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Watch Out! Inventory Data and China


Could Swing Crude Oil Prices
Part 1 Part 2 Part 3 Part 4 Part 5 Part 6 Part 7 Part 8 Upstream Oil and Gas (5036)
Watch Out! Inventory Data and China Could Swing Crude Oil Prices (Part 1 of 8)

Crude Oil Market: Saudi Arabia Is Stubborn, Dictates


Venezuela
By Gordon Kristopher Feb 9, 2016 10:50 am EST

Crude oil prices fell


NYMEX-traded West Texas Intermediate crude oil futures contracts for March
delivery fell by 3.9% and closed at $29.69 per barrel on Monday, February 8, 2016.
ICE-traded Brent crude oil futures fell by 0.53% and closed at $33.88 per barrel on
the same day. Oil prices fell due to the consensus of the rising US crude oil inventory.
The prices also fell due to fading ties of OPEC (Organization of the Petroleum
Exporting Countries) and non-OPEC countries for a collective production cut. Oil
tracking ETFs like the United States Oil Fund (USO) and the ProShares Ultra
Bloomberg Crude Oil ETF (UCO) moved in the direction of crude oil prices. They fell
by 3% and 6.3%, respectively, in yesterdays trade. The SPDR S&P 500 ETF (SPY) also
fell in the direction of oil prices.

Closing PriceUS Oil Fund Partnership Units (USO)PrShrs Trust II Shs ProShares Ultra
Bloomberg Crude Oil (UCO)Jul '12Jan '13Jul '13Jan '14Jul '14Jan '15Jul '15Jan '16150%-100%-50%0%Source: BATS Exchange
Saturday, Feb 8, 17:00

PrShrs Trust II Shs ProShares Ultra Bloomberg Crude Oil (UCO):


$173.5

Saudi Arabia and Venezuelas meeting


On February 7, 2016, Saudi Arabia and Venezuela met to discuss the collective
production cut between OPEC and non-OPEC nations. All eyes were on Saudi
Arabias oil minister Ali al-Naimi and his Venezuelan counterpart Eulogio Del Pino.
However, the meeting didnt show any concrete evidence of a favorable outcome for
an oil production cut. Eulogio Del Pino is touring OPEC and non-OPEC oil producing
giants to initiate a collective production cut for the oil price ceiling. Venezuela
wants to stabilize its dwindling economy. Its economy depends on oil exports. The
Venezuelan governments sources reported that oil revenue fell by 70% in 2015. The
economy fell by 5%, respectively, in 2015. Saudi Arabia has been stubborn. Its
dictating Venezuela. Saudi Arabia thinks that the oil production cut and oil price
ceiling arent effective in the current oil market conditions. The only option is a
tussle for oil market share. The US shale boom could snatch OPECs market share in
the future.
The latest estimates from Barclays suggested that oil demand from the worlds
largest oil consumers like the US and China could slow down. Read more about US
production in Part 6 of this series. Well also discuss how Chinas production and
consumption could impact the oil market in Part 7.

Volatility picture
Oil prices have fallen by nearly 20% in 2016 due to the wide gap between supply and
demand. Historically low oil prices led to decreased spending on mega oil and gas
exploration projects. Companies like Concho Resources (CXO), Whiting Petroleum
(WLL), WPX Energy (WPX), and PDC Energy (PDCE) slashed the capital expenditure,
according to sources from data intelligence firm IHS (IHS) in order to sustain
themselves in the depressed oil and gas market.

US inventory

In the next part of this series, well discuss how the US crude oil inventory is
weighing on the global oil market. In Part 3 of this series, well discuss how the
record inventory is leading to a historic surge in the crude oil storage cost.

Energy and Power Performance


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GraphWLLCXOWPXPDCEUCOXLE (Energy Select Sector SPDR (ETF))May
'15Sep '15Jan '16May '16-100%-50%0% + 50%
Part 2
Watch Out! Inventory Data and China Could Swing Crude Oil Prices (Part 2 of 8)

API Crude Oil Inventory Will Continue to Pressure Oil


Prices
By Gordon Kristopher Feb 9, 2016 10:50 am EST

API crude oil inventory


The API (American Petroleum Institute) is scheduled to release its weekly crude oil
inventory report on February 9, 2016. Last week, the US commercial crude oil
inventory rose by 3.8 MMbbls (million barrels) for the week ending January 29, 2016.
The API crude oil inventory rose for the third consecutive week despite the winter
season.

