Yesterday was a significant crash in crude oil prices, reaching their lowest levels since last November when the OPEC/NOPEC deal to cut production was announced. In other words, there has been no gain in price since those cuts began, which was their primary purpose. There has been a small drop in crude stocks globally but not enough to significantly reduce the excess levels back to a 5-year average as planned.
U.S. crude oil inventories have remained around record high levels due to the considerable and continuous growth in US shale production, bringing U.S. output up to over 9.2 mill barrels per day, which is apparently the highest since the summer 2015.
All eyes are watching whether OPEC will extend the production cuts agreement on May25 to the year-end - and it is generally accepted that they will. But the fact that prices have already failed to respond to these cuts so far, it raises the question how will an extension on the same terms succeed any better than the present cuts so far?
The globally high level of crude stocks is still well above the target levels which would bring balance back to the market and OPEC has to struggle against continuing growth in US production, higher output from other producers not included in the OPEC/NOPEC deal, and the struggle to maintain a high level of compliance with the terms of the agreement, and avoid cheating within the 23 countries comprising the OPEC/Non-OPEC group. This is particularly relevant since the first half of the year is a maintenance period with a naturally lower production rate anyway, but the second half of the year is usually a period of expanding production - and many producer countries are badly in need of revenues to meet their spending budgets.
Whilst demand is indeed the “other half of the story”, there is little sign of global economic growth exceeding current projections, and, in some instances, the opposite is the case.
I am thinking that I will have to consider seriously abandoning my aim of longer term trading and revert to the familiar short-term speculative, “Forget yesterday, ignore tomorrow, what’s on the menu today” approach. Maybe this is a case of shutting the stable door after the horse has bolted, but I am not happy about missing moves that are staring me in the face.
What I like about oil is that it moves distance when it moves. There is plenty of potential in day trades. But is also means looking into the spreads, which are higher for cfd’s…I have to think about a possible change of broker this weekend. I have one in mind…