IBB
309.31
-0.27
-0.09%
 
AAPL
161.6
+1.75
+1.09%
 
TVIX
17.05
-0.24
-1.39%
 
XIV
84.56
0.00
N/A%
 
TNA
51.92
-1.24
-2.33%
 
TZA
17.3
+0.41
+2.43%
 
UVXY
31.23
-0.46
-1.45%
 
NASDAQ
6333.013
-7.219
-0.114%
 
S&P500
2464.61
-1.23
-0.05%
 
NYSE
11843.48
-12.58
-0.11%
 
IBB
309.31
-0.27
-0.09%
 
AAPL
161.6
+1.75
+1.09%
 
TVIX
17.05
-0.24
-1.39%
 
XIV
84.56
0.00
N/A%
 
TNA
51.92
-1.24
-2.33%
 
TZA
17.3
+0.41
+2.43%
 
UVXY
31.23
-0.46
-1.45%
 
NASDAQ
6333.013
-7.219
-0.114%
 
S&P500
2464.61
-1.23
-0.05%
 
NYSE
11843.48
-12.58
-0.11%
 
Oil Note May 25, 2016
May 25, 16 Oil Note-

 

EIA prints a large draw coming in at -5.137mm on WTI. This sent spot on a wild roller coaster closing in at the 49 handle. Seasonally, draws are expected, so we weren’t concern, except for the large gasoline build. RBOB drew on the east coast, but convention grades were up.  Refineries and storage facilities remain in a massive glut of crude and crude products.  The advancement of WTI due to reflation by FED in suppression of the USD serves no justice in rebalancing, but more supply side gimmicks. Just look to the east, as China spends a Trillion USD in reflating their commodities, which in 3 months has now gone bust adding to global overcapacity. The strong USD theme is back as the FED turns hawkish for June. Renewed stress in EM/FX, EM, HY, commodities, and equities is worrisome. US Shale could cap the WTI rally on the 50 handle which would serve as a floor to come back online. As, we’ve stated before speculators run the market, and at some point fundamentals will readjust.

Screen Shot 2016-05-25 at 8.14.40 PM

Read More
April 14, 16 Oil Report

 

April 14, 16 Oil Note-

 

Our analysis of WTI’s physical, financial, and technical environment continues to maintain our prior note’s belief of an unfair high will be seen in the market place. Our past note states the unfair high will be seen in the 36-40 ceiling, which was seen in early April reverting price from 41 to the mid-30s. An over enthused headline chasing market used recycled news from the mid 30s to breach +124bps of our upper extreme ceiling (40). We believe this weekend’s DOHA meeting will disappoint traders.

 

The Saudi Regime is on a multi front price war with it’s own organization, top Non-OPEC producers, and US Shale. Name of the game for the Saudi Regime is lower prices for longer to advance market share. We’ve seen an interesting flanking maneuver by the Saudi regime calling for March meetings of production freezes, then under delivering. We suspect that outcome at this weekend’s meeting will under preform market expectations, which may trigger the reversion.

Read More
April 6 Oil Note
April 6, 16 Oil Note-

Screen Shot 2016-04-06 at 7.18.31 PM

Today’s EIA report is the largest draw since the first week of Jan’16. Oil inventories declined by 4.949MM, but a build at Cushing. Also a surprise build in Gasoline and Distillates.

Screen Shot 2016-04-06 at 7.15.58 PM

Today’s EIA Report:

Screen Shot 2016-04-06 at 7.15.48 PM


Storage levels in the US are at 80-year highs. Cushing is at 93% capacity, and US production has slowed fractionally. We are concerned about Crude products, such as Gasoline at 14-month demand lows and Distillates demand touching recessionary levels. Gasoline and Distillates are health indicators for a thriving economy. Large builds and lackluster demand of both products are common in slowing economic conditions.

We cross referenced the Federal Reserve Bank data base and found slow downs in manufacturing, transportation, commodity complex, and corporate earnings. Notably, the US economy is in an earnings recession as various transportation indexes from land to sea depict a slow down in activity. Vehicle sales for trucks are down 38% in March accordingly to the WSJ. Light auto sales have had a downside break of baseline growth, which started in 2009 after cash for clunkers helicopter drop by the FED.

