Friday's Crude Weakness was Real

12/03/2019 11:33 am EST

Focus: COMMODITIES

Phil Flynn

Senior Energy Analyst, The PRICE Futures Group

Despite holiday trading hours, Friday’s crude oil sell-off had strong volume and should not be dismissed, reports Phil Flynn.

In my rant on the 5% sell-off in oil on black and blue Friday, I erroneously stated the massive sell-off was on light volume. Actually, the volume was very high, higher than the recent average. when we get these massive moves on holiday-shortened trading days—which are becoming more common — it’s easy to dismiss it to small participation. I suppose it could just be a coincidence. The massive sell-off last black Friday and last Christmas Eve really had nothing to do with the 5% selloff we saw on black and blue Friday, which involved strong participation by market players.

There were some circumstances. For example, uncertainty about OPEC. Rumors that OPEC might not get a deal. Rumors that Russia was balking at compliance. Yet at the same time, we have reported that Saudi Arabia is trying to get a bigger surprise production cut and that might get the market in a festive buying mood. OPEC+ Russia is reportedly looking at increasing its current supply cuts of 1.2 million barrels per day (bpd) — as much as an additional 400,000 bpd — while extending the pact until June 2020. Of course, Reuters ruined the surprise. 

Ongoing concerns over the global economy and the U.S.-China trade war continue to weigh on prices but U.S. crude inventories are expected to have declined last week, which may lend some support to prices. A Reuters poll estimates that U.S. crude inventories likely dipped by 1.8 million barrels in the week to Nov. 29, following a 1.6 million barrels build in the previous week.

There was the snowstorm that hurt gasoline demand and grounded a lot of diesel-burning flights. That as well could have contributed to the Black and blue Friday massacre. Or it could be because traders are fearing that the U.S.-China trade deal will fall apart. Or it could be that based on recent trade shortened holiday trading days, the market is susceptible to ridiculous moves just because it happened to be a holiday.

Of course, oil did recover a bit even as it faced some potentially bearish headlines. Steel tariffs on Brazil and Argentina, some say are in part retaliation from the Trump administration on those countries' moves to take advantage of the trade war and to take some of the U.S. farmer's China market share. Comments by President Trump at the NATO summit in London said,  “In some ways, I like the idea of waiting until after the election for the China deal, but they want to make a deal now and we will see whether or not the deal is going to be right” is also adding to the drama surrounding global trade.

The oil market is also expected to see a draw in crude inventory in tonight’s American Petroleum Institute report. Private forecasters report that supply in the Cushing, Oklahoma delivery hub fell by over 1.0 million barrels in addition to the Reuters report.

Natural gas has had a tough time as the weather forecast turned milder. How long will that last? Bret Walts ay Bamwx says, "We have seen major colder trends on both models overnight. The warm-up over the next seven days looks to be rather brief - but warmth could linger into early week two ahead of a storm system. A blast of cold air is likely by the middle of next week behind with the North Pacific pattern becoming more favorable for cold shots. This will allow for heating demand to rise back above normal following a below normal week. There certainly still appear to be colder risks on the table in December and we remain on quite a different trajectory vs. last year. We are still targeting the last third of the month for more consistent colder risks in the Eastern US."  

This is why natural gas is bouncing back today. Nothing to do with the Holiday shortened trading Friday I assure you. I think.

Trade strategy may be key to ride out the crazy moves that will come with the headlines so keep in touch with our daily analysis. We had a great response to our Money Show in San Francisco! Watch for our Videos! Thanks to all. Makes sure you are getting my Daily Trade Levels! Read Phil’s energy report at Price Futures Group. Twitter: @energyphilflynn |Facebook: Phil Flynn

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