CRUDE OIL WEEK IN REVIEW AUGUST 14-18
The price of West Texas Intermediate Crude Fell more than 2.5% on Monday, after the EIA released numbers in its Drilling Productivity Report suggesting an increase to 6.149 million barrels of oil per day for the 7 regions included in the report. This represents an increase of 117,000 barrels of oil per day from August numbers. This reaffirms the risk that shale producers will continue to produce oil in sub $50 market conditions. However, as producers hedges expire and the futures curve flattens, producers are expected to run into much larger problems in 2018 as hedging above $50 won't be possible if market conditions persist.
Futures curve = https://www.barchart.com/futures/quotes/CL*0/all-futures
Crude oil tumbled further Wednesday, reaching lows of $46.67 per barrel at one point after the weekly EIA Petroleum Status Report reaffirmed concerns that shale drilling has not subsided. Domestic production in the US increased from 9.423 million barrels of oil per day to 9.502 million barrels per day. Even as commercial crude inventories fell 8.9 million barrels to 1.1454 billion barrels of oil, the market showed significant concern over the production outlook of US shale.
Oil prices gained over 3% on Friday, nearly completely covering for losses taken earlier in the week. September contracts for West Texas Intermediate Crude settled at $48.51, down 0.63% for the week. Traders took Friday Baker Hughes rig count very positively, as the total number of US rigs pumping oil declined by 5 ending a long string of consecutive increases. North America saw a total decline of 9 rigs. This data shows a possible shift in US shale producers’ desire to continue pumping oil as the commodity has had significant troubles cracking $50 a barrel in recent months. Shale numbers continue to have a large impact on the outlook for oil prices as their ability to ramp up production rapidly is much different from that of OPEC producers.
Crude oil finished the week down 0.675% settling at $48.51 per barrel.
Friday was also a critical date on the Canadian economics calendar as July inflation was released by the Bank of Canada. Prices saw a 1.2% increase year on year, matching expectations for July inflation. This number is important as it hints towards a bottoming out for year on year inflation data following the Bank of Canada’s decision to hike rates for the first time since 2010. This is a strong sign for the Canadian economy, as significant concerns had been made regarding Governor Poloz’s decision to hike rates so early out of an Alberta recession. However, there is still a concern over the economy’s ability to reach the 2% inflation target set out by the bank of Canada.
Bitcoin (BTC) had an eventful week with prices peaking at 4377.83 USD (5499.93 CDN) on Wednesday, August 16. The cryptocurrency has followed an upward trend as of late, with prices about five times higher than those at the end of 2016.
Since its creation in 2009, the decentralized digital currency has grown exponentially in popularity and its recent bounds in price have attracted worldwide attention. However, these jumps in price have also raised suspicion among some analysts. Many believe that these jumps are indicative of a bubble, which is a cause for concern for a very wide set of investors. On August 14th, CNBC reported that Goldman Sachs analyst Sheba Jafari estimates that bitcoin could increase a further $500 (US) from its $4300 (US) close that day, followed by a decrease to about half its value in the future.
Above: Bitcoin (BTC) reached record highs this week. (Google Finance)
Bitcoin trading volume remains high, however some newer forms of cryptocurrency such as Ethereum have experienced huge increases in price and trading volume as of late that reflect the high levels of demand for digital currency.
Bitcoin was created by an anonymous individual or group that goes by the name of Satoshi Nakamoto. It is used for a multitude of purposes including online purchases, investment, currency exchange and more. It uses a peer-to-peer system to complete transactions, and there is no central body governing its use. Bitcoin is rewarded to miners and “maintained” using specific software and hardware, as it takes a high level of computational power to solve the complex “puzzles” that are generated by bitcoin’s code. There is a limit of 21 million possible bitcoins to be mined, after which user maintenance will be compensated solely by transaction fees.