Risk on, risk off and risk all over the place. Crude oil prices are falling even as stocks fly in the aftermath of that blockbuster monthly jobs report. While stocks seem happy with the fact that the U.S. job market dismal numbers rebounded, many others are not so convinced our problems are behind us. Bond yields and precious metals like gold and silver are still in safe haven mode as Brexit uncertainty continue to fester. We are also seeing some signs that there will be more stimulus out of Japan as Shinzo Abbe wins a convincing victory. It seems that the reason the stock market in the U.S. is rallying is that stocks in the U.S. seem to be the safe haven play as it is hard to find any type of investment that will give you a return. The question then becomes whether that is a good reason to buy stocks because everything around the globe seems so fragile.

Oil prices are fragile despite the jump in stocks. Even as the Saudis say they are seeing the market come in balance, there is concern about a flood of a supply coming on the market just as demand hits its seasonal peak. Canadian crude oil will start to trickle in as the oil put in the pipeline will start to show up in our inventory reports. Iran is bragging that they are just waiting for the right time to raise their exports to about 4 million barrels a day. Bloomberg News reported that Mohsen Ghamsari, NIOC’s director of international affairs, said that Iran has regained about 80 percent of its pre-sanction market share. He said, “export peak is above 4 million barrels a day, and we have plans for that and are waiting for the right conditions” Ghamsari said in an interview in Tehran, without elaborating on the timing for such an increase. “The market will stay on its present balance, and a return to prices below $30 a barrel is not very probable, at least in the current year.”

Oil traders also believe that we will see more oil out of Nigeria and Libya at a time when crack spreads are tanking around the globe as record breaking oil turns into record breaking products. Still demand around the global continues to exceed expectations and that needs to continue to find some hope for stabilization. Short term Brexit concerns are becoming a weight and an argument against short term market balance. 

The Baker Hughes rig count also showed that oil companies added 10 oil rigs but gave up one natural gas rig. While we are still way below year ago levels and the increases are unlikely to stop, that fall in U.S. oil production in the short run it is enough to give the bears some extra momentum. Long term the bottom is still in and a return to below $40.00 a barrel is unlikely, we could see some short term weakness.

Natural gas on the other hand looks bullish. After pricing in a bit of cool weather we are about to hit the natural gas with a lot of heat and record breaking demand. The drop in natural gas rigs shows that the market is not really ready to meet peak demand and we should see after this week some historically small injections into supply. We should see 64 bcf injection which might be the best we are going to see for the next 30 days. We continue to look to buy breaks and calls.

For oil the long term bull is in place but short term we are day to day. Make sure you call for the latest trade moves at 888-264-5665 or email me at pflynn@pricegroup.com to open your account. Also watch the Fox Business Network where you get the Power To Prosper and see me every day.

 


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