Oil Has Had Another Wild Ride

Oil has had another wild ride rallying up on geopolitical risk fears but falling back down because of fears surrounding the Chinese economy and record US production, states Phil Flynn of PRICE Futures Group.

Attacks on ships in the Red Sea and Israel widening its Gaza ground offensive move oil higher. It seems the market that oil trade moves from one panic attack to another, but the bears seem to have an edge in the fear game.  

The Wall Street Journal reported that On Sunday, Iran-backed Houthi forces in Yemen claimed responsibility for attacking what they said were two Israeli-affiliated ships in the Bab el-Mandeb Strait.

The Energy Information Administration says the Bab el-Mandeb Strait is a sea route chokepoint between the Horn of Africa and the Middle East, connecting the Red Sea to the Gulf of Aden and the Arabian Sea. Most exports of petroleum and natural gas from the Persian Gulf that transit the Suez Canal or the SUMED Pipeline pass through both the Bab el-Mandeb and the Strait of Hormuz. 

Closure of the Bab el-Mandeb Strait could keep tankers originating in the Persian Gulf from transiting the Suez Canal or reaching the SUMED Pipeline, forcing them to divert around the southern tip of Africa, which would increase transit time and shipping costs. In 2018, an estimated 6.2 million barrels per day (b/d) of crude oil, condensate, and refined petroleum products flowed through the Bab el-Mandeb Strait toward Europe, the United States, and Asia, 

Gold surged to an all-time high overnight rising above $2,100 on bets of early Fed cuts but also concerns about old prices hitting a record high above $2,100 on bets of early Fed cuts but also because of concerns that China’s economy faltered.

The Financial Times reported that “Defaults by Chinese borrowers have surged to a record high since the outbreak of the coronavirus pandemic, highlighting the depth of the country’s economic downturn and the obstacles to a full recovery. They say that A total of 8.54mn people, most of them between the ages of 18 and 59, are officially blacklisted by authorities after missing payments on everything from home mortgages to business loans, according to local courts. This comes as reports say that in November, central banks added $350BN in liquidity, the third-largest increase since March. 

Vince Maduro, president of Venezuela, reneged on their deal to release US prisoners thereby putting the Biden administration in a tough spot when it comes to lifting sanctions on the coveted Venezuelan oil.  Reports say that the US is Reviewing Options after Venezuela failed to release detained Americans that were supposed to be November 30. White House NSC spokesman says the US is ‘extremely concerned.

Yet India will continue to import Venezuelan oil just as they will continue to expand their coal usage Reuters reports that—Indian refiners have resumed Venezuelan oil purchases through intermediaries, with Reliance (RELI.NS) set to meet executives from state firm PDVSA next week to discuss direct sales following the easing of US sanctions on the South American country, people familiar with the matter said. Trade resumed between the OPEC producer and the second largest destination for its oil after Washington in October temporarily lifted sanctions banning Venezuelan oil exports, prompting a flurry of spot sales of crude and fuel through middlemen and traders, mostly to China.

The Guardian Report reported that “The president of Cop28, Sultan Al Jaber, has claimed there is “no science” indicating that a phase-out of fossil fuels is needed to restrict global heating to 1.5C, the Guardian and the Centre for Climate Reporting can reveal. Al Jaber also said a phase-out of fossil fuels would not allow sustainable development “unless you want to take the world back into caves”.
All of these headlines and skepticism about whether or not OPEC can take enough oil off the market has caused the market to make some incredible move oil wild swings on Friday and overnight.

These sharp moves up and down that can come at any time make it very difficult to take a position trade. Depending on the hour of the day whether you’re long or short you could be down a substantial amount of money or up a substantial amount of money with little rhyme or reason 
The wild swings are going to cause a situation where average traders are going to go to the sidelines, and we will be controlled pretty much by computers. As far as price movement the key thing here is to use options for protection against sudden and inexplicable sharp moves.

Natural gas selling off as temperatures warm up and production is expected to continue to be close to records even as we expect to see a triple-digit withdrawal this week the market is convinced that unless we see a much colder than normal winter we’re going to end up with a glut of supply weather is still key for this market of course we’re seeing a much colder start to winter in Europe and Asia but because we’re already maxed out on the LNG exports that’s not going to matter at this point still if that cold weather hits the US it could change the dynamic of this market. . . 

Fox News is reporting that “The House is expected to hold a floor vote this week on legislation that would strike down pending federal regulations targeting gas-powered vehicles and prohibit any future electric vehicle (EV) mandate. The Choice in Automobile Retail Sales (CARS) Act – introduced over the summer by Reps. Tim Walberg, R-Mich., and Andrew Clyde, R-Ga. – will be considered by the House Rules Committee on Monday before officially receiving a floor vote as soon as Tuesday. If the bill is passed, it would then be voted on by the Senate, where Republicans and Democratic Sen. Joe Manchin recently introduced companion legislation.  “The House must pass the Choice in Automobile Retail Sales Act to block a radical and unattainable federal EV mandate that will cripple our auto industry and forever make our supply chain reliant on China,” Walberg told Fox News Digital on Monday. “The American auto industry is at its best when they are free to innovate and listen to the will of consumers, and not constrained by bureaucracy.”

Learn more about Phil Flynn by visiting Price Futures Group.