EIA Draws Keep NYMEX Boosted; Venezuelan Vote & Sanctions Loom on the Horizon

Posted by Kelly Burke on Jul 26, 2017 3:26:56 PM

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Today, the NYMEX continued it's winning streak - At the end of the day, we settled up across the board yet again, with Crude settling out at $48.75/bbl (+1.7%), ULSD climbed +.0268 to $1.5953 and RBOB edged up +.02111 to $1.6173. 

Yesterday we talked about the OPEC production & export factors affecting the market, as well as projected slow downs in domestic oil & gas exploration. (For a refresher, you can peruse yesterdays article here: 2017s Largest One Day Rally Hits on OPEC & US Production Projections ) 

Today, while API projections called for a 10.23mmb draw in Crude, the EIA Inventory Report showed an actual draw of 7.2mmb. Current Crude levels are now around 483.4 mmb, or the upper end of average for this time of year. For finished products, distillates drew down 1.9mmb but are still on the upper end of what we normally see for average levels, while on gasoline, projections were calling for a build of 1.9mmb but actuals showed a draw of 1mmb. 

In broader news that can potentially have huge ("YUGE!") market impacts, the Trump administration has floated the possibility of a ban on Venezuelan Crude as a U.S. response to Venezuelan President Nicolas Maduro, should he choose to go forward with rewriting the country's constitution, in what the United States sees as a move to clamp down on opposition. The vote on rewriting the country's constitution is expected Sunday, and Platts is reporting that the U.S. Treasury department is crafting sanctions currently. 

At the same time however, even as the Treasury works out the details, it appears the Administration has already backed off of the idea after looking at its potential impacts. They are now hinting at more targeted sanctions than an overall ban, but that would still likely create some serious aftershocks in the market.

Venezuela is the third largest supplier of imported Crude oil to the United States (after Canada and Saudi Arabia), and supplies a huge percentage of the Crude refined in the Gulf Coast.

A ban could be devastating for US refiners and importers, and even simply not taking the option off the table could impact the markets in a drastic way over the next few days, particularly if the option remains even theoretically possible on Monday after the vote takes place (its expected to be a "show vote" with Maduro's desired outcome essentially 100% certain).

Definitely something to keep an eye on that could drastically change the supply and pricing picture as we know it.

Stay tuned!  

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Topics: CRUDE, EIA Inventories, sanctions, Venezuela

2017s Largest Rally Hits on OPEC & US Production Projections

Posted by Kelly Burke on Jul 25, 2017 3:45:14 PM

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Today saw oil prices have the biggest one day rally of 2017 thus far, with WTI Crude surging up 3.3% ($1.55) to settle out at $47.89/bbl. Likewise, refined products surged, with ULSD jumping over 5 cents (+.0516) to 1.5685, and gasoline jumped +.0394 to settle at 1.5962.

So whats going on?

On the global news front, at an OPEC gathering in Russia on Monday, Saudi Arabia pledged to cut Crude exports beginning in August, and Nigeria stated it will cap its production at 1.8 million barrels per day. (WTI closed out up 1.3% at $46.34 on the day Monday immediately following the news. ULSD settled up as well but by a mere 17 points to $1.5169, while gasoline dropped 65 points to close out at $1.5568.)

An important note pointed out by Market Watch regarding the OPEC news, however - its not unusual for the Saudis to drop exports this time of year, and the "cuts" promised by Nigeria are actually at levels higher than they are producing at the moment (they will cap at 1.8mmb and they are currently producing 1.6mmb) so its likely that this news was another somewhat nothing-to-it story out of OPEC that caused a (presumably temporary) jump on the NYMEX, as most OPEC meetings seem to do. 

Today was likely impacted more from domestic news and forecasts than the OPEC news of yesterday. Cuts are looming in the Oil & Gas sector in the U.S., which signals an oncoming slow down in domestic output. Anadarko, one the nations leading oil & gas exploration companies cut investment guidance by $300 million for 2017 after posting losses for the second quarter of over $415 million, or roughly twice estimates. Add this to Halliburton's forecasts for flat to declining rig counts, and projected crude draws on this weeks EIA reporting and you had the perfect storm in place for todays rally. 

