The Waiting Game Begins for Energy Traders
The recent rally in oil and gas had been fueled by speculation on events still to come.
Energy markets are taking a deep breath to start the week.
They may be holding it for a while.
Oil and gas prices are pulling back Monday from the strong autumn rallies that had put them at one-year highs last week. The rallies had been fueled by speculation on events still to come, and now a waiting game begins. Oil exporters are trying to reach a deal to cut production when their energy ministers meet Nov. 30. Natural-gas traders are gearing up for winter-heating demand.
There are big gains to be had in both markets if those catalysts come through. But prices have run so far that the risks are coming into focus.
In gas, “there’s got to be massive fluctuations driven by the weather,” said Dimitry Dayen, senior research analyst at ClearBridge Investments, which manages $110.8 billion in assets. And in oil, if OPEC’s Nov. 30 meeting “is a dud, then the market’s going to selloff.”
So both markets are drifting a bit back toward earth in the meantime. U.S. oil prices pared back $1 or about 2%, in the first two hours of U.S. trading taking off Monday amid growing signs of intransigence among OPEC members. Natural gas dropped 5 cents, or more than 1%, as soon as electronic trading opened Sunday evening, a sign weekend weather updates scared traders.
Many bullish oil traders have been excited by signs bloated stockpiles are starting to drain and a two-year glut is ending. But others, including Goldman Sachs Group Inc. and RBC Capital Markets, are warning the OPEC deal could be self-defeating. Data on swaps and options has shown a surge of sales since the day OPEC members announced they would consider cutbacks, sales that could foreshadow a wave of new output from U.S. drillers who are pouncing on higher prices.
“OPEC may have allowed an uplift in prices temporarily, but at the same time it’s inviting a lot of other production back in,” said Harry Tchilinguirian, head of commodity strategy at BNP Paribas SA. “We are at that pivotal point in terms of exposure.”