Phil Flynn, senior market analyst at Price Futures Group, channels his inner Kenny Rogers in describing the competing fundamental drivers in the crude oil market.
You’ve got to know when to hold ‘em, know when to fold ‘em, know when to walk away and know when to run.
Crude oil is pricing in optimism that there will be a path to ending the U.S.-China trade dispute, providing a major kick to the global economy. The economy around the globe has been sputtering as companies tried to take cover or take advantage of the dispute. As it seems now that we see some light at the end of the tunnel, the markets are looking past weak data to the economic boost that we may get with a deal. For oil, that of course is very bullish as we will see oil demand expectations rise in a world where OPEC is cutting production and supplies are at risk in Venezuela.
The BBC is reporting that Venezuela’s President Nicolás Maduro has closed the border with Brazil amid a row over humanitarian aid. The embattled leader said he could also shut the key border with Colombia to stop the opposition from bringing in relief. He denies any crisis and calls the aid delivery plans a U.S. orchestrated show. His ally Russia has also accused the U.S. of trying to arm Venezuela's opposition. Rival concerts will be held on both sides of a bridge linking Venezuela and Colombia on Friday. On the Colombian side, an event will be held to raise money for Venezuela. At the same time, Mr. Maduro's government will hold its own concert, just 300 meters (980ft) away. Opposition leader Juan Guaidó and his allies hope to collect the food and medicine being gathered in neighboring Brazil and Colombia on Saturday, in defiance of President Maduro. Head of the National Assembly, Mr. Guaidó declared himself interim leader during anti-government protests last month and is recognized by dozens of countries, including the United States and most Latin American nations.
For oil, this showdown will keep oil traders away from the short side as there is fear that this conflict could escalate. The longer-term impact of the loss of Venezuelan oil will be felt in oil products if this dispute continues. Depending on how the events play out we could see oil sharply higher or lower on Sunday night. Still, with China talks going well the trade Friday is to be long.
U.S. production is at a record high so one might assume that shale producers would be raking in the cash. Well, you would be thinking incorrectly. The Wall Street Journal reported that Pioneer Resources, who the Wall Street Journal says is one of the biggest oil and gas producers in the hottest U.S. shale drilling region, the Permian Basin of West Texas and New Mexico, with a market capitalization of about $24 billion, according to FactSet, is seeing its CEO retire. It might be because Pioneer declared fourth-quarter profits of $324 million. That was a 51% decline from the same period a year earlier. They also had to spend about 20% more in capital than analysts expected. In other words the company had to spend more and drill more to make a lot less. The Stock fell about 7%, according to the Journal, and it may have been the reason CEO Timothy Dove decided to retire early.
It’s not just Pioneer, Halcon Resources an independent energy company focused on the acquisition, production, exploration and development of liquids-rich assets in the Delaware Basin, has also announced a management shakeup. They announced a $10 million estimated reduction in annual overhead costs as part of renewed focus on maximizing shareholder value through operational improvement. In other words, despite optimistic talk about U.S. shale output they are cutting back.
