E The Daily Shot And Data - February 17, 2016

Greetings,

Let’s start with the energy markets where some of the major oil producers agreed to cap production.

Source: Reuters

Now the Russians will try to convince Iran to join in. Assuming Iran is allowed to significantly increase production before being capped, it might play ball.

What’s the impact of this deal? The latest forecasts show that this arrangement will not have a material impact on the near-term oversupply problem.

Source: T Neville

Crude oil markets weren’t impressed by the deal. This must be extremely frustrating for oil producing nations.

Source: barchart

One item worth noting here is that crude oil and equity markets diverged during the day. Will this divergence last?

Source: ?@Not_Jim_Cramer

(ESA = S&P500 futures, CLA = WTI crude futures)

Staying with the energy markets, we continue to hear from many investors who are short the largest oil ETN called USO. Participating dealers are creating new USO shares, lending them out (to short-sellers), and hedging their long position in the futures market. In effect the dealers are giving investors (expensive) access to the futures market. Investors can use USO shares to make money on contango (riding down the steep curve). These positions are accumulating and it will be interesting to see what this looks like when this buildup unwinds.

Source: ?@FTMarkets

By the way, the latest BAML survey shows investors viewing short crude oil plays as a crowded trade – right behind the long dollar trades.

Source: ?@NickatFP, BAML

Louisiana crude oil has been almost flat to WTI on weakening refinery demand, cheap oil imports. This will continue to put pressure on storage at Cushing, OK and is bearish for WTI.

Source: Scotia Howard Weil

US natural gas remains firmly below $2/mmbtu – a tough situation for the industry.

Source: barchart

Since we are on the topic of oil producers, let’s shift to emerging markets.

1. The Venezuela CDS spread is rising as default looms. The output cap was the nation’s latest hope but it looks to be like too little to late. This could turn into a major humanitarian crisis.