So now, we have a better picture of why crude products are lacking demand side stimulus, it’s due to an economy slowing. What’s dangerous for crude products is shelf life, which can fluctuate a refiners run rate. If economic conditions are slowing refiners could take in less of a run leading to larger builds in crude.

Fundamentally, the notion of lower for longer is needed to clear the excess, as the US economy survived its first quarter of tightening. Signs of stress continue to widen the HY Spreads, which energy companies are commonly thought to be responsible, but contagion is spreading across other industries. Credit Ratings of energy companies have been slashed, and default rates are as high as Lehman Crisis levels. Bank exposure to HY Energy Debt is in question across US, CA, and EU banks. The narrative of “we have this contained” is being used in media, which is the same narrative used pre-Lehman. FX rates in the USD continue adding pressure, but have subsided as of recent. Tightening cycle, economic uncertainties, and majority of global central banks currently easing should relight the fire under the USD trade.

We tend to ignore the lies and manipulative comments from OPEC, and or Non-OPEC countries. The same story is in repeat from the mid-1990s when OPEC and Non-OPEC parties committed to freeze and or cuts. Years later the data showed a production increase and contradicted prior comments. If this is about market share, which it is, Saudi Arabia has no intentions to cut. We don’t see a resolution this month and have to look towards the annually OPEC meeting. We expect last minute jawboning comments from producers leading up to this months worthless meeting.

We reiterate the notion of lower for longer in prices to clear excess. We cite domestic and global slowdowns in economic activity. Fundamentals of WTI is a demand side story, and the US Economic landscape is in a slowdown trajectory, as with the rest of the world. Infrastructure storage remains highly stressed and continues to suppress spot WTI. HY Spreads remain wide signaling danger is ahead, which could be the exposure of large banks stemming from US, CA, and or EU. We maintain our unfair high call from prior note, with the reversion to the low 30s. This oil note is merely an update reiterating the prior note.


 

 

Read More
A Visual Guide of the Latest Oil Note

A Visual Guide of the Latest Oil Note

Screen Shot 2016-04-02 at 10.30.32 AM

Read More
Oil Note March 30, 2016

Screen Shot 2016-03-24 at 3.06.38 PM

March 30, 16 Oil Note-

 

Crude Awakening

Last Oil Note (March 24), we issued an unfair high warning as our price ceiling of 36.50-40 projections from the March 6 Oil Note was satisfied. We are currently maintaining our unfair high warning with downside projections to the low 30s.

As of late, short sellers have been squeezed in a month long rally advancing more than +60%. The sentiment fueling the advancement has been extinguished, and a back to fundamentals approach has been initiated. Fundamentals for WTI are incredibly bearish. We see Domestic/Foreign bottlenecks in storage, slowing global economy, along with OPEC who cannot be trusted. We congratulate OPEC for truly confusing the WTI market while increasing output in March. This is contrary to the narrative provided one month back.

Read More
March 24 16 Oil Note-

 

March 24 16 Oil Note-

Screen Shot 2016-03-24 at 3.06.38 PM

 

We are issuing an unfair high warning as our price ceiling of 36.50-40 from prior Oil Note (March 6th) has been achieved. Further appreciation in WTI is not sustainable in current domestic and foreign fundamentals. The recent advancement was built on speculation as OPEC/Non-OPEC members failed to deliver. Such speculation caused a forced short squeeze unwinding shorts in a 40-session +60% move. Higher prices are attracting higher output, re-hedging, strengthening balance sheets, and disposing of inert inventories. This is a self-defeating process of rebalancing the market, as the next market clear will be more abrupt to phase out the excess.

WTI fundamentals are bleak on an intermediate basis. We expect the market to clear in 2Q16. The clear will stem from storage issues at Cushing PADD2, which is exceeding operational capacity. There is ample evidence of capacity bottlenecks due to storage requests denied, and rerouting inventories to PADD 1/3/4 (Genscape).

Paul Horsnell, global head of commodities research at Standard Chartered . “People are worried about a short-term issue, particularly in the U.S., particularly at Cushing.” As we’ve progressed from Feb to March nothing of significance has materially developed to skew domestic or forgeign supply and or demand. Actually the picture is deteriorating, and it’s only a matter of time before forced delivers will re-enter the market like Phillips 66 Feb debacle.

