Crude oil prices are struggling as global markets get fearful about the future causing safe haven buying in Treasuries and the U.S. dollar. The massive comeback in crude oil is put on hold as traders fear everything from a Brexit vote to the Fed as well as dire predictions about the economy from none other than George Soros and “Bond King” Bill Gross.
Soros may be a diabolical genius. He spent huge money to put left leaning and socialist governments in place and then made huge bets against their economies as the leftist socialist policies inevitably fail. Then Soros made billions as he profits from the ruination. Genius! Soros kind of reminds me of the pale-faced and cloaked Emperor of the Galactic Empire as he bets big on and selling stocks.
Of course the gold bet, while pulling back on the weak dollar, was strong yesterday. Safe haven buying ahead of the Brexit vote and fear was a major factor. Still, as the Wall Street Journalpoints out, “Front-month Comex gold futures have been among the best-performing major asset classes in financial markets this year, up about 20% as of Thursday. But those gains have been dwarfed by the surge in many gold-related securities, the latest sign of the topsy-turvy trading across markets in 2016 that for now has transformed some of the least-beloved investments on Wall Street into top performers.”
Yet, it isn’t just Lord Darth Soros that is raising fears of doom and gloom, it is also Bill Gross. Gross, manager of the $1.4 billion Janus Global Unconstrained Bond Fund, said bonds were the “short of a lifetime” is now doubling down by saying that, $10 trillion of negative rate bonds is a supernova that will explode one day.
This could happen in a galaxy that is not that far, far away.
If these dire predictions of a global economic collapse do not come to fruition, then the oil supply demand story looks a lot tighter. Not only will these fears slow down global markets but fear may also slow more energy investment. So assuming that global stock markets can avoid a total meltdown, then today’s Baker Hughes rig count number will be a major factor for oil’s direction. (Ed Note: Rig count posted 40 minutes ago – US oil rig count rises for 2nd straight week, up 3 rigs to 328)
Last week Baker Hughes said that the U.S. crude oil rig count rose by nine to 325 rigs. That was the first time that the oil rig count rose in 11 weeks. Of course, while the jump was up 2.8% week-over-week, it is still down 49.4% from a year ago.
Yet, it was the natural gas rigs that should raise real concerns. Last week Baker Hughes’s reported that the U.S. natural gas rig count fell by five rigs to 82 rigs down 63.1 from a year ago. This drop in rig counts may be reflecting what could be a substantial drop in U.S. production as evidenced by yesterday’s shocking natural gas weekly supply report. The EIA reported that natural gas in storage rose 65 billion cubic feet for the week ended June 3. That was below the average rise of 80 billion cubic feet expected by analysts polled by S&P Global Platts. This fall is disturbing because it suggests that natural gas production is falling at a time when demand is expected to shatter records.
Andrew Weissman of EBW AnalyticsGroup is predicting that in four weeks from now, the year-over-year natural gas surplus will likely have fallen another 100 Bcf, demand will probably have increased by 4.5 Bcf/d and production could have easily posted a further 0.5-1.0 Bcf/d decline. He is warning that this is a “bullish concoction — combined with enduring high levels of coal displacement — that could result in injections falling to 20-30 Bcf or lower, exerting significant further upward pressure on NYMEX natural gas futures. For the remainder of the 2016 injection season, the year-over-year core natural gas supply/demand balance — even after adjusting for coal displacements – projected to tighten by 5.6 Bcf/d. He said that low natural gas prices have taken the legs out from under coal markets, with 2016 likely to post the largest annual production decline on record.”
In Illinois, a state that heavily relies on natural gas, will have to rely on it even further. Exelon Corporation — the nation’s largest nuclear power supplier — announced it would have to close two of the state’s best-performing plants. It has said that the Clinton Power Station will close next June and the Quad Cities Generating Station will close a year later. Despite their high scores, they have apparently lost $800 million over the past seven years according to Clean Technology. It is very possible that other plants will follow and that could raise demand even further in the coming years.
Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.
About the Author
Phil Flynn is the Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world’s leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report.
Related: Martin Armstong’s latest on oil: Oil Bursts Through Resistance – Next Stop $69-$70