Enlarge Graph

EIAs crude oil inventory


The EIA (U.S. Energy Information Administration) is scheduled to release its weekly
crude oil inventory report on February 10, 2016. The US crude oil inventory rose by
7.8 MMbbls to 502.7 MMbbls for the week ending January 29, 2016. To learn more
about the nationwide crude oil inventory, read EIA Crude Oil Inventory Breaks 34Year Record Inventory High. For more on the gasoline inventory, read US Gasoline
Inventories Shake up Crude Oil and Gasoline Prices. For more on distillates, read US
Distillate Inventories Fall on Low Distillate Production.
The preliminary surveys from Reuters suggest that the US crude oil inventory could
rise by 3.9 MMbbls for the week ending February 5, 2016. The current US crude oil
inventory is 36% more than the five-year seasonal average. Gasoline and distillate
inventories are also 8% and 16% more than the five-year averages, respectively.

Impact
The catastrophic fall in oil prices impacted oil producers like Anadarko Petroleum
(APC), Hess (HES), Energy XXI (EXXI), and Halcon Resources (HK). However, the rising
US and global inventory and contango market benefit oil tankers like Nordic
American Tankers (NAT), Teekay Tankers (TNK), Frontline (FRO), DHT Holdings (DHT),

and Tsakos Energy Navigation (TNP). In the next part, well discuss how the rising
crude oil inventory impacts rising crude oil storage costs.
ETFs like the United States Oil Fund (USO), the ProShares Ultra Bloomberg Crude Oil
ETF (UCO), and the iPath S&P GSCI Crude Oil Total Return Index ETN (OIL) are
influenced by the rise and fall in oil prices.

Energy and Power Performance


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GraphUCOTNPAPCHESEXXIXLE (Energy Select Sector SPDR (ETF))May
'15Sep '15Jan '16May '16-100%-50%0% + 50% + 100%

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Part 3
Watch Out! Inventory Data and China Could Swing Crude Oil Prices (Part 3 of 8)

Crude Oil Storage Costs Rose 9 Times, US Crude Tests


New Limits
By Gordon Kristopher Feb 9, 2016 10:50 am EST

Crude oil storage contracts


The Louisiana Offshore Oil Port (LOOP) and Matrix launched the first innovative ETF
contract based on the crude oil storage capacity at the LOOP Clovelly Hub in the CME
Globex. The first trading started on March 30, 2015. The first listed and delivery
month was May 2015. The trading floor would be NYMEX. The electronic platform
would be CME Globex. This crude oil storage contract will help consumers store
crude oil for 112 months. Also, it provides transparency for crude oil storage costs
over the short term. The contracts provide access to storage at Gulf Coast facilities.
Each crude oil storage contract gives the buyer the right to store 1,000 barrels of
LOOP sour crude at the LOOP Clovelly Hub for any calendar month.

Enlarge Graph

Crude oil storage costs


US crude oil inventories are at an 80-year high at this time of the year. Crude oil
storage capacities have been increased due to rising crude oil inventories and longterm oversupply concerns. So, limited crude oil storage facilities caused crude oil
storage costs to rise to $0.90 per barrel on February 9, 2016compared to $0.10 per
barrel in August 2015. Crude oil storage costs rose nine times in six months. The
costs are even more than the long-term storage costs in the Gulf Coast.

Impact
The wide contango market supports oil tankers like Teekay Tankers (TNK), Frontline
(FRO), Euronav (EURN), DHT Holdings (DHT), and Tsakos Energy Navigation (TNP). In
the next part of this series, well discuss what drives crude oil storage costs.
Contango market traders margins also fall with the rise in storage costs. In the next
part, well provide the latest update on the US crude oil inventory.
ETFs and ETNs like the United States Oil Fund (USO), the iPath S&P GSCI Crude Oil
Total Return Index ETN (OIL), the VelocityShares 3X Long Crude Oil ETN (UWTI), and
the ProShares UltraShort Bloomberg Crude Oil ETF (SCO) are also impacted by
volatile crude oil prices.