WTI Price action continues to be confused as a drop in production has offset massive builds. 9.36m barrels was logged in the build this week, the 2nd highest of FY’16. In addition, Cushing’s development of a draw is great news, but inventories are only being shifted to other PADDs.

Screen Shot 2016-03-24 at 3.08.03 PM

Screen Shot 2016-03-24 at 3.08.33 PM

Back in Jan’16, Moody’s put a half trillion dollars in energy debt on downgrade review. In Feb, default rates rose to 3.3% surpassing the Lehman crisis primary due to energy. In March Fitch raises US HY default rate forecast to 6%; Energy to 20%. The current deleveraging phase is a given due to a tightening cycle of the US Economy, which started in December 2015. Money base of the US Economy is not increasing, as the FED has no intentions on expanding the money base in the intermediate timeframe. We expect equities to revert to the 1700-1750 region in conjunction with WTI to the low 30s. Possible near term triggers for a WTI Clear stem from USD appreciation, equity devaluation, GDP data, WTI fundamentals, and HY debt. US Equities are forecasted to report a decline in 1Q16, which will be the 4th consecutive quarter of declines since 2008. Global growth is deteriorating as the IMF, OECD, and BIS have issued warnings in the past 30 days. Shortage of USD across the world, as well as most of the world’s central banks are easing should appreciate the USD. In return, EM decline, commodities decline, and a further devaluation by the PBOC of CNY will add headwinds for global economies.


 

Screen Shot 2016-03-24 at 3.10.09 PM

Screen Shot 2016-03-24 at 3.12.20 PM


Added Bonus: The Dome of S&P500

Screen Shot 2016-03-24 at 8.55.19 AM

 

 

 

Read More
Oil Note March 6, 2016

Screen Shot 2016-03-20 at 11.36.38 AM

 

Sunday March 6, 16 Oil Note-

We congratulate OPEC and Russia for truly confusing the WTI market. An advancement of +40% in less than a month on no concrete fundamental developments to the marketplace is remarkable. We believe the short cover was forced by US Banks in the ETF market to advance WTI price to a suitable level for oil companies to complete a massive round of secondary offerings. The size of the round has been the largest equity flow since 1999. This comes at a time where the US Default Rate has surpassed the infamous Lehman Crisis. Banks are avoiding another crisis via this pre- emptive measure, as the banking complex visualizes major headwinds lurk ahead.

The 2 immediate risks of WTI are Cushing Storage and Refineries. Cushing is >80% capacity with just 4-5 months of inventory build left according to GenScape. US Refineries have had a massive widespread cut of gasoline and distillates, which is the most since the great financial crisis, due to storage woes, lackluster demand, and a sluggish winter. On top of the cut, refineries have another 7 weeks of maintenance, which will add additional builds. We saw drastic measures in Feb, by Phillips 66 dumping their Cushing inventory for immediate delivery, which widened the WTI spot of Feb by over $2+ sending WTI spiraling to 26. Forced deliveries are another concern, and Feb events should be a reminder the storm has not passed.

We believe the forced short covering will have a celling of 36.50-40 range. Fundamentals will realign and the narrative of storage woes will be a crude awakening. As banks shore up oil companies via secondary offerings, we can only speculate this is a defensive play for the potential of more WTI downside to come. We believe the clearing process of excess capacity has not occurred yet, and is needed to rebalance the WTI Market. Once this occurs, the rebalancing effort will be under way, and we’ll state a heavy weigh for long positions in WTI. Our targets to the downside are first 30.63, which is a major point of control of the FY’16 balance value area. Next Price may re-visit 26 for a double bottom, and at an extreme clear into the 22.50 -20 range producing a hammer. As the Federal Reserve continues ZLB, the traditional V shape recover is nonexistent.

We end the note in a cautious tone of severe bottlenecks in the WTI patch. The 40% advancement in WTI is/was artificial in nature produced by a short covering to temporary bail out ailing oil companies via equity. The advancement in the WTI price was on no fundamental developments in curing the oversupplied and lackluster demand market, but merely to protect banks from an inevitable crisis. As the Short Cover is unsustainable in terms of slope, we are expecting an unfair high in the 36.50-40 range to produce a reversion back to the point of control of 30.63. The market is positioning for a clear of excess capacity, as banks shore up the viable oil companies. We feel confident in our analysis of an unfair high will be produced in the near term due to the drastic measures banks have undertook, which signals danger ahead.

