The oil market may be in for a rough ride, especially for those who are long oil. from The Oil and Energy Insider at wolfstreet.com:
The Numbers Report, part of the weekly premium publication, Oil & Energy Insider, compiled a series of data points that make for a worrying outlook for the oil markets. Here are some of them:
Short positions on the rise
• For the week ending on October 11, the number of short positions on WTI rose to more than 540,000 contracts, the highest since 2007.
• Producers take short positions to sell future production, locking in prices at some point in the future in order to mitigate risk. As the EIA notes, banks can require producers take such positions as a prerequisite for securing a loan.
• Aside from mere speculation, a rising number of short positions can be an indicator that producers are confident that they can make money at the current futures prices.
•But they also are a bearish signal for oil prices, lending weight to the notion that prices will not rally very much in the near-term.
Renewables overtake fossil fuels
• For the first time ever, renewable energy added more electricity capacity across the globe than fossil fuels did. The IEA estimates that in 2015, 153 gigawatts of renewable capacity was installed, about 55 percent of the global total.
• About 500,000 solar panels were installed every single day in 2015, on average.
• The IEA expects renewables to make up 42 percent of the market by 2021.
• Much of the growth will take place in four countries: the U.S., China, India and Mexico. The EU has a lot of renewable energy, but its growth rate is a bit lower than the others.
• “We are witnessing a transformation of global power markets led by renewables and, as is the case with other fields, the center of gravity for renewable growth is moving to emerging markets,” IEA Executive Director Fatih Birol said.
• The massive stockpile of refined products sitting in storage around the world continues to weigh on refining margins.
• Margins were down 42 percent in the third quarter compared to a year earlier, averaging just $11.60 per barrel. Aside from the first quarter of this year, refining margins in the third quarter were near their lowest levels in years.
• That is a stark difference from 2015, which was an excellent year for refiners. The falling price for crude combined with strong demand saw margins spike to $20 per barrel. But as refiners ramped up output to take advantage of that opportunity, they churned out record product. And as demand softened, inventories built up.
• Low refining margins will take away one of the few sources of strong earnings for the oil majors, which are set to report third quarter numbers in the next few days and weeks.
To continue reading: Worrying Signs in the Oil Markets
