American Oil and Gas Reporter - January 2015 - 33

MARKETMATTERS
More Bearish
Than Bullish Signs
For Crude Oil
Fundamentals such as production, reserves, and political events
in Iraq are all bearish for crude oil prices. Against this, fewer well
permits and apparently tight distillate fuel oil supplies are bullish, but not enough to reverse the weakness in price.
Oil markets can be assessed technically as well. Technical
traders believe fundamental information is considered in the price,
and patterns of price action offer guides to where the price might
go. As of Dec. 11, oil prices were continuing to soften. WTI was
hovering just above $60 a barrel. There had been no hint of a countervailing rally since the week ending Oct. 3. The overwhelming
market attitude was bearish.
Price charts pointed still lower. WTI most recently traded at
$60.82, with minor support at $58.35. WTI had lost about 44 percent of its value since mid-June, when it topped at $107.68. Traders
who had been looking for a countertrend rally were frustrated by
unremitting weakness. Elliott Wave analysis suggested a rally to
$75 was possible, but also projected $50 as a downside possibility.
Gasoline has been the weakest member of the energy futures.
Prices peaked on June 23 at $3.152. As of Dec. 11, they had lost
48 percent of their value, which was surprising in light of the continued strength of demand. Gasoline futures were supported at
$1.620.
Distillate fuel oil reached $2.025 and showed support at $1.980.
Further weakness could bring $1.720 into the picture. Distillate
fuel oil peaked in June at $3.071. It had lost nearly 34 percent of
its value by Dec. 11.
Futures prices for natural gas attempted to exceed resistance
around $4.50 three times in November. A combination of substantial injections into underground storage and then disappointing
withdrawals brought prices to their mid-December lows. As of Dec.
11, gas prices were about to challenge support at $3.54. A break
of that level would open the way to $3.16.
WTI open interest is increasing as prices fall. This is a change.
Heretofore, open interest in WTI had been declining as futures
buyers exited their positions. More recently, open interest has been
rising, a sign that traders are jumping onboard the bear bus.
Market fundamentals are bearish as well. OPEC exceeded its
official production target for a sixth straight month, despite a loss
of output in November, when the organization pumped 30.56 million barrels a day.
Iraq is moving to calm regional tensions. The autonomous region of Kurdistan will produce 550,000 barrels a day, including
300,000 bbl/d from Kirkuk. The proceeds from its sale will be divided between the national government and Kurdistan. Kirkuk,
which is part of Kurdistan, has been retaken from the Islamic State
of Iraq and Syria. Selling oil regularly and routinely in the region
will tend toward political normalcy. The new supply could put further bearish pressure on prices, especially in light of estimates that
global oversupply is 1.8 MMbbl/d.
The Energy Information Administration has released its estiTransactions in securities futures, commodity and index futures, and options carry a degree of risk. Past
performance may not be indicative of future results. This column is for informational purposes only. It
does not represent an investment offer, solicitation or recommendation.

" Fundamentals such as production,
reserves, and political events in Iraq are
all bearish for crude oil prices.

mate of U.S. crude oil and lease condensate for 2013. These increased for the fifth consecutive year, and stood at 36.5 billion
barrels, a 9 percent year-over-year increase. The country surpassed
36 billion barrels of reserves for the first time since 1975.
North Dakota holds 5.7 billion barrels of reserves. It had the
largest state increase: 1.9 billion barrels and a 51 percent gain.
Texas continues to hold the largest volume of reserves. It enjoyed
an 8 percent increase to 12.0 billion barrels in 2013.
There are a few potentially bullish factors developing for price.
The EIA reduced its 2015 U.S. production forecast in December
to 9.4 MMbbl/d. This is down 100,000 bbl/d from November.
New well permits fell almost 40 percent in November, according to Drilling Info Inc. Permits provide a picture of what
drilling rigs will be doing over the next 60-90 days. Permits fell
from 7,227 in October to 4,520 in November. Steep declines were
shown across the Permian Basin and Eagle Ford Shale in Texas,
and the Bakken Shale in North Dakota.
There have been press reports that Saudi Arabia might consider reducing production if other countries from outside the Organization of Petroleum Exporting Countries followed suit.
Mid-Continent distillate fuel oil stocks were bullish in December
as well. According to the EIA, distillate inventories in the Midwest were 21.9 million barrels as of Nov. 21. This was the lowest level since EIA began publishing weekly estimates in 1990.
Regional inventories frequently draw down quite steeply in autumn,
but this year's decrease was particularly pronounced because of
a large harvest, planned refinery maintenance, and unplanned disruptions to refinery operations. With the harvest complete and refinery utilization rates returning to higher levels, inventories are
increasing. As of Nov. 28, Midwest distillate inventories were 23.7
million barrels.
Notwithstanding these modestly bullish features, the bear market continues.
Ì

ALAN H. LEVINE is chief ex-

ecutive officer and chairman of
Powerhouse Inc. An internationally recognized expert in energy pricing and business practices, he has more than four
decades of experience as a petroleum specialist. He can be
reached at alan@powerhouseTL.com, or 202-333-5380.
JANUARY 2015 33

American Oil and Gas Reporter - January 2015

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