Houthi attacks on commercial vessels in the Red Sea and Bab al-Mandab strait have continued to stoke concerns over freight flows through the critical waterway. Drone and missile strikes have hit at least four vessels since last Friday.

Diplomacy in the Middle East continues to face setbacks. Washington on Tuesday again vetoed a draft United Nations Security Council resolution on the Israel-Hamas war, blocking a demand for an immediate humanitarian ceasefire. The U.S. is instead pushing for the Security Council to adopt a resolution tying a ceasefire to the release of Israeli hostages by Hamas.

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Analysis-Trans Mountain expansion may not give long-term price relief to Canada’s booming oil output

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Analysis-Trans Mountain expansion may not give long-term price relief to Canada's booming oil output
© Reuters. The last section of pipeline is assembled on the Trans Mountain pipeline expansion project before operations are expected to begin in the second quarter of 2024, near Laidlaw, British Columbia, Canada, February 18, 2024. REUTERS/Chris Helgren/File Photo

By Nia Williams

(Reuters) – Canadian oil producers expect the discount on their crude to shrink significantly when the Trans Mountain pipeline expansion (TMX) starts this year, but the relief may be short-lived as surging supply looks set to exceed the country’s pipeline capacity in just a few years.

TMX will ship an extra 590,000 barrels per day (bpd) of crude, trebling existing capacity to Canada’s Pacific Coast once the C$30.9 billion ($22.8 billion) expansion is finally complete. The Canadian government-owned project has hit technical issues on its final leg of construction, but is still targeting a second quarter in-service date.

For much of the last decade, oil companies in the world’s No. 4 producing country have been forced to sell their barrels at a deep discount to global prices due to lack of pipeline capacity to export crude.

Once TMX is operating, Canadian heavy crude differentials should narrow to around $10-$12 a barrel under U.S. benchmark crude from more than $19 a barrel currently, BMO analyst Ben Pham said in a note to clients last week.

He estimated the expansion would lift Canada’s total takeaway capacity to 5.2 million bpd, leaving 220,000 bpd of unused space on pipelines.

Still, oil sands production is rising so rapidly that some market players think Canada could again run out of pipeline space in less than two years, said RBN Energy analyst Martin King.

“Originally it was thought TMX would give us a four- or five-year window,” King said. “It now looks like that window of spare capacity might actually be a lot smaller.”

Canadian producers could add up to 500,000 bpd of supply this year and next year alone, Colin Gruending, executive vice president of liquids pipelines at midstream firm Enbridge (NYSE:) Inc, estimated on an earnings call this month.

The prospect for more bottlenecks would likely widen the discount again, and could deter companies from longer-term investments in growing Canada’s production.

For existing pipeline operators, the rising production and strong demand for capacity is good news. Enbridge said it may continue rationing space on its 3.1 million bpd Mainline pipeline system even once TMX starts operating, allaying concerns among some analysts the company could see a drop in volumes and revenues.


Most of the new capacity on TMX will be for heavy crude barrels, meaning light and synthetic is most likely to face rationing on the Mainline and any resulting price discounts, said RBN’s King.

The new capacity on TMX will give heavy crude producers a choice of sending barrels to the U.S. west coast and Asia, or to the U.S. Midwest and Gulf Coast on existing pipelines.

On a recent earnings call, Imperial Oil (NYSE:) CEO Brad Corson said having spare pipeline capacity would lift the value of heavy crude for the entire Canadian oil industry.

Imperial will continue to move most of its barrels to the Midwest and Gulf Coast, while keeping a look out for the highest-value markets, he added.

Ryan Bushell, president of Newhaven Asset Management, which holds shares in pipeline companies including Enbridge, said TMX would likely run at less than full capacity if strong pricing on the Gulf Coast, the world’s largest heavy crude refining centre, drew barrels onto pipelines heading south.

“It all depends on where the best pricing is, for the first time in a long time producers will have optionality,” Bushell said.

No matter how fast TMX fills up, it is likely to be Canada’s last major export pipeline ever built, due to regulatory hurdles, environmental opposition and uncertainty about future oil demand.

“The potential for brand new pipelines getting built is pretty close to zero,” RBN’s King said.

($1 = 1.3542 Canadian dollars)

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Tumbling US natural gas prices prove unstoppable, hurting producers

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Tumbling US natural gas prices prove unstoppable, hurting producers
© Reuters. FILE PHOTO: A view of BKV Corp?s commercial carbon capture and sequestration project, in Bridgeport, Texas, U.S., December 7, 2023. REUTERS/Arathy Somasekhar/File Photo


By Arathy Somasekhar

BRIDGEPORT, Texas (Reuters) – For nearly a year, U.S. producers have slammed the brakes on production as prices fall. But relentless output gains including from oil companies that pump gas as an oil byproduct have unleashed record supplies.

In the oil versus gas contest, gas producers are losing out. Some are shutting in wells, canceling projects or selling themselves to rivals to avoid losses. Natural gas prices this month fell to an inflation-adjusted 30-year low of $1.59 per thousand cubic feet, benefiting consumers of the fuel like utilities, but hurting producers who are selling at nominal prices as low as they were in the depths of the COVID-19 downturn.

