NEW JUNE 26 – OptionSellers.com Cordier Gives TD Ameritrade NEW Oil Price Forecast
TD Ameritrade: Cordier Gives New Oil Price ForecastWith James Cordier
Ben: Welcome back to Futures with Ben Lichtenstein. Traders, with OPEC’s recent decision to increase production, crude has been the focus for many. To help us take a look at the recent price activity in the energy markets and the impact from the recent OPEC decision, traders, we’ve got James Cordier, the President and Founder of OptionSellers.com, joining us this morning. James, welcome to Futures with Ben Lichtenstein. Crude rallied on the news but no follow through. Does this point to the decision having already been priced into the market? For the most part, was this move expected?
James: Ben, it’s really interesting, the movement in crude oil after the announcement. I think what OPEC and, of course, plus Russia was trying to do was give a soft landing. I think they’re very familiar with the fact that oil prices can’t continue to escalate as many U.S. economies, as well as in China and Europe, are slowing. We have PMI in Russia and both China not doing so well. Of course, we have China down 25% from their recent high and a soft landing is very important. Needless to say, having the market just fall out of bed is now what they wanted either, so we had a very quick $8 decline in prices. We’ve now rallied back about half of that and it’s possible that we’ll fall into a nice equilibrium here with plenty of supply but not too much to cause prices to go higher.
Ben: Yeah, it looks like we have a bit of a range forming up above 64 and below 73. James, I’m wondering, how much of a boost in production is to slow the pace at which they’ve been reducing inventories, and how much is to combat the reductions in production that we’re seeing related to sanctions and issues in Venezuela, because the $1 million increase in production isn’t going to be enough to balance off both.
James: It’s really not. You can add Libya to that last, as well. The fact that we had over compliance coming into this meeting allows both Russia and Saudi Arabia to actually pump more than what the report came out here 3 days ago. The fact that we’re talking only 600,000 additional barrels, that is not going to be enough, you’re correct, to take care of what’s coming offline in both Iran, Venezuela, and in Libya; however, there is a lot of fudge room right now available. The fact that both Russia and Saudi Arabia now have the green light to pump more oil, I think we’re going to see in the 3rd and 4th quarter probably closer to an additional 1 million or 1.1 million barrels. The 600,000 that was announced is not enough to slow down this market.
Ben: Yeah, it seems to be the case. We’ve been hearing a little bit about distribution issues as far as the WTI production as it nears that 11 million barrels per day level. Is some of the narrowing that we’ve been seeing in the Brent/WTI spread related to the bottleneck that we’re seeing in distribution?
James: That’s exactly right. What’s going on right now in the United States is we do have a great deal of new supply coming on, but there is a bottleneck and it is allowing the Brent/WTI to narrow. I think we’ve seen that just recently and we’ll probably see it narrow another dollar or two in the next upcoming weeks.
Ben: James, talk to us a little bit about what’s going on here as far as what you’ve been seeing and hearing regarding Canadian oil sands and the outage. Is this impacting the spread or impacting price at all?
James: Not as of yet, but it’s very interesting, the price of oil coming up and then the Canadian dollar coming down recently is a really interesting conundrum there. What’s going on in the Canadian oil sands will come out to play in the next several weeks. There hasn’t really been a big market moving affect there yet, but that will be coming up if it doesn’t get straightened out soon, I think.
Ben: James, I’m curious because everyone’s joking about OPEC plus one right now, meaning that Russia seems to be more and more influential and I’m curious if you could talk to us about the role that Russia had in the recent OPEC decision. Is Russia’s involvement a good thing for the stability of energy markets?
James: You know, with Russia, Ben, being the 2nd largest producer now in the world, they have to be in just about every conversation. The compliance between OPEC and Russia right now has just been fantastic. I think it’s almost like the most incredible central bank right now in reference to oil. The Saudi and Russian compliance right now it looks excellent. We think that Vladimir Putin’s going to be in office for probably over the next 10 years, so he doesn’t have to be a short-term thinker. He can think long-term, find out the exact price that the global economy can withstand without throwing it into a recession, and that team right now has been excellent. I think Russia would be really happy with a $75 Brent price going forward and I think that’s the equilibrium we’re going to see. I could see a $10 trading range for oil the next 6-12 months and WTI in the mid 60’s and I think everybody would be happy with that.
Ben: Yeah, except for those traders that are looking for a high volatile market but, James, let’s talk a little bit about the dollar correlation to the crude because we’ve been watching the crude come off. The dollar, for the most part, has been hanging out around that 95 level. I’m curious, what are you seeing in terms of that inverse correlation breaking down a little bit recently but I’m wondering if, now that we have the OPEC news, if that correlation is going to start to come back into play a bit?
James: Ben, the interesting part is the U.S. dollar and the strength of it over the last several weeks. Clearly we’ve come off just a little bit recently but we have negative rates continuing throughout Europe, we have one or two more hikes coming in the United States over the next 3-6 months. The dollar is going to continue to be underpinned and that is going to probably help keep a cap on oil prices, as well. Of course, oil being priced in U.S. dollars, a firm dollar, I think, through the rest of 2018, will help also balance what I think is a balanced market right now.
Ben: All right, well that’s definitely giving us a little something to watch here today. James, I appreciate you coming on the show and joining us on Futures with Ben Lichtenstein. Traders, that’s James Cordier, the President and Founder of OptionSellers.com.