Energy and Power Performance


1m3m6mYTD1y3y5yClick Ticker Above to Show/Hide on
GraphUSOTNKSCODHTTNPXLE (Energy Select Sector SPDR (ETF))May
'15Sep '15Jan '16May '16-100%0% + 100% + 200% + 300%
Part 4
Watch Out! Inventory Data and China Could Swing Crude Oil Prices (Part 4 of 8)

Gulf Coast Crude Oil Inventory Hit New Highs, Drove


Storage Costs
By Gordon Kristopher Feb 9, 2016 10:50 am EST

Gulf Coast crude oil inventory


The current Gulf Coast crude oil inventory is at 252.9 MMbbls (million barrels) for
the week ending January 29, 2016. Its the highest level since 1990. The Gulf Coasts
working storage capacity is 302. 3 MMbbls. The inventory doesnt account oil in
pipelines or field storage. Its also the largest among the US crude oil storage regions.
To learn more, read EIA Crude Oil Inventory Breaks 34-Year Record Inventory High. In
the third part of this series, well discuss the consensus of the rising US crude oil
inventory.

Enlarge Graph

Why are Gulf Coast inventories rising?


LOOP crude oil storage futures, or the crude oil storage cost, hit $0.90 per barrel on
February 9, 2016. Its covered in the third part of the series. These contracts are
based on the storage facilities in the Gulf Coast. The Gulf Coast receives oil from land
and sea. Crude oil imports averaged around 3.18 MMbpd (million barrels a day) in
the last ten weeks. Its the highest since July 2015. The record stockpile at Cushing,
Oklahoma, also drove crude oil to Texas and Louisiana.
The long-term crude oil storage costs are ~$0.65 per barrel in the Gulf Coast. The
costs are ~$0.35 per barrel in Cushing, Oklahoma, according to Macquarie Capital
sources. CME also increased the margin for the LOOP crude oil storage futures
contract to $440 from $385 on Thursday, February 4, 2016.
The rising storage cost limits the profitability of oil producers strategy of taking
advantage of the wider contango market. Market surveys suggest that flat US crude
oil production, rising crude oil imports, and the mild winter will continue to put
pressure on US crude oil storage facilities. As a result, it will benefit LOOP crude oil
storage contracts and oil tankers like Teekay Tankers (TNK), Frontline (FRO), DHT
Holdings (DHT), and Tsakos Energy Navigation (TNP). However, lower oil prices
benefit refiners like Western Refining (WNR), Alon USA Partners (ALDW), and
Northern Tier Energy (NTI).

The volatility in the oil market benefits ETFs and ETNs like the United States Oil Fund
(USO), the iPath S&P GSCI Crude Oil Total Return Index ETN (OIL), and the ProShares
UltraShort Bloomberg Crude Oil ETF (SCO).
In the next part of this series, well discuss the U.S. Commodity Futures Trading
Commissions report.

Energy and Power Performance


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GraphUSOALDWNTIWNRSCOXLE (Energy Select Sector SPDR (ETF))May
'15Sep '15Jan '16May '16-100%0% + 100% + 200% + 300%
Part 5
Watch Out! Inventory Data and China Could Swing Crude Oil Prices (Part 5 of 8)

US Crude Oil Futures Open Interest Hit New Highs


since 2006
By Gordon Kristopher Feb 9, 2016 10:50 am EST

US crude oil futures open interest


On February 5, 2016, the CFTC (U.S. Commodity Futures Trading Commission)
published its weekly Commitment of Traders report. It reported that US crude oil
futures open interest rose to 497,280 for the week ending February 2, 2016. Its the
highest open interest since 2006. Meanwhile, the net positions held by hedge funds
and speculators fell by 8,837 contracts to 196,873 contracts for the week ending
February 2, 2016.

Enlarge Graph

Commercial and non-commercial traders


The CFTC report highlighted that non-commercial crude oil futures long positions
rose by 22,110 contracts for the week ending February 2, 2016. In contrast, the short
positions held by non-commercial traders rose by 30,947 for the same period. The
total commercial bearish positions were at 205,786 contracts through the week
ending February 2, 2016. The bearish positions rose by 3,264 contracts for the
period. There were 73 hedge funds with huge bearish positions for the week ending
February 2, 2016. These positions rose by three compared to the previous week.
The CFTC classifies traders in two segmentscommercial and non-commercial
traders. Hedge funds and speculators are non-commercial traders. Oil producers are
commercial traders. Commercial traders use the futures and options markets for
hedging activity.
Record volatility in the oil market is driving record open interest. Rising short
positions suggest that hedge funds are still bearish about the crude oil market. In the
next part of this series, well discuss the crude oil markets latest catalyst. US
upstream players are impacted the most compared to downstream players due to
historically low oil prices. Oil producers like Halcon Resources (HK), Energy XXI (EXXI),
Occidental Petroleum (OXY), and Marathon Oil (MRO) are impacted negatively by
lower oil prices. However, lower oil prices benefit refiners like Western Refining
(WNR), Alon USA Partners (ALDW), and Northern Tier Energy (NTI).