Nowhere is the pain of cheap gas as evident as Denver-based BKV Corp. In the last five years, it spent $2.7 billion to acquire 4,000 gas wells and two gas-fired power plants. It also pledged $250 million to build a dozen underground carbon capture and storage sites to make its gas more climate friendly.

The nosedive in U.S. gas prices has stalled BKV’s plans for an initial public offering and scuttled the carbon joint venture with Verde CO2 to couple its gas and power plants with carbon sequestration. BKV last year narrowly avoided loan defaults with a $150 million bailout by its parent.

Majority-owned by Thailand power giant Banpu Public Co., the little-known BKV in 2016 began buying scores of U.S. gas wells, taking castoffs from oil producers’ Exxon Mobil (NYSE:), Devon Energy (NYSE:) and others.

“We absolutely want to be the biggest natural gas producer in the country. That’s my ambition,” BKV Chief Executive Christopher Kalnin said in an interview here in December at its first carbon-sequestration site.

BKV’s profits soared to $410 million in 2022 on strong natural gas prices after Russia’s invasion of Ukraine spurred huge demand for exports of liquefied U.S. gas. The company launched a plan to build a U.S. version of its Thai parent, tying together natural gas and power. The plan included an IPO to help finance the gas-to-power expansion and a complement of carbon-burying wells.


But BKV fell back to earth under prices suffering from a relentless expansion of U.S. natural gas output. Its profit fell to about $79 million in its most-recently reported nine-month period.

U.S. gas firms last year cut drilling 22% to stem the gusher. But the flows keep coming: The U.S. will pump 105 billion cubic feet a day of gas this year, up 2.5 billion cubic feet a day in the last year. That increase is enough to fuel 12.5 million U.S. homes for a day.

In most industries, volume increases are good. More production equals more profit. But rising output has overwhelmed efforts to curtail drilling and even demand from frigid temperatures, leading to a price drop that knocked U.S. gas recently to less than a third of 2022’s average $6.50 per million British thermal units. By contrast, benchmark WTI crude prices fell just 17%.

Oil prices have held steadier thanks to global supply cuts by major OPEC producers and their allies.

But soaring gas production, especially from oil companies who view gas as a byproduct of their output, has proven “relatively insensitive to prices,” said Nicholas O’Grady, CEO of U.S. shale gas explorer Northern Oil and Gas.

Gas producers have been reluctant to cut output deeply on the prospects of giant new liquefied natural gas (LNG) plants opening this decade, he said.

LNG exports would drain the excess gas supplies and should return prices to levels that make gas profitable to drill again by 2025, O’Grady and BKV’s Kalnin predict.

There are four U.S. projects with export permits on the drawing boards that would consume up to 6.3 billion cubic feet of gas that if they go ahead would be producing LNG later this decade.

The danger is that third wave of new LNG plants may be delayed or lost forever. President Joe Biden’s administration last month indefinitely paused reviews of new gas-export permits, jeopardizing as much as 32 billion cubic feet per day of future consumption.

U.S. natural gas producer Comstock Resources (NYSE:) said last week it would reduce the number of rigs in operation and suspend its dividend until gas prices rise sufficiently, while rival Antero Resources (NYSE:) said it would cut drilling and drop project spending budget by 26%.


BKV, short for Banpu Kalnin Ventures, began operations in Pennsylvania in 2016 with a plan to buy additional old gas fields from big oil companies, invest only enough to hold production steady, wait for prices to rise and – only then – invest in expanding production.

The moment appeared to arrive in mid-2022. As U.S. gas climbed to over $9 per thousand cubic feet, BKV’s Kalnin launched a costly and ambitious expansion plan.

In July that year, he closed on a $750 million deal for Exxon Mobil gas properties in North Texas. The same month, he acquired a Temple, Texas, gas-fired power plant for $460 million. Weeks later, he followed that deal with a $250 million partnership with Texas-based Verde CO2 LLC to build a dozen carbon sequestration sites across the United States.

“We didn’t see prices collapsing like they did,” said Kalnin at the opening of his first carbon sequestration site in December.

Kalnin, a former McKinsey consultant who spent his early years in Thailand and later worked for the country’s national oil and gas company, hasn’t given up on his gas-to-power empire.

“(Gas prices) are setting up for another fly-up in the second half of 2024,” Kalnin said in December, pointing to forecasts for rising LNG demand.

“There are micro windows for IPOs opening up,” a spokesperson added on Tuesday. “We are hoping to stay ready for when that micro window opens. Market performances for IPOs and gas prices need to improve,” she added.

Associated gas, which comes out of wells alongside oil, yanked the rug out from Kalnin’s vision. More than a third of all U.S. gas production comes from producers drilling for oil, according to government estimates. That figure is rising as wells mature and more gas comes up than oil.

BKV last year won a lifeline from its parent, selling shares to Banpu for $150 million to avoid breaching debt covenants. Most of the cash was put into a debt service account.

“You have this perfect storm. A warm winter plus too much gas supply, both primary and associated, and now, possible delays to new LNG export permits,” said Blake London, a managing partner of private equity fund Formentera Partners.

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