Yesterday’s API inventories release snuffed out any attempts to push prices higher, reporting a weekly build of 3.545 mill barrels compared with an anticipated draw in crude inventories. There were also reported builds in gasoline and, in particular, distillates too.
inventories data for this year to date has now shown an overall build approaching some 30 mill barrels and, when considering that US shale production continues at record levels, it is interesting to compare current prices with those at the start of the year.
After the last gasp drop in prices just prior to last Christmas, we saw a quick bounce back to price levels similar to where we are now - and we held there for a prolonged period during January and early February.
These levels represent B/E prices for many producer nations, although shale companies are apparently profitable even from price levels around 40-45USD, and prices below here start to breach the pain threshold for the budgets of these nations. Saudi Arabia, for example, prefers a price level around 80-85 USD.
Therefore it is no surprise that we are starting to hear pep talk about how OPEC will do all it takes to maintain balance in the markets - which in this case has to imply countering this steady increase in inventories - i.e. the current OPEC voluntary restricted production will no doubt continue to the year end following their upcoming meeting in a few weeks time.
So, with continuing concerns about possible global recessions from the ongoing trade wars capping the market and practical production cost factors putting a floor under it, we are perhaps back in that same old broad range where we were at the start of the year.
This would seem to be also underlined by the fact that the original collapse in prices from last autumn also paused around the levels in November prior to that last gasp drop in December that was so rapidly reversed back up to where we are again now.
So we can maybe expect some muted range trading in the near term unless and until we start to see some positive concrete results from trade deals - or a serious slip into a major recession as currently being predicted from the inverted interest rate yield curves.
Personally, i am thinking maybe it is time to cautiously return to the traditional approach of buying commodities when “cheap” and selling for a profit. But, having said that, the technicals are still currently in bear territory and the market is still vulnerable from here.
Today, we see the EIA version of US crude inventories etc and that may add some spice to the broth.