 

Screen Shot 2016-03-20 at 1.06.17 PM

Screen Shot 2016-03-20 at 11.36.48 AM

Read More
Oil Note February 15, 2016

Screen Shot 2016-03-20 at 11.36.38 AM

Oil Note: Monday 15, 2016

 

Summary of Weekly Petroleum Data for the Week Ending February 5, 2016 (EIA)

U.S. crude oil refinery inputs averaged over 15.5 million barrels per day during the week ending February 5, 2016, 105,000 barrels per day less than the previous week’s average. Refineries operated at 86.1% of their operable capacity last week. Gasoline production increased last week, averaging about 9.6 million barrels per day. Distillate fuel production decreased last week, averaging about 4.4 million barrels per day.

U.S. crude oil imports averaged over 7.1 million barrels per day last week, down by 1.1 million barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 7.7 million barrels per day, 5.0% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 683,000 barrels per day. Distillate fuel imports averaged 201,000 barrels per day last week.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 0.8 million barrels from the previous week. At 502.0 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years. Total motor gasoline inventories increased by 1.3 million barrels last week, and are well above the upper limit of the average range. Finished gasoline inventories remained unchanged while blending components inventories increased last week. Distillate fuel inventories increased by 1.3 million barrels last week and are near the upper limit of the average range for this time of year. Propane/propylene inventories fell 3.3 million barrels last week but are well above the upper limit of the average range. Total commercial petroleum inventories increased by 0.3 million barrels last week.

Total products supplied over the last four-week period averaged over 19.8 million barrels per day, up by 0.3% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged 8.9 million barrels per day, up by 2.6% from the same period last year. Distillate fuel product supplied averaged 3.6 million barrels per day over the last four weeks, down by 15.8% from the same period last year. Jet fuel product supplied is up 6.8% compared to the same four-week period last year.

Central Banks around the world are experiencing the negative feed back loop of cheap money in the form of deflation. Since 2009, Quantitative Easing programs, in the US have produced the Shale revolution overtaking OPEC as well as Russia to become the top producer globally. Since the end of Quantitative Easing 3 deemed “QE3” in 2014 as well as OPEC oversupplying the market to thwart the continued expansion of US Producers, the race to the bottom has driven oil markets to a -77% in FY’16.

At the moment, there is more oil production than demand. Several ways to resolve the problem: stimulate demand or cut production. Last week, Wood Mackenzie released a report citing around 4% of global supply is unprofitable <35 WTI. 4% of global supply equates to 3.4 million barrels per day, which would cure the 1.5 million barrels per day global oversupply. Majority of US Shale Producers are underwater <40. We note, on WTI chart in FY’15 mid-40 levels were a highly defended area as price oscillated throughout the fiscal year. Since FY’14, US Rigs have dropped -68% as budgets contract and investments have slowed due today’s fair value of WTI. Many US Producers are taking a loss, but continue to pump with hopes of a rebound in prices. Some highly leveraged Shale producers have to continue to pump or face a whirlwind of pressure from their bondholders. This is evident in the high yield debt space as 2009 levels have been reached.

As mentioned, US Rig Count plummets -68% since FY’14, and we note US production is laggard. This is due to the US Producer(s) refocusing Rigs to oilfields where the production cost is lower. US Production since 2H15 has fallen around -5% according to EIA via Quandl.com. The US production has experienced peak production, but the main concern is oil storage hitting an 80-year high. Cushing is near capacity as the fear is visualized in /ILT (NYMEX) oil storage futures nearly doubling in FY’16. If it couldn’t get worse, last week’s fire sale of WTI to the 26 handle could have started with Phillips 66 dumping Cushing crude for immediate delivery. The front month spread is abnormally wide showing stresses in the near term market.

Stresses in the WTI front month can also be seen in the spread of Brent vs. WTI widening. Late FY’15, the spread was at parity, but as of current date a divergence has edged BRENT up 3.73. Even with WTI draw last week in inventories, it seems as the market is waiting for consecutive weeks before the draw is taken serious.

