A New Day

It is a new day for oil as it tries to adjust for another big increase in overall crude oil inventories, a more hawkish Fed Chair Janet Yellen and the impact of President Trump’s executive order to roll back commodity regulations that have helped foreign oil companies prosper at the expense of U.S. oil companies. A new day with hopefully smarter regulation that considers common sense when trying to achieve a fairer and more transparent but competitive market place.

Let’s get to inventories. The American Petroleum Institute (API) reported another massive 9.994-million-barrel crude oil build, most of which was again in the Gulf Coast of the United States. While the market is a little weaker after the report, the market realizes that a big part of that increase was the previously announced sales of oil from the Strategic Petroleum Reserve. In fact, if you look at the key delivery point in Cushing, Oklahoma, supply fell by 1.27 million barrels. While I am not trying to dismiss the size of the increase, overall we know that there are extenuating circumstances.

OPEC production cuts will soon start slowing U.S. imports and declining global oil inventories will soon spike U.S. exports. We have global oil demand exceeding expectations as I predicted and that should start to swamp U.S. oil supply. On top of that the SPR sales will be over half way done by the end of the month.  

Fed Chair Janet Yellen yesterday sent the dollar on a big-time rally. Obviously she is suggesting that U.S. interest rates are going to rise and some said she seemed a bit more hawkish.  Still she had some reservations about wage growth and other issues and the impact on small banks by Dodd Frank that were covered by regulations that were meant only for big banks but helped put small banks out of business.

The same could be said for some commodity market regulations and stock market regulations that have hurt small companies and small customers. Many big brokerages are asking small clients to go elsewhere and small accounts are being restricted on trades that they want to do potentially making it more difficult for them to be successful. All do to over regulation. Now President trump has eased at least some regulations on oil companies and stock and commodities brokerages under Dodd Frank. Mining and oil drilling companies had to disclose any payments made to foreign governments including taxes and royalties. This rule put U.S. companies at a competitive disadvantage as foreign companies then could cut better deals with foreign governments. The rule was supposed to stop U.S. companies from paying bribes to foreign counties but that is already against the law so it only served to cost U.S. companies millions of dollars in lost deals.

Mother nature saved natural gas from seeing supply evaporate due to a structural shortage. The market can afford to be complacent because the winter is turning out to be warmer than average but we still will face challenges this summer if it is hot like last year. The best thing the bulls have going for them right now is the fact that this market is oversold and we expect a 137 bcf withdrawal from storage this week.