Drillers Finally Plugging The Oil Price Leak?
Today’s Spotlight Market
The possibility of economic sanctions being lifted from Iran from a prospective deal on its nuclear program was initially deemed bearish for Oil prices, as Iran would once again be able to return to the global Oil export market. However, economists from the International Energy Agency (IEA) believe it may take years for Iranian Oil exports to make a significant impact on global supplies given its needs to improve and modernize its infrastructure that was stymied due to the Western economic sanctions that have been in place since 2010.???? ?
Fundamentals
Oil prices have traded sideways for most of 2015, following the steep price drop that took prices to lows not seen since the depths of the financial crisis back in 2009. The decline in prices to the upper 40?s and lower 50?s has forced U.S. Oil producers to reduce the number of rigs used for drilling by over 50% from its highest levels seen in the 4th quarter of 2014. However, Oil production has yet to show any meaningful decline so far, as producers have kept the most productive wells in play, and have focused on curtailing only the higher priced and less productive wells so far. In addition, moderate demand and continued near-record domestic production has allowed the amount of Oil storage levels to soar especially at Cushing, Oklahoma, which is the delivery point for the NYMEX WTI futures. Last week, the Energy Information Administration reported that Oil inventories in Cushing rose by just over 1.2 million barrels to 60.175 million barrels. To put this into perspective, last year at this time, Oil storage at Cushing totaled only 27.5 million barrels. However, the Energy Information Administration reported on Monday that production from 7 key shale producing regions of the U.S. will decline by 57,000 barrels per day in May vs. what is expected in April.
Technical Notes? -? View Today’s Chart
This morning we are going to turn our technical focus to the calendar spreads for Crude Oil and specifically the June 2015 vs. the December 2015 spread. Here we notice while the market remains in a contango, a situation in the term structure of futures prices where prices for deferred delivery are priced higher than for nearby delivery, the price for the June futures is starting to gain on the December contract with the spread narrowing by over 2 dollars the past 4 weeks, which could be a signal of improving demand. Prices have now moved above the 20-day moving average and the 14-day RSI has turned positive with a current reading of 61.18. We notice some modest resistance at 3.20 December premium with some solid resistance found at 2.00 December premium. Support is seen at a 6.20 December premium.?
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