ETFs and ETNs like the United States Oil Fund (USO), the iShares U.S. Oil Equipment
& Services ETF (IEZ), the ProShares UltraShort Bloomberg Crude Oil ETF (SCO), the
Vanguard Energy ETF (VDE), and the First Trust Energy AlphaDEX Fund (FXN) are also
impacted by volatile crude oil prices.
In the next part of this series, well discuss the US crude oil rig count.

Energy and Power Performance


1m3m6mYTD1y3y5yClick Ticker Above to Show/Hide on
GraphUSOEXXIHKWNRNTIXLE (Energy Select Sector SPDR (ETF))May '15Sep
'15Jan '16May '16-150%-100%-50%0% + 50% + 100%

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Part 6
Watch Out! Inventory Data and China Could Swing Crude Oil Prices (Part 6 of 8)

US Crude Oil Rig Count Fell by 30 Rigs Last Week


By Gordon Kristopher Feb 9, 2016 10:50 am EST

US crude oil rig count


On February 5, 2016, Baker Hughes (BHI) published its weekly crude oil rig count.
The data projected that the US crude oil rig count fell by 30 rigs to 467 rigs for the
week ending February 5, 2016. The US crude oil rig count fell for the seventh
consecutive week. The US crude oil rig count fell by 19 rigs in Texas for the week
ending February 5, 2016. US crude oil rigs also fell by eight in Oklahoma and by five
in Louisiana. Pennsylvania idled three rigs. New Mexico, Utah, and Wyoming also
idled two rigs, respectively, for the same period.

Enlarge Graph

US crude oil rig count hit a new low


The US crude oil rig count fell by 71 rigs in 2016. It tested a new low of 467 rigs on
February 5, 2016. In contrast, the US oil rig count peaked at 1,609 rigs in October
2014. The US drilling activity fell more than 60% in the past year due to lower crude
oil prices as a result of oversupply concerns.
The decline in the drilling activity impacts oil equipment companies like Baker
Hughes, Schlumberger (SLB), Superior Energy Services (SPN), and Halliburton (HAL).
15 years ago, if oil drillers hit ratio of 50% it was considered average. Now, the hit
ratio is as good as 95%. The higher hit ratio suggests the probability of extracting
more crude oil. Improving technology and productivity will lead to more US crude oil
production despite historically low crude oil rigs. The current turmoil in the oil
market suggests that oil rigs could fall more. Oil producers like Laredo Petroleum
(LPI), Whiting Petroleum (WLL), EOG Resources (EOG), and Pioneer Natural
Resources (PXD) are feeling the heat due to the depressed energy market. For more
on US energy companies financial woes, read US Oil and Gas Companies Debt
Exceeds $200 Billion. If the US crude oil production doesnt slow down, we could see
crude oil trade at low levels for the next two decades.

Supply and demand

The EIA (U.S. Energy Information Administration) estimates that US crude oil
production could fall by 600,000 bpd (barrels per day) in 2016. Wood Mackenzie
estimates that the global oil production fell by 100,000 bpd since the oil glut in June
2014. Morgan Stanley estimates that the oil glut market could balance after mid2017.
Refined products demand in the US fell by 3.9% in January 2016 compared to the
previous month. The speculation of a fall in the oil demand from the US and China
could impact oil prices. Read the next part of the series to learn more about Chinas
demand. To learn more about crude oil production, read Saudi Arabias Crude Oil
Production: Key for the Global Oil Market and OPEC Crude Oil Production Is Breaking
Records. To learn about Russias crude oil production, read Russias Production Will
Put More Pressure on the Crude Oil Market. In the next part of this series, well
discuss Chinas crude oil production.

ETFs
The roller coaster ride in the oil and gas market also impacts ETFs and ETNs like the
ProShares UltraShort Bloomberg Crude Oil ETF (SCO), the First Trust Energy
AlphaDEX Fund (FXN), and the Vanguard Energy ETF (VDE).

Energy and Power Performance


1m3m6mYTD1y3y5yClick Ticker Above to Show/Hide on
GraphSCOLPIWLLSPNHALXLE (Energy Select Sector SPDR (ETF))May '15Sep
'15Jan '16May '16-200%-100%0% + 100% + 200% + 300%
Part 7
Watch Out! Inventory Data and China Could Swing Crude Oil Prices (Part 7 of 8)

Chinas Crude Oil Production: A Game Changer in 2016?


