Winter Is Coming For #Oil
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Before we start pulling out the stoic Game of Thrones memes, winter is coming. It's October, and seasonality is going to impact the price of crude oil.
Historically, crude prices under-perform from September to January: -.04% (Sept.), -1% (Oct.), -1.2% (Nov), -.5% (Dec.) and -.7% (Jan.). If the 20-year historical seasonality holds true, oil bulls may be in trouble.00 v 62 for specs.) suggesting that there is a good deal of hedging going on.
There is currently a 19.8% premium versus the 20-year seasonality, and there's over a 24 percent gap from where crude currently stands and the 5- and 10-year seasonality, respectively. Looking at the futures market, large speculators positioning (on a 5-year percentile) has been sloping lower as price diverges. Producers, though, are sitting at 98 (out of 100 v 62 for specs.), suggesting there is a good deal of hedging going on.
U.S. oil inventories were up 1.6 percent week-over-week and marked the fourth consecutive surplus - up 6.49 m/bl v. exp. 1.6 m/bl. OPEC-member production also increased 278 k/bl month-over-month. Russian production is also at a post-Soviet high.
China, which has had a voracious appetite for oil imports, is slowing for a while now. The manufacturing PMI sits a 50 - a 16-month low (below 50 is contraction). New orders are slipping, and the non-government business survey by CKGSB hit a 7-year (lifespan of survey) low.
We can also point to where the U.S. is in the cycle by the 10s/2s curve. Energy is a solid performer as the curve flattens and growth wanes but inflation is rising.
However, now growth is expected to slow along with inflation which is a bad mix. I have been pointing out since early summer, my DRIP-model (disinflation/reflation/inflation proxy in pink) has been pointing to lower-lows in U.S. inflation. In turn, consumer prices fell from a five-year high of 2.9% to 2.3%
Given how market conditions are building, and the recent action in crude, the U.S. could be facing inflation under 2% and that has serious implications when concerning Fed policy.
Currently, WTI has a intermediate TACVOL score of -.68 (slightly bearish). I'd be inclined to short bounces.
Historically, crude prices under-perform from September to January: -.04% (Sept.), -1% (Oct.), -1.2% (Nov), -.5% (Dec.) and -.7% (Jan.). If the 20-year historical seasonality holds true, oil bulls may be in trouble.00 v 62 for specs.) suggesting that there is a good deal of hedging going on.
There is currently a 19.8% premium versus the 20-year seasonality, and there's over a 24 percent gap from where crude currently stands and the 5- and 10-year seasonality, respectively. Looking at the futures market, large speculators positioning (on a 5-year percentile) has been sloping lower as price diverges. Producers, though, are sitting at 98 (out of 100 v 62 for specs.), suggesting there is a good deal of hedging going on.
U.S. oil inventories were up 1.6 percent week-over-week and marked the fourth consecutive surplus - up 6.49 m/bl v. exp. 1.6 m/bl. OPEC-member production also increased 278 k/bl month-over-month. Russian production is also at a post-Soviet high.
China, which has had a voracious appetite for oil imports, is slowing for a while now. The manufacturing PMI sits a 50 - a 16-month low (below 50 is contraction). New orders are slipping, and the non-government business survey by CKGSB hit a 7-year (lifespan of survey) low.
We can also point to where the U.S. is in the cycle by the 10s/2s curve. Energy is a solid performer as the curve flattens and growth wanes but inflation is rising.
However, now growth is expected to slow along with inflation which is a bad mix. I have been pointing out since early summer, my DRIP-model (disinflation/reflation/inflation proxy in pink) has been pointing to lower-lows in U.S. inflation. In turn, consumer prices fell from a five-year high of 2.9% to 2.3%
Given how market conditions are building, and the recent action in crude, the U.S. could be facing inflation under 2% and that has serious implications when concerning Fed policy.
Currently, WTI has a intermediate TACVOL score of -.68 (slightly bearish). I'd be inclined to short bounces.
Note
Well, that worked well. Subscribers should continue to use the TACVOL ranges to risk manage. Near-term extended to the downside, no major inflection expected.
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