Prospects For The Oil Market - What Is Market Structure Telling Us As We Head Into 2016?



  • Market close to December 2008 lows.
  • Term structure.
  • Refining spreads.
  • Quality/location spreads.
  • Divergence with XLE.

It has been a rough year for the energy markets in 2015. Crude oil opened in January of this year at over $50 per barrel on the active month NYMEX crude oil futures contract. There was some wild volatility in the oil market throughout the year. Crude oil got down to $42.03 in March and then rallied for two months, in a straight line, to highs of over $62.50 per barrel. Selling then returned to the market and by August 24, the price made a new low at $37.75. The new low brought buying back to the energy commodity and it quickly reversed and appreciated to just over $50 by the first week of October. Since then, the price turned south again, making yet another new multiyear low at $33.98 per barrel at the end of December.

Market close to December 2008 lows

On Thursday, December 24, the price of active month February NYMEX crude oil futures settled at $38.10 per barrel. While the price traded only $1.50 above the December 2008 lows early last week, it closed slightly higher but remained below the $40 level.

High levels of global inventories and a continuation of output from OPEC, Russia and the United States continues to weigh on price. Although rig counts in the United States have fallen to 538 in operation as of December 23, a decrease of 961 rigs from the prior year, U.S. production continues to be strong. One of the reasons that crude oil bounced last week was an unexpected drawdown of 6 million barrels in the U.S. as reported by the Energy Information Administration last Wednesday. This drawdown may have been window dressing for year-end as oil companies seek to reduce state tax liability in some storage areas. The bottom line is that the price of crude oil remains close to the lows and key

This article was written by

Andrew Hecht profile picture
Weekly commodities commentary and calls, from a Wall Street veteran
Andy Hecht is a sought-after commodity and futures trader, an options expert and analyst. He is the #2 ranked author on Seeking Alpha in both the commodities and precious metals categories. He is also the author of the weekly Hecht Commodity Report on Marketplace - the most comprehensive, deep-dive commodities report available on Seeking Alpha.

Andy spent nearly 35 years on Wall Street, including two decades on the trading desk of Phillip Brothers, which became Salomon Brothers and ultimately part of Citigroup.

Over the past two decades, he has researched, structured and executed some of the largest trades ever made, involving massive quantities of precious metals and bulk commodities.

Andy understands the market in a way many traders can’t imagine. He’s booked vessels, armored cars, and trains to transport and store a broad range of commodities. And he’s worked directly with The United Nations and the legendary trading group Phibro.

Today, Andy remains in close contact with sources around the world and his network of traders.

“I have a vast Rolodex of information in my head… so many bull and bear markets. When something happens, I don’t have to think. I just react. History does tend to repeat itself over and over.”

His friends and mentors include highly regarded energy and precious metals traders, supply line specialists and international shipping companies that give him vast insight into the market.

Andy’s writing and analysis are on many market-based websites including CQG. Andy lectures at colleges and Universities. He also contributes to Traders Magazine. He consults for companies involved in producing and consuming commodities. Andy’s first book How to Make Money with Commodities, published by McGraw-Hill was released in 2013 and has received excellent reviews. Andy held a Series 3 and Series 30 license from the National Futures Association and a collaborator and strategist with hedge funds. Andy is the commodity expert for the website and blogs on his own site He is a frequent contributor on Stock News-

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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