By Gordon Kristopher Feb 9, 2016 10:50 am EST

Chinas crude oil production


The data compiled by Bloomberg state that Chinas crude oil production could fall by
3%5% in 2016. The fall in Chinas crude oil production would be substituted by the
rise in Chinas crude oil imports. China is the second-largest crude oil importer. Its

also the fifth-largest crude oil producer in the world. Chinas crude oil production hit
4.3 MMbpd (million barrels per day) in 2015. The Chinese crude oil production is
expected to fall in 2016 due to the higher total cost of producing crude oil.

Enlarge Graph

Chinas crude oil production could fall


The break-even costs for Chinas top oil producers like CNOOC (CEO) were at $41 per
barrel. Some of the other key Chinese oil producers are China Petroleum & Chemical
(SNP) and PetroChina (PTR). The historic fall in crude oil impacts Chinese oil and
global oil producers like BP (BP), Total (TOT), and Eni (E). The higher break-even costs
pushed Chinese and international oil producers to curb production and slash capital
expenditures. So, we could see Chinas crude production decline in the years to
come.
However, the depreciating Chinese dollar could impact Chinas crude oil imports. To
learn more, read How China Is Creating a Big Crack in the Global Crude Oil Market.
You can also read Chinas Crude Oil Imports: Teapot Refiners Will Be Key Catalysts.
The catastrophic fall in crude oil prices impacts US oil producers like Apache (APA),
Murphy Oil (MUR), and Hess (HES). The ups and downs in the oil and gas market also
impact ETFs like the Fidelity MSCI Energy Index ETF (FENY) and the ProShares
UltraShort Bloomberg Crude Oil ETF (SCO).

In the next part of this series, well look at forecasts for crude oil prices.

Energy and Power Performance


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GraphPTRSNPSCOMURAPAXLE (Energy Select Sector SPDR (ETF))May
'15Sep '15Jan '16May '16-100%0% + 100% + 200% + 300%
Part 8
Watch Out! Inventory Data and China Could Swing Crude Oil Prices (Part 8 of 8)

US Dollar Could Support Crude Oil Prices in the Short


Term
By Gordon Kristopher Feb 9, 2016 10:50 am EST

Crude oil price trend


US crude oil prices fell below the key psychological level of $30 per barrel. Oil prices
have fallen by almost 20% in 2016 due to long-term oversupply concerns. The rising
US crude oil inventory and the depreciating dollar could swing crude oil prices.

Enlarge Graph

Support and resistance levels


Lower oil prices and rising demand from China, as we covered in the previous part of
series, could support crude oil prices. Crude oil prices could see resistance at $37 per
barrel. Prices hit this mark in November 2015. Speculation of the depreciating dollar
in the short term, due to the Feds delay in the interest rate hike, could also support
crude oil prices
Rising production from the Organization of the Petroleum Exporting Countries to
Russia will continue to put pressure on crude oil prices. The next support for crude
oil prices is seen at $25 per barrel. Prices tested this level in 2003.

Crude oil price estimates


The data compiled by Bloomberg suggest that US crude oil could hit as high as $46
per barrel in 4Q16. Similarly, Brent crude oil prices could hit $48 per barrel. Morgan
Stanley estimates that Brent crude oil prices could average $31 per barrel in 1Q16
and $30 per barrel in 2Q16 and 3Q16, respectively. Goldman Sachs suggests that
crude oil prices could peak around $40 per barrel by the end of 2016 and bottom
around $20 per barrel. The World Bank estimates that crude oil prices will trade
around $37 per barrel in 2016.

Impact
The speculation of long-term oversupply and lower oil prices could impact oil
producers profitability like PetroChina (PTR), Petrobras (PBR), Apache (APA),
Murphy Oil (MUR), and ConocoPhillips (COP). ETFs like the ProShares Ultra
Bloomberg Crude Oil ETF (UCO) and the ProShares UltraShort Bloomberg Crude Oil
ETF (SCO) are also impacted by the volatile crude oil market.
Read Will Russia and OPEC Join Hands and Cut Crude Oil Production? for more on
the crude oil market.

Energy and Power Performance


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GraphUCOAPAMURPBRPTRXLE (Energy Select Sector SPDR (ETF))May
'15Sep '15Jan '16May '16-100%-50%0% + 50% + 100%

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