Oil's quiet moment

May 6, 2015 09:54 AM

Just to be clear, $61 WTI is about $41 higher than $20 WTI

I know, everyone has a $50 VaR and there’s still going to be a correction. I think that it was in the last week or two that I have tried to tell everyone that the price of oil is rising because we’re heading into a season of higher demand, but because we oversold the Organization of Petroleum Exporting Countries (OPEC) meeting. I can’t even remember why everyone was hyping up $20 oil. Why can’t the media be more like "The Bachelor" and come back and revisit everyone that made a claim to the great failure in oil. I know I was looking for $94 WTI last year and for those that scoff, we actually ended the year averaging $92. That’s right my teeming millions, I was thisclose. Care to guess what we’re averaging this year? $49.90. Let’s return to the HP-10 and do the math. Yeah, that’s nearly $30 above the $20 “the sky is falling” target. Remind me again why everyone thought that was a good idea? 

Right now we’re looking at U.S. crude oil inventories holding at 490MM. I think that we’re going to start to make some serious drawdown from here. If we had a chance to see that half a billion number, I’d think that the Big Guv would have to seriously consider oil exports. I m not sure how we can prioritize a nuclear deal with Iran and yet we’re worried about oil security in America. We’re still pumping close to double the amount of crude (9.2MM b/d) than we were just four years ago and even if we cut 1MM b/d of production, we’re still supply half of our refinery demand. I’m not sure what the hold up is with US crude exports, but I believe that the only harder thing in America right now is trying to learn “The Dougie”. 

So my teeming millions, let’s please all take time to wave goodbye to the 15 minutes of fame of $20 WTI. We’re not rising because of production fears, increase demand or an Iran nuclear deal failing in Congress today. We’re rallying because we shouldn’t have fallen so far. I stayed my ground and shook my head and plenty of my haters kept laughing at me all the way. Don’t you worry, I was taking names and like a good ex wife, I never forget. We’ll head into the EIA numbers today and expect to see something that’s going to be bullish. We’ll jump ahead to Friday and regardless of what the Non-Farm Payrolls number comes in at, any number above 100K is another 100K of new driving consumers.

We’re going to keep an eye on the U.S. production number in the Lower 48 and see if we’re getting to the end of EOR (enhanced oil recovery). I’ll share one more reality, as the oil production adjusts to $60 oil, we’re not going to reopen wells or pick up and complete wells when oil gets to $70. We’re going to keep holding off until oil hits at least $80. Everyone needs a backup plan and we’re go-ing to be waiting for a cushion in oil price before anyone commits capital. We don’t need a quant to figure out the economic impact of oil and it’s margin. Keep it simple, it’s oil and it’s America. 

Crude: Now that we’re moving into the real refining season and on to the June contract, things get a little different here. We can start with the momentum shift and the turn in the tide. We’re going to start thinking about a recover period and the upside target now becomes 7000. It may seem like a long way away, but we do have time here. Moving to CLM5 with resistance at 6145, 6260 and 6356. We’ll be careful with support here to 6056, 5970 and 5855. The front spread moves to MN with resistance at –140, -118 and –93. Support can get back to –166, -182. Go Miley...party Bulls everywhere, buy-ing like they don’t care...up we go again. 

Gasoline: We’re moving along with the RBM5 contract as cash trade moves forward. We’re looking to resistance 20855, 21024 and 21233. That will give us some room to look back down to support at 20410, 20224 and 20069. The front spread moves to M5/N5. Resistance at 108, 152. Support to 72, 45. The RBCL moves to M15 and gets to resistance at 2584, 2620. Support down to 2524, 2480. 

Distillate: The move is ahead and we switch months and ahead to the HOM15 contract. We’re looking at support to 20212, 20080 and 19856. The resistance looks above to 20476, 20666 and 20839. The front spread is in M5/N5 with resistance at –24, +15. With the way it’s moving we may not see support tested, but looking to –66, -98. The HO crack in M15 sees resistance at 2444, 2480. Support back to 2390, 2328. 

About the Author

Carl Larry is Director of Business Development Consultant for Oil and Gas at Frost & Sullivan. Follow him on Twitter (@oiloutlooks) or on his website. He can also be reached at carl.larry@frost.com