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Friday, February 20, 2015

Daily update 2/20 Oil inventory and production

News of a verbal agreement with Greece sent stocks higher.  Lets have a look at SPX.

SPX tested support for the 4th day in a row and bounced weakly at first.  However, news on Greece came out mid day and sent the market higher.  The Dow closed at a new record high.  I have noticed they like to do that on a Friday.  Maybe to give retail investors something to get excited about over the weekend?   Volume increased (but rather light for an expiration day) and breadth was +65%.  New highs were slightly better at 174, but still weak for a thrust bar to all time highs.  The daily chart looks like we are above resistance, but here is a look at the weekly chart.

The weekly chart I show on the market status page has some trend line resistance up in this area.  I drew those lines close to two years ago I think.  It has been so long I can't remember.  I don't know if they will come into play or not.  Just something to keep in mind as the price action unfolds.  Lets see what the futures chart holds.

The futures closed below the 18 SMA on the 10 AM bar then bounced back to test the MA late morning.  They were struggling there and started to turn back down when the market spiked up on the Greece news.  It was up and away the rest of the day.  What happens now?  News like this is often retraced.  After all it is not really fundamentally good.  Besides everybody was already expecting some kind of deal.  That expectation is what sparked this entire rally in the first place.  A complete retrace of this news move would put the market in a vulnerable position.  What makes this situation more troublesome is that there seems to be only a verbal agreement.  Greece is supposed to come back on Monday with some items that will need to be agreed to by the rest of Europe.  I guess nothing could go wrong there, LOL.  There was speculation on a 6 month extension that turned into 4 months.  With the rhetoric that has been going on between Greece and Germany it seems like this could all fall apart pretty easily.  I don't really know.  What I do know is that in 2010 and 2012 they made an agreement to kick the can down the road a couple of years.  This is an agreement to come to an agreement in a few months.  Doesn't that kind of indicate the situation is much trickier this time?

I have  no idea what happens next week.  It looks like SPX may be approaching some resistance.  The news move may be retraced or not.  The news itself may be reversed if the deal falls apart.  SPX dropping back below 2100 would likely bring out some sellers.  Above that and the bulls stay in charge.

Many people are out saying the low in oil is in.  It almost sounds like many people are desperate for that low.  This is a weekly chart that includes commitment of traders data (COT).

This chart shows large traders are long somewhere around 300k contracts while commercial hedgers are short about the same amount.  That explains the desperation quite well.  It is coming from trapped long side traders.  Most people say the commercials are the smart money.  Notice back last summer they had the most net short position in 5 years of data.  Not bad timing there.  The large traders on the other hand got royally screwed by the biggest long position on the chart.   Kind of explains the panic doesn't it?  Meanwhile the supply keeps growing.  Here is a look at this weeks data courtesy of Bespoke.

Inventory is rocketing up lately.  That kind of makes me wonder about the economy.  That seems more then just the production, but time will tell on that.  Here is what Bespoke had to say.

Two things stand out in these charts.  First, as crude oil inventories continue to build, once again this week we have had to adjust our y-axis higher.  As a result, the second thing that stands out on the chart is how high current levels are to their historical average.  As of the latest report, inventories are currently 100 million barrels (30%) above their historical long term average and have never been higher than they are now.

The trouble is that people are still pumping like crazy.  Here is what the Devon CEO said this week.

With that in mind, we’re laser focused on execution which is allowing us to decrease E&P capital spending by roughly 20% in 2015 without any reduction in our previous total production growth guidance or our previous guidance of 20% to 25% oil production growth.

I actually had to read that twice.  They are cutting capex by 20% while increasing production 20-25% this year.  What they are losing on the price decline they want to make up in volume I guess.  That seems to be what everybody is trying to do.  I remember back a few years ago when natural gas started crashing as fracking really started to increase supply.  It got way extended on the downside and everybody was bearish on it.  I kept think it had to be bottoming.  No dice.  It kept on crashing for years.  The reason was that people just kept on pumping.  They pumped as much as they could to make up for the price decline.  Of course that kept the price declining.  I am very sure we are not at the bottom yet.  I am also sure the market cares what happens to oil.  The last leg down was taking SPX with it.  The current rally also seemed to be helped by the oil bounce.  If it tanks again it could take SPX down also.

The market and sector status pages have been updated.  Have a great weekend all.


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