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The Energy Report: Tanker Trap

By Phil FlynnCommoditiesJul 22, 2019 08:57AM ET
The Energy Report: Tanker Trap
By Phil Flynn   |  Jul 22, 2019 08:57AM ET
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Iran’s seizing of a U.K. oil tanker as well as a report by the U.S. military accusing a Venezuelan fighter aircraft of “aggressively” shadowing a U.S. Navy EP-3 Aries II plane over international airspace, created a bear trap for oil traders. Iran’s tanker tit for tat, that started with the U.K. seizing an Iranian tanker, now is raising risk factors for the global oil market as tankers from the U.K. are being told to avoid the Strait of Hormuz. Longer routes mean higher prices and slower delivery times. The rising geopolitical risk is a major factor. The U.K. and the U.S. both want to avoid a war with Iran but the risks keep going higher as Iran continues to act more desperate.

Speaking of desperate, let’s talk about Venezuela. For some inexplicable reason, a Venezuelan pilot flying a Russian made jet buzzed a U.S. jet. Venezuela’s military claimed the U.S. jet was in their airspace and was violating “security of air operations and international treaties.” This comes as the U.S. drilling Activity Reports is also showing a big drop in Permian Basin oil production, raising concerns about the U.S. oil production outlook.

Forbes points out a major slowdown U.S. shale oil growth. In its most recent Drilling Productivity Report, each of the six regions tracked by the Energy Information Administration (EIA) -- Anadarko, Appalachia, Bakken, Eagle Ford, Haynesville, Niobrara, and Permian -- still showed a year-over-year increase in oil production. However, if we look at the year-over-year gains over the past few years, there has been a noticeable slowdown in oil production growth. This slowdown is particularly pronounced in the Permian Basin. The most recent estimates in the Permian are that year-over-year production is growing today at just over half the level of a year ago. Production growth there has been in rapid decline since peaking a year ago.

That comes as the Baker Hughes rig counts continue to fall. They reported that U.S. oil rig count fell -5 to 779 last week and has fallen by an average of -2.5 per week over the last four weeks. The count is now down -8.7% compared with last year.

The Increasing geopolitical risk and shaky output from the Permian should help solidify a bottom in oil. Technically, oil may try to retest recent lows but if they do, that should hold and that will signal a major bottom for oil.

Oil inventories should show big draws this week but with the recovery from Tropical Storm Barry, the numbers may provide some crazy surprises. Still the trend of inventories should be substantially lower. Oil Product demand should continue to be solid. Both ultra-low diesel an

Last week, we saw quite a few strong breakouts in tech momentum stocks, offering great swing trading opportunities – most faded on Friday. The major equity indexes are still in an uptrend, but with the SPY (NYSE:SPY) closing below its 10-day EMA, small-caps heavily underperforming, and plenty of momentum stocks having distribution days, it makes sense to be a bit cautious with new long positions.

The latest earnings season has just begun. It is too early to tell but the market reactions so far haven’t been too flattering:

  • The recent cybersecurity IPO, CRWD cleared new all-time highs
  • NFLX was crushed after missing its own estimates for subscribers’ growth (the thinking here is if they are losing growth now when Disney’s service is not even out, then maybe the market is too saturated). It closed below 320, so a test of 300 is very likely.
  • Financials remained mostly unchanged despite beating estimates.

We pay special attention to market reactions to earnings report because it is the ultimate indicator of current sentiment and sentiment is what drives prices in a short-term perspective (a few weeks to a few months). The real action will start in the next couple of weeks with the big tech companies starting to report.

should be bought on breaks

The oppressive heatwave is giving natural gas a slight bid this morning. Still, record production of Nat gas is keeping us in a tight range

The Energy Report: Tanker Trap

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The Energy Report: Tanker Trap

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