Saturday, January 30, 2016

Where is Crude Oil headed......
Photo: See it market
The Crude oil has started to move northward, following rumors of a possible OPEC-Russia talks in February to cut the production by at least 5%.

Crude Oil prices rose on Friday, rebounding more than 25 percent from 12-year lows hit last week and cutting losses for the month, on prospects of a deal between major exporters to cut production and curb one of the biggest supply gluts in history.

For the week, Brent was 7.9 percent higher and U.S. crude 4.4 percent higher, paring their monthly losses to 6.8 percent and 9.3 percent respectively.

Baker Hughes reported its weekly count of oil rigs in U.S. fields fell by 12 to a total of 498. At this time last year, drillers were operating 1,223 rigs in U.S. oil fields.

Also on Friday, monthly data from the U.S. government's Energy Information Administration showed American oil production ticked down slightly in November. U.S. output stood at 9.318 million barrels per day in November, versus 9.370 million bpd in October. 

Therefore, the moot question remains where is the crude oil headed in the short term?

Core Labs Commentary regarding Crude Oil maket in 2016:

"At current U.S. activity levels, Core predicts 2016 crude oil production to be lower year-over-year; perhaps falling bye over 900,000 bopd in 2016. This, coupled with the continuing decline in international production and the continuing increase in global energy consumption, should create a tight crude oil supply market for the second half of 2016, which should lead to increased crude prices and industry activity levels worldwide.

The Company continues to anticipate a "V-shaped" worldwide activity recovery in 2016 with upticks starting in the third quarter. Global demand for hydrocarbon-based energy continues to improve, while worldwide crude oil supply peaked in the second half of 2015, beginning a decline that Core believes will continue through all of 2016. The Company currently believes that U.S. land production peaked in March 2015 and has fallen since then by over 600,000 barrels of oil per day ("bopd"), some of which was offset by new additions to production in the Gulf of Mexico ("GOM") as a result of recent field developments coming on-line in 2015. Given the current, depressed commodity prices, Core believes further new additions to production in the GOM will not be sustainable. Based on currently available worldwide crude oil production data, coupled with internal Core Lab data, Core has increased its estimate of the net worldwide annual crude oil production decline curve rate to 3.1% from 2.5%. This additional 60 basis points decline is predicated on sharper decline curve rates for tight-oil reservoirs and the significant decline in maintenance capital expenditures for the existing crude oil production base".

While, with the current set of parameters at play it would be difficult to gauge its short term peak, but the consensus is at the $37-41 per barrel, levels.

Tumbling energy prices, stemming from worries about weakening demand from world No2 economy China, have roiled financial markets. This was a concern the Fed cited as a factor for keeping its key policy rate at 0.25-0.50 per cent on Thursday.

The Fed's worry over global and financial developments spurred selling in the US dollar against most major currencies.

Now the sudden rise in the price of crude oil has given a fresh lease of life to the commodity market. The stocks like Vedanta Resources have already started to rocket-up.

In such circumstances, I would like to go full hog in the depleted commodity sector for the time being.
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