Record Number of Investors Pile into Oil After the Largest Energy Trading Firm Said What?

02/08/2016 9:08 am EST

Focus: ENERGY

Michael Berger

President & Founder, Technical420.com

Michael Berger of Technical420.com thinks this statement made by Vitol Group BV CEO Ian Taylor is concerning, however, he also shares his opinions as to how the market might respond if Venezuela is able to set up a meeting between OPEC and non-OPEC members.

The largest energy trading firm in the world said that oil will trade range-bound for the next decade as Chinese economic growth slows and the United States energy industry caps any rally.

The statement from Vitol Group BV Chief Executive Officer Ian Taylor is concerning as United States oil producers are negatively affected by the low price environment. Vitol also trades enough crude and refined products every day to cover the combined needs of Germany, France, and Spain.

Although the statements made by CEO Taylor are concerning, he expects oil prices to move toward $45 to $50 a barrel in the second half 2016. Taylor, however, is not sure if oil has found a bottom yet as supply continues to outpace demand.

Record Number of Investors Betting on Oil

The increased volatility in the energy sector has attracted a record numbers of investors. According to the United States Commodity Futures Trading Commission, total wagers on the price of crude are at its highest level since they began tracking data in 2006 (497,280 combined short and long positions).

This comes after a rough week for the energy industry when companies like Royal Dutch Shell plc (RDS.A) and Chevron Corporation (CVX) slashed earnings and 2016 forward guidance.

Venezuela Urges Action from OPEC

The prolonged weak oil price environment has impacted all OPEC member countries. While the impact has been felt by all members, some countries have been able to manage their economies better than others.

Venezuela’s Oil Minister Eulogio Del Pino met with Russia, Iran, Qatar, and Saudi Arabia last week in an effort to gain support for a meeting that would address weak price environment. Del Pino was able to get six OPEC members and two non-members to say they were open to an extraordinary meeting.

Traders See Opportunity

If Venezuela is able to set up a meeting between OPEC and non-OPEC members, we think the market would respond favorably and the price of oil would move higher in the near-term.

For a deal to happen, OPEC would require several concessions from non-OPEC members, especially the United States. The volatile state of this industry creates a perfect storm of opportunity for traders who are on the right side of the trade. 

The Prolonged Weakness in Oil Prices Continues

While we expect to see oil prices rebound in the second half of 2016, the situation will likely get worse before it gets better as negative migration and continued provisioning impact earnings in the near-term. Despite this fact, we expect direct losses to be relatively benign in the near-term. We would not be surprised if long-time oil lenders begin to see energy balances bottom and potentially increase if oil prices begin to rebound.

Michael Berger, Founder and President, Technical420.com

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