Economic concerns, but Power straight up…
Oil markets lost steam on Tuesday, giving back earlier gains from last couple of days, as a deteriorating economic outlook and a surge in U.S. production outweighed expected supply cuts by OPEC.
After last weeks statistics from EIA showing a build of 10.27 million barrels, the market had a small rebound, which in my opinion was strange.
But, looking at the news, talks and rumors, the producers has to cut the production, if they would like prices gain ground and maybe start using the fundamentals rather than watching their “twitter” account.
Last week Saudi Arabia talked about an production cut of 500.000 barrels, which was twittered down by President Trump the following Monday.
This week, the Opec and non-Opec coalition are talking about cut in production, as we are seeing prices continuing to fall and stocks to rise.
I think the production cut will come, but is that enough? The global economic backdrop has been worsening… however, in the coming months an expectation to see demand rebound as US refineries increase utilisation rates amid strong margins.
At time being, the only alternative will be to look for a buy, but there is no signs before a breakout of the trend channel. Still think there is a support around 65 USD and if trying a long position, set your trading strategies to 1:2, at least until Christmas.
Power, a weather driven market, with no correlation what so ever to the global economy, that what’s makes this market unique.
Yesterday, the market dropped more than 5% all over, today it is gaining ground amid stronger carbon prices and an extended cold, dry weather outlook.
Different weather models indicated precipitation levels of 1.6-2.5 TWh over the next 10 days, as much as 7 TWh below the seasonal norm.
If the weather outlook turns out that dry and cold (5C below next week) and holds the period for the next 10 days and forward, than the upside could be very large, as we will enter Q1 with a hydrological deficit closer to 15 TWh.
On the other side, a change in the weather pattern to a more normal weather, I believe the downside could be equal, as we are today trading January at 54.30 EUR/MWh vs a spot price closer to 48 EUR/MWh. Given a turnaround in the weather and slow industrial start in January, the downside is equal to the spread between January and the spot price = approx.. 6-7 EUR.
In regards to Gas and Coal, we are seeing the same pattern as in Power, drifted by higher demand on colder weather outlook.
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