At Energy Income Trader, we rode that run up as the storm approached but, once it hit, there was some profit taking and crude quickly came off its highs. Traders know all too well that, historically speaking, rigs in the Gulf recover quickly from these storms, whereas land-based refineries do not. The rigs are built to withstand even intense storms and are "turned off", then simply turned back on once the storm has passed. The fate of refineries, however, is often out of their hands. They can be impacted by flooding and huge power cuts and can't just flick a switch to get back to normal.
That can result in a temporary, short-lived glut of crude as refinery pull through slows. They will get back online and will work at near full capacity for a while to catch up when they do, but the disruption will last long enough to push crude a bit lower, and gasoline prices higher. That is what we are seeing this morning.
I knew that would happen but still expected crude to stay strong through most of today, so waited it out. Obviously, that didn't pan out. However, I still have the position because the fact that it is making good money here allows for some flexibility. I can run it, looking for a challenge of $70, but still make money if it turns lower again.
And there is a good reason to believe that we may see that push upwards.
Later this week, the group known as OPEC+ will meet. When they do, there are a limited number of possible outcomes. The most likely is that they change nothing and continue to claw back the emergency output cuts instituted in response to the pandemic at the rate of 400,000 barrels per day each month. That was an agreement that took time and hard work to arrive at, involving resetting the baselines for a few countries and other concessions. They are unlikely to give it up lightly.
They could tweak the numbers a bit, but if they do, it is hard to see any outcome that would be bearish for oil. For starters, that is what Joe Biden has requested, and the two most powerful signatories to the agreement, Russia and Saudi Arabia, are not exactly his biggest fans. They both had a good relationship with his predecessor and were disappointed when Biden was elected. Your politics will inform why you think that is so, but I really don't care why nit is, just that it is, and that it makes it unlikely that OPEC+ will make him look good by giving him what he wants.
So, while I understand the reasons for CL falling on what looks on the surface like bullish news, I am happy to stay long crude futures, looking for another "buy the rumor" move up as the OPEC+ meeting approaches.
Cheers,
M
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