As energy markets recover OPEC + are looking to extend production cuts, reports Phil Flynn.
Crude oil prices are on the rise again as it appears that OPEC and Russia (OPEC + 1) are poised to extend production cuts. The big question mark, as usual, is Russia, with what seems to be uncertainty about how long they want to extend cuts. They say they will wait until Tuesday to make a decision. Mexico may also be a problem, yet it is clear that if OPEC + wants to see oil prices continue to rise, they should extend cuts.
Regardless, it appears that OPEC + will meet early on June 5 to iron out the details, and the market is betting they will extend cuts by at least one month until the end of July. Yet what is amazing in this market are signs of tightening supply globally. Brent crude is on track to test $40 and has now gone from contango to backwardation. That is signaling that the market has gone from oversupplied to undersupplied. Demand in Germany, along with China, has exceeded pre-coronavirus levels indicating that oil demand globally will be back in a big way and much faster than many people thought.
In the United States we get the American Petroleum Institute (API) Tuesday. Oil inventories have increased in recent weeks as Saudi oil tankers are getting offloaded. That is masking the massive and historic pullback by U.S. shale and oil producers that could see the U.S. market tighten before you know it. U.S. rigs have fallen by 70% year over year.
The energy market also needs to keep an eye on the Atlantic. Tropical storms and hurricane risk are rising. With U.S. shale shutting down, hurricane risk premium in oil and natural gas could increase in a hurry.
Despite the many doom and gloom predictions about stocks and oil, the sector appears strong. Even the rioting and unrest in the United States is failing to quell market optimism. Don’t fight the momentum.
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. 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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