The Comeback Kids

Oil bulls are the comeback kids of the commodity world as crude prices hit new highs for 2019 and gave us more confirmation that lasts years plunge was way overdone. While oil is coming into some stiff technical resistance, near $56 a barrel WTI, the bullish fundamentals that are supporting the rally are only getting more bullish by the hour.

For a quick recap of those bullish fundamentals, you start with a more dovish Fed, then move onto U.S. sanctions on Venezuela and their coveted heavy crude, to a shutdown of Libya’s largest oil field, then also add OPEC production cuts that saw the biggest one month drop in 2 years. A survey from Bloomberg showed OPEC production fell by 930,000 barrels a day in January, to stand at 31.02 million barrels a day. You also saw a big jump in U.S. gasoline demand last week along with a refinery fire that could spike gas prices around the East coast for a few days. 

U.S. Shale producers are also showing signs of pulling back on production after weak prices crimped drilling plans. Baker Hughes reported that the U.S. rig count fell by 15 rigs and 14 of those were oil and one of those rig count cuts was for natural gas. The trend of falling rigs should continue in coming weeks, along with some lowered projections for U.S. Shale oil production.

Yet deepwater production is hitting impressive new records. Rystad Energy reported that it expects global deep-water production to reach record high levels and surpass 10 million bb/d. With new fields starting up in Brazil and Gulf of Mexico, we expect the total deep-water liquid production to reach 10.3 million bbl/d in 2019. This is an increase of 700,000 barrels per day compared to 2018. In addition to Brazil and the U.S., Angola, Norway, and Nigeria are the largest deep-water producers.

It ain’t heavy, its shale oil. The ongoing sanctions in Venezuela continue to challenge U.S. refiners that need heavy oil to mix and make many products. While light shale oil condensate is nice to have, refiners need heavier grades and unless the situation changes in Venezuela it will start to raise prices for both gasoline and diesel at the pump.

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