As the race to the bottom continues, OPEC members and their Sovereign Wealth Funds continue to feel the pressure of <30 oil. OPEC members on Jan 22, 2016 told the world their issues and said they were ready to discuss. Fast forward to February 11, 2016, OPEC states everyone is ready to cooperate. Breaking moments ago Russia is to meet with major OPEC members including Saudis, Venezuela, and Qatar. We are eager to hear what transpires from the meeting. Next theoretical statement for a bullish attitude would be the mention of production cuts. Comments and meetings are months ahead of the typical OPEC meeting held annually.

The oil market is a two sided coin: Supply/Demand and Geopolitics. In an unprecedented Geopolitical event this weekend of Turkey and Syria spiraling out of control, we conclude the oil market cannot ignore this debacle. Turkey decides to shell Northern Syria, as the Russian’s work in lock step with the Syrian Government to retake strategic regions of Syria. Meanwhile, the Saudi’s have built the largest coalition ever in the Middle East comprising of 20 countries currently drilling in Saudi Arabia. At the same time, the Saudi’s are transporting personnel and supplies to Turkish air bases, which many think a ground invasion by the coalition is on the horizon. US is absent on the boots of the ground, but Kerry is striving for a cease fire deal. This seems highly unlikely, after the shelling and minor ground invasion by Turkey was seen over the weekend. As the West tries to de-escalate the situation by Merkel supporting a No-Fly-Zone to counter the Russian’s with Assad, we saw a tragedy unfold as a “supposed” Russian Airstrike hit a Doctor W/O Boarders facility. There are many sides involved in the fight, but to narrow down who is involved comes down to Saudi Arabia’s Coalition called Northern Thunder (Hint of the West) versus Assad and the Russians. Cold War could meet Hot War as the weekends events spiral out of control.

 

Technical-

Wave 1 timeframe 8-27-13 to 11-27-13. Counter Wave 2 timeframe 11-27-13 to 6-12-14. Wave 3 timeframe 6-12-14 to 3-18-15 extended from Upper rail of descending channel to beneath centerline. Counter Wave 4 timeframe 3-18-15 to 5-5-15 tests beneath centerline. Wave 5 timeframe 5-5-15 rejected centerline channel extending to lower channel rail finding resistance low 26. Low 26 is a major level of defense as 1.618 extensions from wave 3 end extended into 29. The probability of a counter A-B-C wave is likely once primary wave count 5 is ended. 25 days of support at 26-35 regions. Breaking moments ago, Analysts from Goldman Sachs are on Reuters saying that oil prices don’t have much further to materially fall. Goldman is referring to the 5th wave ending a possible counter structure to start in the near term after 900 days of the 1-3-5 impulse and 2-4 counter Elliot wave structure which is responsible for the -77% of WTI.

Mathematically, we measure price and time with the GANN Analysis starting with the focus point of the second wave count end of 107 level 6-12-15 range. The market continues to lack balance and is currently in a weak position. Even though, the market has strived to balance reclaiming ½ GANN as support on the lower channel demand line. Rule of Angles states that once an angle is violated the next angle it’ll move towards. On deck is for a balance of 1/1 GANN, but current fundamentals in WTI/BRENT do not support 1/1 migration this FY. The GANN fractions equate to Units of Price per Unit of Time.

On an intermediate timeframe, the primary 5th wave has seen nearly 30 days of resistance with a single print TPO at 26. The 30-day resistance is forming a geometrical formation notable for a reversal called a right angle descending broadening structure. Precedents of structure are 51% upward breakouts according to Bulkowski. The geometrical formation is producing a balance area with rotations of 30.63 point of control. The parameter’s of the VA area or balance is 27-35. The geometrical formation sits on wave 3’s 1.618 extensions adding a thesis for supportive area. We advise the market participants to understand the structural composition of the right angle descending broadening structure as well as understand all aspects of the balance area. Rotations of this balance will continue until the balance is mature, which will lead to an imbalance. As the balance area matures with a 30.63 point of control, and a notable structure for reversal, we expect a counter trend to start and our EOY’16 Price Target is 46 reversion. As of now, play the rotations of the 30.63 balance.

 

Screen Shot 2016-03-20 at 1.31.22 PM

Screen Shot 2016-03-20 at 11.36.48 AM

Read More