 

 

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Topics: CRUDE, OPEC, anadarko

Dramatic Inventory Drawdowns Pump Up Prices

Posted by Kelly Burke on Sep 8, 2016 5:02:38 PM

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Crude jumped on today’s inventory report after jumping up on the overnights last night as well. Post close yesterday, the API numbers were indicating significant draws and the EIA release backed that projection up.
The EIA report this morning indicated that Crude inventories dropped by 14.5 million barrels for last week, which is the biggest drop we’ve seen this millennium (since 1999).
Analysts are partly blaming the effects of Hermine on the Gulf Coast delaying production and explaining the draw down in stocks.  
Gasoline stocks also dropped, by 4.5 million barrels, and also unexpectedly.
Today closed out up across the board, with diesel up .0557 to $1.4822, Gas up .0701 to $1.4165 and Crude closing out at $47.62. (significantly up from yesterday’s Crude settle of $45.50)
An interesting aside on gasoline’s jump today was that the lowest Labor Day retail gasoline prices in 12 years were seen this past weekend, and if you jump online there are literally dozens of articles projecting that the post summer driving season price levels for gasoline will drop below $2 per gallon. It’s more likely than not that these articles are correct versus today’s inventory and price rebound. Nothing has changed fundamentally with either Crude or gasoline in terms of long term supply and demand outlooks (despite some new rumblings about Russia and Saudi Arabia, as usual).

Stay tuned!

 

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Topics: CRUDE, EIA Inventories

BREXIT Surprise Sends Financial, Oil Markets Reeling

Posted by Kelly Burke on Jun 24, 2016 4:53:56 PM

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Yesterday traders across the globe were all but certain that Britain would never vote to leave the EU. As a result we saw confidence in the markets, including oil.

100% of those traders were apparently incorrect. 

Today we saw Japan shut down trading, the pound lose over 15%, oil markets tumble and Wall Street get hammered. The Dow closed down 600 points today, the worst day since 2011 - all of this in the wake of Britain indeed voting to leave the European Union. 

On the commodities side, while gold and the dollar went up, WTI slipped 4.9% (over $2/bbl)  to close out at $47.64. Gasoline tumbled $.0785 to $1.5250, and ULSD dropped $.0653 to $1.4553.

So what now?

Many analysts think that oil prices will rebalance and stabilize given the UK is essentially irrelevant to global oil demand, and therefore pricing.

Others caution however that this move by Britain may signal rough waters ahead for the European Union and its economic growth - and therefore oil demand, which could increase supply versus demand. 

With the British pound's slip comes a necessarily strengthening dollar, which would argue aginst a precipitous slide in oil prices, given the backdrop that production and demand issues aren't, at least in the near term, greatly impacted by the Brexit vote. (Backdrop being U.S. Rig counts are still by and large declining with the exception of a few pop ups, the new Saudi Oil minister is still seen by many as a step forward in market stability, etc etc...). However, its also likely the dollar is extra overpriced today simply because of its strength relative to the pound, which ought to also rebalance - at least in theory.

After one hell of a suprise Friday - Next week should be an interesting one on the markets, to say the least. 

Enjoy the weekend, everyone. If you need us, give us a shout. 

 

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Topics: European Economy, CRUDE, Dollar Strengthens, Brexit

Crude Breaks $51 on Nigerian Explosions, US Inventories

Posted by Kelly Burke on Jun 8, 2016 3:47:13 PM

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Crude closed out at $51.23 this afternoon, the highest it’s been since July 2015, up from yesterday and holding firm over the $50 benchmark.  

Today’s climb can be pinned on the EIA’s inventory report, which again showed draws in Crude but also on supply disruptions from ongoing rebellion in Nigeria.

In Nigeria, the Delta Avenger group has continued militant action by not simply rejecting proposed settlement talks with the Nigerian government, but blowing up a refinery. The group has brought Nigeria’s oil production and export to 20 year lows according to CNBC – something the struggling and vastly oil-export-dependent country can ill afford, especially given the global price slide of the past two years.

Interestingly, despite the stockpile draws in today’s EIA report, it appears that US domestic Crude production actually edged up by 10,000bpd – this contrasts rather sharply with the beginning of the month where we saw US production languishing at its lowest levels since 2014.

Distillates and gasoline both built this past week, despite projected draws. They closed up alongside Crude – both edging over 2 cents – gas at .0327 and diesel up .0290. Gasoline’s build was a shocker considering “driving season” is officially in gear, but none the less today’s market moves did not reflect the builds… yet.

Last week, the May jobs report roiled markets temporarily after it came in abysmally low – the lowest since 2010. However, things settled out relatively quickly since the report all but guaranteed a rate hike would not be pushed through by the Fed yet, which was good news for Wall Street and also resulted in the 5 year low on the dollar we saw, as built in anticipation of a hike was shed.

The fact is with range bound jumps on inventory, economic data, world events, we may be seeing evidence that the market is hitting a point of stability. How long that lasts is anyone’s guess however. As they say “the trend is your friend” and we’ve been trending upward – but it’s important to remember the big picture and outstanding potential factors. For example, last month’s OPEC meeting in Vienna did literally ZERO in terms of addressing the supply glut. We also still have an Iran hell bent on juicing exports to the max. However, we also have a Venezuela on the verge of collapse, refinery sabotage in Nigeria, and a Chinese economy that may be covertly cooling down a lot quicker than they’ll admit.

Stay tuned!

 

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Topics: CRUDE, EIA Inventories, $50 benchmark

Today's Tumble Offsets a Quieter Week for Crude

Posted by Kelly Burke on Apr 1, 2016 5:16:57 PM

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Before todays across the board tumble, the markets had been rather stable this week, comparatively speaking, even in the wake of several major relevant news events and economic reports. Let's start it from the top: 

Initially helping the markets, especially Wall Street - Fed Chair Janet Yellen's comments this Wednesday stated that the Fed would be cautious moving forward, particularly on the subject of inflation, as it keeps an eye on possible foreign market pressures and the extremely mixed-signals economic data that has come out over the past few months. Historically, March jobless numbers come in 40-50K below projections oftentimes, so her comments earlier this week were also seen as a possible hedge against concerns about Wall Street's reaction to Fed policy in the event of a less than stellar jobs report (which did not come to fruition - more on that later). 

The Fed comments didn't help the Dollar on the day, however, which helped keep commodities flat after builds, albeit smaller than expected builds, in U.S. stockpiles. 

Regarding those builds -  Wednesday's weekly EIA Inventory report showed Crude built less than analysts had projected (2.3 mmb versus 3.3mmb projected). Initially Crude was up 2.5% on the reporting, with WTI hitting $39.30 and Brent cracking $40 at $40.17 shortly after.

However, at the close, WTI settled within a penny of the prior day's close at $38.32. ULSD and Gas also showed draws, 2.5mmb on gasoline (which was close to projections), and ULSD drew down 1.1mmb versus a projected 29K build. Both ended the day relatively flat alongside Crude, with ULSD closing at April $1.1597/May $1.1721, and gasoline April $1.4364/May $1.4661.

The major news is the continuing speculation over the OPEC/Non-OPEC meeting (supposedly) coming in April that could result in an agreement on a production freeze in order to stabilize global oil prices.

However, the lingering question has been whether or not Iran would agree to freezing production after the sanctions against the country have just been lifted. It appears more certain by the day that the answer to that question is "NO". The Saudi Oil Minister Thursday night stated that if Iran will not agree to the freeze, basically there will not be one. This of course came on the heels of Iran insisting earlier in the week that it can, and will, consider going back to pre-sanction production levels. 

Personal opinion - there will most likely not be a freeze. In my humble opinion the markets got far too excited and bought too deeply into what, at least to this point, has essentially been rumor and wishful thinking. The ramp up in pricing we've seen over the past few weeks, with WTI breaking $40/bbl (very briefly) is largely a response to the hopes pinned on the OPEC meeting and a belief they will freeze production -a belief that is most likely not founded in reality, but time will tell. If nothing else, the rumors have temporarily "stemmed the bleeding" for major producers, not a terrible end in and of itself from their perspective. 

Thursday was uneventful, with WTI settling 2 cents over prior at $38.34. It was the expiration of April trading, obviously, and May ULSD and Gasoline closed out at $1.1855 and $1.4467, respectively.   

This morning we saw that the  Friday Jobs report pessimism/conspiracy theorism discussed earlier turned out to be for naught.  Analysts had projected gains of 205K jobs for March and the government data came out with a gain of 215K, leaving the unemployment rate at 4.9%. 

The good news is, that's a great jobs number. The bad news for commodities is that number serves to further prop the dollar up, as it maintains the highest level its held versus the Euro in a little over 6 months. (This despite the dollar's slip on Wednesday). 

Both the dollar and stock markets were up today on the strong Jobs report as well as encouraging data from the Manufacturing sector, indicating continuing economic strengthening in the U.S.

Oil however, took a 4% tumble on both a stronger dollar, and (as previously mentioned) increasing skepticism on the OPEC deal. Skepticism on the deal grew exponentially today, after the Saudi Crown Prince today echoed his Oil Minister's earlier sentiments about a needed consensus including Iran in order for a production freeze to become material. 

Baker Hughes rig count today indicated Crude rigs dropped 10, and overall rig count dropped by 14 to a new record low of 450, but oil continued to trend downward. 

At the Close, Crude settled out at $36.79 (-$1.55), ULSD tumbled .0538 to $1.1317 and gas fell .0451 to $1.4016

 

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Topics: CRUDE, OPEC, Yellen, EIA Inventories, fed

Surprise Move by Iran on OPEC Deal Rallies CRUDE

Posted by Kelly Burke on Feb 17, 2016 4:46:25 PM

Middle Eastern Nations flags in a circle around an oil drilling rig

In a suprise move today, the oil minister of Iran stated that Iran would support the effort by OPEC and non-OPEC countries to stabilize the oil market and oil prices. The now-confirmed rumor that the Saudis and Russians were amenable to agreeing on a production ceiling has been circulating for a while, and served to briefly prop prices Tuesday - but the lack of a solid agreement, and the assumption that Iran would not cooperate had backed prices off their intraday highs. 

Today however, was another story entirely. After the Iranian minister announced the intent to cooperate, we saw WTI surge nearly 6% to once again close above the $30 dollar mark at $30.66 - quite a reversal in a short time when you consider that just last Thursday we saw WTI's lowest close since 2003 ($26.21/bbl)! 

ULSD and RBOB came along for the ride today as well, with ULSD jumping over 6 cents to $1.0879, and gasoline closed up over $1 again (barely) at $1.0034, a gain of over 3 cents on the day. Gasoline has been dancing around slightly under the $1 mark over the past week or so, with the exception of Friday's rally where it jumped over 10 cents to $1.0432.

It's difficult to determine if the nebulous "agreement to have an agreement" on the table with OPEC and other producers will sustain a longer term rally. Even if there is an agreement, it isn't clear just how much of a rally it will bolster long term, since the production ceiling sets production at January levels (read: unsustainably high for higher prices levels), it doesnt actually drop production.

That said, Iran not ramping up production will likely help matters in terms of at least mitigating some of what has been ever-increasing supply. Another concern though, should prices stabilize at higher levels - what impact does that have on rig counts and U.S. production? Although dropping rig counts have not proven to be the bullish signal they would normally be, a rising rig count could be a bearish symbol should the market stabilize around the $40/bbl mark, in my opinion, as it may signal the U.S. kicking over the first domino and restarting the game of chicken for "market share by means of over production" the major producing nations have been playing for the past year and a half.  

Time will tell. EIA numbers are not out until Friday this week because of the holiday - it will be interesting to see what impacts they have in the face of a possibly changing global supply picture. 

Stay tuned!

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Topics: Iran, CRUDE, OPEC, russia, wti

CRUDE Rallies Despite Record Inventories

Posted by Kelly Burke on Feb 3, 2016 4:12:50 PM

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Another wild week!

Friday we saw March diesel settle at $1.0787 (a far cry from last Mondays $.09353!), and gas closed out at at $1.1031. Crude settled at $33.62/bbl, a rebound of nearly 25% from the prior week's 12 year lows ... but at the close yesterday, compared to Friday's numbers, diesel had shed $0.0678, gas was off $0.1023 and Crude settled below $30 once again, at $29.88.

Today we saw almost a full reversal on Crude and Distillates, with diesel back up within .0001 of Friday's number at $1.0786 (+.0677) and Crude back up to $32.28. Gasoline had a modest bounce back to 1.0137 (+.0129) after yesterdays $0.0822 tumble. 

What's interesting about today's rally is that, at least in my humble opinion, it's essentially the rally that shouldn't have been.

Why? Because the EIA report this morning indicated builds that set inventory records for Crude and Gasoline. Crude inventories built 7.8mmb to 502.7mmb for the week ending January 29th. Gasoline was projected by analysts to build 1.7mmb but instead jumped a whopping 5.9mmb to 254.4mmb. Distillates drew down 777K barrels versus the 1.1mmb projected.

Most of the analyst chatter pegs today's gains on the weakening dollar (off almost 1.5% today as of writing), which can make commodities in general a more attractive proposition - generally speaking the two work opposite each other, when one goes up the other goes down. However, factoring in the last year, it's unlikely a non-precipitous drop on the dollar supports a rally of today's magnitude. 

Another factor at play is the continuing rumors about OPEC and non-OPEC countries coming to agreements on supply cuts to bolster prices. Russia has indicated it would be willing to cooperate with the Saudi's on a coordinated approach, as has Iraq.

However, all of the production talk is just that - talk - which has worked for these countries in terms of short term price bumps, but until there is an actual meeting and agreement it's unlikely to have a long term impact.

U.S. Production is also down thus far in 2016, which may be a factor, since with OPEC keeping production ramped up, we become a "swing player" in terms of global (over)supply. The drop in production last week according to the EIA was 7,000 barrels per day however, not really a significant decline in the big picture. 

Long story short, there are multiple factors that multiple sources are hanging their hats on to explain today's rally (myself included) but the overall market is likely to remain bearish, given inventory levels, weak global demand, and the lack of any real concrete indications that production cuts from oil producing nations are actually forthcoming. 

Stay tuned!

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Topics: Dollar falls, CRUDE, OPEC, russia, EIA Inventories

Rally Reverses on Iraq Output, Continuing Glut

Posted by Kelly Burke on Jan 25, 2016 3:51:26 PM

Line graphs depicting the stock market scattered over a table

Today saw a swift and decisive reversal of last week's out-of-nowhere rally on Crude, Commodities, and Stocks. Not too surprising, given there were really no changes in fundamentals that justified a rally of the magnitude we saw, outside of the ever present fear of supply disruptions whenever the East Coast faces major snowfall, and the market being technically oversold. 

Let's look at the numbers real quick:

Wednesday: Crude hit an astonishing $26.55/bbl, or as the internet expressed it in meme form - cheaper than a bucket of KFC Chicken (apparently thats $28.75). ULSD settled down over 4 to $0.8657, and RBOB adjusted mildly off 85 points to $1.0177.

Thursday and Friday the rally from nowhere kicked in, with Crude surging 4% Thursday and 9% Friday to close out the week.  ULSD was up 13 cents to finish the week just shy of the $1 benchmark, at $0.9957. RBOB jumped modestly Thursday but jumped up over 5 cents Friday to close out the week at $1.0838.

Today we saw the real correction however.

Iraq announced a new record high output for December at over 4 million bpd. Ironically, given the drop, OPEC announced today that there would be a meeting called (reports are by Qatar) to address "cooperation" from non-OPEC countries in curbing supply to stabilize prices. You read that right - NON-OPEC countries.

The market essentially shrugged off the suggestion, as its improbable to impossible that the US would cooperate, and it's equally unlikely Russia, or anyone else will either, especially if the Saudi's, Iranians, and apparently now the Iraqi's as well  have no intention of backing off their production (and therefore market share). 

To wrap it up, today we saw Crude barely stay above the $30 benchmark, settling at $30.34. ULSD tumbled .0604 to $0.9353 and RBOB dropped .0538 to $1.0300. 

Tommorow the API projections may cause ripples, but the major news will likely be Wednesday's EIA report, barring any unforeseen worldly events, of course. 

How low can we go?

Stay Tuned!

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Topics: CRUDE, OPEC, Iraq

Below $30! Crude, Stocks Crash on Iranian Supply and Weak Economics

Posted by Kelly Burke on Jan 15, 2016 3:35:54 PM

Black Friday overliad on 100 dollar bills

Yesterday we saw a somewhat unexpected rebound on oil prices and the stock market - but it all came crashing down today. Crude has officially closed out under $30 per barrel - settling at $29.42, the lowest it's been in 12 years. RBOB closed off almost 5 to settle at $1.0212 - dangerously close to the $1 threshold, and ULSD continued its slide down another .0465 to $0.9343.

The US stock market followed suit with commodities - by mid day the Dow & S&P were both down 500 points, with the Nasdaq off 3% as well. 

What's going on?

China's markets plunged another 3+% percent overnight, stoking fears of a continuing global oil glut. Also playing on those fears was today's data from the Federal Reserve indicating US Industrial Production (manufacturing, mining, and utilities) dropped again in December, which is the 3rd month in a row. Both of these indicators are extremely worrisome in terms of demand. 

More importantly however, it's about Iran.

Reports are that "implementation day" - when Iran shows compliance with agreement terms and has their sanctions officially lifted, could be as soon as tommorow. Once sanctions are lifted, Iran is expected to start exporting their Crude storage as soon as possible, which pushed traders to sell, sell, sell today - to the tune of a 5% drop in pricing. It also keeps the outlook on Crude bearish, as the global market can ill afford millions more barrels entering supply, especially in the face of weakening demand from the US & China - the worlds two largest energy consumers. 

"Happy" Friday everyone - here's hoping for better news next week!

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Topics: CRUDE, RBOB, stock market, oil glut, china, $30 barrel, $1

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