Getting Blown Away.
The oil market is getting blown in different directions. On one hand, Friday's dismal jobs report would seem to suggest that demand for oil will be bad in the US. That drove oil lower on Friday. Yet on the other hand the weak jobs number means the Fed should keep the stimulus machine stimulating. In fact if we see more weak data it may even raise the possibility of more quantitative easing in the future. That would be dollar bearish and commodity bullish. That seems to be one of the reasons that oil is rallying this morning. Another reason is weather.
Hurricane Ida is a killer storm and is shutting down production in the Gulf of Mexico. Matt Rogers at Commodity Weather Group, LLC says that hurricane Ida is currently a category one storm (90 mph sustained) but is weakening rapidly as it travels northward through the central Gulf. The Commodity Weather Group says that, While the Hurricane Center is being cautious by forecasting hurricane strength at landfall, the pronounced overnight weakening trend suggests it should enter the far eastern production region as a tropical storm at best. A combination of much cooler water temperatures and wind shear should continue to weaken the feature.
At this point it seem unlikely that there will be any major damage to the facilities in the Gulf yet the market has to be cautious. It is hard to determine how much of the rally in oil is Ida related and how much is it is dollar related.
Yet at the same time it seems that OPEC is pumping more oil. Mark Shenk With Bloomberg News reports that, OPEC is increasing output at the fastest pace in two years, adding to near-record inventories and threatening speculators betting on $100 crude with losses. Shenk says that the number of options contracts to buy oil at $100 by March almost quadrupled in October and increased another 5.9 percent so far this month. As traders piled in, OPEC boosted production 4 percent, or 1.1 million barrels a day, since March amid the worst global recession since World War II. Saudi Arabia's King Abdullah has targeted $75 oil as a fair price for consumers and producers and has the capacity to increase pumping by about 50 percent, or 4 million barrels a day, enough for all of Brazil. The prospect of more supply comes with inventories in industrial countries already the highest since 1998, when oil collapsed to $10.
Bloomberg is also reporting that, China, the world's second-largest energy user, will raise gasoline and diesel prices by 480 yuan a ton from tomorrow to reflect higher crude oil costs.
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We're long December crude from apprx 7727 - raise stop to 7745!
Buy December RBOB at 19000 - stop 18800.
Buy December heating oil at 19700 - stop 19500.
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Senior Market Analyst