Options trading was active on yesterday’s sharp down move plus August WTI options expire today… 113,739 calls and 165,215 puts traded… Most of these were in August with 8 of the top 10 busiest calls and 7 of 10 puts were in August… Open interest climbed more in calls, 20,661 than in puts, 9,302… Implied vol moved up to 27.9, which is the highest since 9/2017 and actually shows up on our long term vol chart:+ read more
And they are:
”As oil production hit 1,244,629 bbl/day in May, natural gas production hit almost 2.32 billion cubic feet per day, with producing wells at 14,755 for the month — all new state records.”
”There’s still a shortage of hydraulic fracturing crews, Helms said. Frack jobs take about 10 to 14 days to complete — more efficient than 2014, but needing more manpower.”
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The link to OPEC’s monthly report is here….
A large increase in Saudi production was offset some by Libya… Venezuela continues to decline…
Market consensus is that Russia could increase oil production by around 300,000 b/d… Here is Russia’s total liquids production with some history:
The supply/demand balance shows the call on OPEC crude (Difference (a-b)):+ read more
Here is a Brent/WTI crude spread chart from Reuters:
“However, it is the big, sudden moves that tend to claim trade casualties, sometimes earning the moniker “widowmaker”.
Since the June spike, the spread has narrowed sharply again. The shrinking discount was helped by a rise in the price of WTI due to an unexpected outage at the Syncrude oil sands site in Canada, which can produce up to 360,000 bpd.”+ read more
Yesterday, a large number of Sep 55 puts traded, increasing open interest by almost the same amount…+ read more
After an unpleasant experience with hedging jet fuel costs (this is rom a June 2nd, 2016 Forbes article, here: “Delta Airlines’ new CEO Ed Bastian admits glibly “We’ve lost over the last eight years about $4 billion cumulatively on oil hedges” in a recent Bloomberg interview. When asked if he would consider hedging, or locking in oil prices in the future, he states “I don’t get paid to make those kinds of bets.””),
This time, Delta is increasing fares and trimming flights to help offset increasing fuel prices… Here is Alison Sider, Wall Street Journal:
”Delta and other airlines have retreated from using derivatives to hedge against future fuel-price swings. The company said in June that it didn’t plan to start hedging again. Delta owns a jet fuel refinery that it says helps insulate its operations from rising prices.
“Fuel prices where they are today at roughly $75 Brent does not scare us,” Mr. Bastian said on Thursday. Jet fuel prices have climbed along with the global oil benchmark, which is up by more than half from a year ago.”+ read more
Here are some takeaways from the Internstional Energy Agency’s Oil Market Report, released today (my bold):
“The clearly expressed determination of the United States to reduce Iran’s exports by as much as possible suggests that shipments could be reduced by significantly more than the 1.2 mb/d seen in the previous round of sanctions. In June, Iran’s crude exports fell back by about 230 kb/d, albeit from a relatively high level in May, as European purchases dropped by nearly 50%. Most of Iran’s oil goes to Asia, however, with China and India currently taking over 600 kb/d each. When you also consider that both China and India are exposed to Venezuela, importing respectively 250 kb/d and 325 kb/d, it is clear that the world’s second and third biggest oil consumers could face major challenges in sourcing alternative compatible barrels.”
”The re-emergence of Libya as a risk factor in global supply follows a series of attacks on key infrastructure that saw production plummet to around 500 kb/d in July from close to the 1 mb/d level seen for about a year. At the time of writing, the situation seemed to be improving, but we cannot know if stability will return. The fact that so much production is vulnerable is clearly a cause for concern. Incidentally, China receives nearly 140 kb/d of oil from Libya. Two other supply disruptions are likely to be short-lived. In Alberta, 360 kb/d of output from Syncrude’s heavy crude upgrading facility was shut-in from 20 June and in the North Sea oil production fell sharply in May by nearly 360 kb/d and output likely remained constrained due to summer maintenance and strike action in Norway. In addition, Brazilian production growth so far in 2018 has been lower than expected. At the same time, refiners’ thirst for crude oil will remain high during the summer period before seasonal maintenance kicks in. ”
”Some of these supply issues are likely to be resolved, but the large number of disruptions reminds us of the pressure on global oil supply. This will become an even bigger issue as rising production from Middle East Gulf countries and Russia, welcome though it is, comes at the expense of the world’s spare capacity cushion, which might be stretched to the limit. This vulnerability currently underpins oil prices and seems likely to continue doing so. We see no sign of higher production from elsewhere that might ease fears of market tightness. Indeed, in this Report, our overall growth outlook for non-OPEC production in 2018 has been reduced slightly to 1.97 mb/d, although in turn our 2019 growth estimate shows a modest increase to 1.84 mb/d.”
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Yesterday’s option volume was heavy with about 250,000 trading… As one might expect with a sharp price move, the heavy option volume occurred in August with $68 through $72 puts and $73 through $75 calls most active… However, the CME’s excellent “Most Active Strikes” tool shows the Dec 2020 $100 call moving into 14th place among calls for open interest! In earlier podcasts we talked about how back month call buying was active and that the top open interest call strikes were in Dec 2009 perhaps playing the “strong demand/underinvestment in oil” idea… Add to this the talk of OPEC excess capacity declining and we could see more back month calls trading… Of course, lots of call buying means lots of call selling, too!
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The link is here…
Supply/demand looks balanced until next year: