BREXIT Surprise Sends Financial, Oil Markets Reeling

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

dreamstime_xs_67424304.jpg

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

OPEC Holds Firm on Output Levels

Posted by Kelly Burke on Dec 4, 2015 3:45:47 PM

Line charts depicting the stock market scattered on a table

This past week has been a wild one.

Wednesday we saw WTI shed almost $2/barrel (4.6%) to close out under $40 at $39.94/bbl and both ULSD and RBOB shed over 6 cents each (-0641 and -0699, respectively) on the EIA Inventory report, which once again showed unexpected builds.  Crude inventories built 1.2mmb, marking the 10th consecutive week of builds.  

An additional weight on oil and other commodities was the dollar, which surged to a 12 year high after the Fed indicated they were likely to move forward with a rate hike. (Friday's strong jobs report makes that even more likely).

Thursday the reverse situation happened, as investors and traders waited with baited breath on the hopes that OPEC would come to a consensus at Friday's meeting to lower output.

Today however, its official - OPEC did not come to any formal policy change and will not be cutting production or lowering the ceiling. Iran has been vocal and vehement for the past few weeks that they would absolutely refuse any cuts in production just when Western Sanctions are coming down and allowing them to reenter the market. They plan to come online at as much capacity as possible in Tehran, and the Saudi's essentially cited the "complication" of Iran's new ability to ramp up output as the reason today's meeting was fruitless. 

Predictably, oil was down on the announcement, as it effectively seals the deal in terms of all but guaranteeing the oil glut not just continues, but worsens. (Crude settled at $39.97, down from Thursday's $41.08)

The pressure now will be on higher cost producers like the US. However, that's been the case (and the OPEC strategy) to some degree for over a year now and hasn't solved the problem. The real losers in the lack-of-a-deal are the smaller OPEC and non-OPEC oil producing countries who lack the capital reserves of countries like Saudi Arabia - namely Brazil, Venezuela, etc. If oil continues to slide, we could start seeing serious economic impacts and unrest in oil-revenue dependent nations.

Stay Tuned!

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Topics: OPEC, FED rates, Dollar Strengthens, oil glut

IEA Forecasts and Inventory Numbers Push Commodities Closer to New Lows

Posted by Kelly Burke on Nov 13, 2015 3:48:09 PM

Line charts depicting the stock market scattered on a table

And down we go again - today WTI closed down almost 3%  (the final close was 40.74), which is around an 8% loss on the week. Brent came within 2 dollars of a low not seen in over 6 years, and also ended the week at around an 8% loss, according to Reuters.


To round out the board - RBOB dropped .0342 to 1.2389, a multi month low, and ULSD dropped to 1.3813, a loss of .0253.

So what's going on?

The IEA is forecasting global oil demand growth to drop to 1.2mmb per day throughout 2016, as compared to the 1.8mmb per day we've seen this year. Given that the 1.8mmb has clearly not been robust enough demand to stop prices from crashing, the IEA announcement doesn't bode well for any serious and sustained price rebound anytime soon, if we ignore other factors that we can't predict (geopolitical escalations, etc).

IEA also announced that OPEC oil inventories are at a record almost 3 billion barrels for September, and this weeks EIA Inventory report showed a build of 4.2 million barrels of US Crude, as well as a spike in production.

Rig counts were up for the first time in 11 weeks as well, according to Baker Hughes.

There's been a lot of reporting this week that over 20 million barrels of Crude are sitting on cargo ships backing up in the Gulf Coast, which is approximately double the usual amount. If you recall, there was some reporting a few weeks ago about ships backing up at other major ports outside of China and the Arab Gulf as well, that had contributed to prior drops on basically what amounts to visible evidence of an extreme oversupply.

When you factor these items in with a dollar that continues to strengthen, it's less than surprising that prices are continuing to slide across the board to multi month lows.

Stay Tuned!

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Topics: OPEC, Dollar Strengthens, EIA Inventories, IEA

Crude ends the Week in the Red on Strong Dollar, Supply

Posted by Kelly Burke on Oct 23, 2015 2:52:47 PM

Line charts depicting the stock market scattered on a table

Crude prices are on track to be down around 5% on the week. There were some initial jumps this morning on hope that the newly announced Chinese Stimulus Package could ramp up demand. Prices reversed sharply and quickly, however, as the dollar continues to crush other currencies, which almost universally sends commodities in general on a slide. 

On Wednesday prices touched near 3 week lows on the EIA reporting yet another gain in US Inventories, despite our being into the typical "slow down" phase, when refineries go offline for maintainance, and despite continuing drops in rig counts (and therefore a theoretical drop in production).

Also, on Wednesday morning we still had a sliver of hope that the OPEC meeting would come out with supply cuts - nope, wrong again. Now we will have to wait until the December 4th policy meeting of OPEC to know for sure if there will be supply cuts, but it seems extremely unlikely to most-  as the Saudi's have demonstrated, their main goal is market share retention, and they seem to accept that the crumbling economies of other oil producing countries is essentially a cost of doing business (much to the chagrin of those countries).

However, Bloomberg and others are reporting that the low pricing is starting to hurt for Saudi Arabia as well, as reportedly they have deferred payments to government contractors as the country begins to slide into a deficit. (Excellent read on MarketWatch on the subject here: "Will fiscal pain of low prices force Saudi Arabia's hand ). 

Thursday saw a quick reversal, but again, that's history now on the back of the dollar. The European Central Bank stated they are looking at "options" for economic stimulus for the Eurozone, which thus far has only really pushed the euro lower versus the dollar, and weighed on Crude and other commodities. 

At the close today, WTI settled the week at 44.60, and Brent at 48.02. (ULSD closed down -.0106 on the day to 1.4544 and RBOB was down slightly by -.0031 to 1.3036)

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Topics: European Economy, CRUDE, OPEC, Dollar Strengthens, brent, wti

IMF News, Germany, and the Dollar Pushing Markets Down

Posted by Kelly Burke on Oct 7, 2014 12:24:05 PM

Magnifying class showing the Internation Monetary Fund logo

The International Monetary Fund (IMF) announced this morning it was downgrading its outlook for Global growth in the wake of disappointing growth in the Euro Zone and Japan. This is the third time this year the IMF has revised its outlook down (this time to 3.3% from 3.8%) and out of the last twelve forecasts in the past 3 years, they've revised 9 of the estimates down. According to Fox News, the IMF consistently has based projections off of an assumption that wealthier nations would be able to reverse their high debt, high unemployment environments a lot faster than they have been.

The IMF's gloomy outlook on the Euro Zone and bleak projections for growth potential in emerging markets has been another force behind the rally of the US dollar, as the US economy has started to stabilize versus other major nations, especially France and Germany. Germany hit a record 5 year low on industrial production, not good considering they are one of the critical economic players in the zone. 

The news from the IMF pushed US stocks down at the open this morning, understandably. A related factor in the downwward push was the IMF warned that increased interest rates by the US Fed could stall progress in the US - and since essentially they are reporting that the US and Britain are holding everything afloat outlook wise - thats really not good economic news for anyone. 

Commodities are pushing down today, with Germany's abysmal output pushing the dollar higher. The stronger the dollar, the higher relative cost to non-dollar currency becomes, which would push demand even lower in Europe, especially in tandem with a slower economy overall. 

This week will see reports out from the US Energy Information Agency (EIA), the Organization of Petroleum Exporting Countries (OPEC), and the International Energy Agency (IEA) -- all of whom are expected to project lower demand as well. 

As of noon, CRUDE is trending down -.97, ULSD is down -.025 and RBOB is down -.0404 with all looking like the trend will continue throughout the afternoon. 

Stay tuned!

 

 

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Topics: Commodities, European Economy, CRUDE falls, Dollar Strengthens, IMF

Commodities, Stocks and Consumer Confidence Drop

Posted by Kelly Burke on Sep 30, 2014 4:16:50 PM

Line charts depicting the stock market scattered on a table

November traded down huge today on the NYMEX with ULSD closing down -.0577 to 2.6505, and RBOB closing down -.0769 to 2.4373. October trading ended today, with the month closing ULSD at 2.6472 and RBOB at 2.5869. 

Analysts are predicting a supply build ahead of the EIA data due out tommorow in the neighborhood of 1.5 million barrels on CRUDE. Like we mentioned last week, the stable to increasing supply levels domestically have been a huge factor in keeping prices less volatile globally, in spite of the global insanity happening right now, especially surrounding the air strikes against ISIS.

US Supply is growing, and concerns over Libya's production are waning since they've been hitting production targets, so supply disruption in Iraq becomes an increasingly less catastrophic possibility. US import declines too serve to "free up" global supply for others, which let's everyone relax a little on potential disruptions. 

Brent and WTI are both poised to hit their biggest quarterly declines in 2 years.

The dollar strengthened for the quarter, surging up 7% - the biggest gain for a single quarter since 2008. As we've seen historically, a strong dollar can soften commodity prices, and thats probably another factor in the pullback we've seen. The dollar also impacted stocks this week, causing them to stumble hard Monday, despite increases in consumer spending reported. The concern is that the Fed is winding down its tapering and may hike interest rates in the near future if the economy is advancing and the dollar strengthening - this kind of speculation on the Fed almost always has a ripple of sell offs surrounding it, like we saw earlier this year. 

Stocks went lower today on the backs of energy stocks pushed lower on the dropping prices, and dissapointing consumer confidence index numbers. 

 

 

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Topics: Brent Crude, FED rates, Dollar Strengthens, WTI Crude, EIA Inventories, ISIS, stock market

NYMEX Tumbles as Markets eye Italian Election

Posted by Mark Pszeniczny on Feb 26, 2013 5:08:00 PM

Bears were out in full force today (actually saw them hit after the close on Monday) as all eyes were watching election results in Italy.  No clear cut winner has been announced thus casting doubt and uncertainty on recently passed austerity measures.   The effect saw the US Dollar rise against the World basket forcing Commodities to fall harder than Tom Brady's Agents Commission check.  Adding to the sell off was increasingly better news from the housing market with December values showing a .2% increase and 6.8% increase year on year.  All this and as I walked into a lunch saw Fed Chief Bernanke on a big screen TV saying the economy is far better off than in recent years and that the FED is currently looking at ways to end its quantitative easing policies.  Today had a flurry of news to push pricing down, but I still hang my hat on  the saying "high prices is the cure for high prices"  as we exit the heating season in the Northeast and some retail stations above $4.00 a  gallon,  some would say the US economy would struggle to support these energy costs.  At the close, Crude lost .48 to $92.63, HEAT fell .0672 to $3.0317 and RBOB tumbled .0795 to $2.9816. 

Italian heat chart

RBOB CLOSE
                 CLOSE       CHANGE 
  
MAR       29816       -.0795
APR        31988      -.0648
MAY      31617      -.0625
JUN         31035      -.0604
JUL          30450       -.0583
AUG        29872        -.0560
 
HEAT CLOSE
          CLOSE    CHANGE
MAR        30317      -.0672
APR        30268      -.0713
MAY       31139     -.0672
JUN        30862      -.0645
JUL        30704        -.0622
AUG       30576     -.0594
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Topics: Commodities, Italian Election, RBOB tumbles, Dollar Strengthens

RBOB Continues Plunge as HEAT Stalls

Posted by Mark Pszeniczny on Apr 19, 2012 5:16:00 PM

Gasoline futures continued to sell off today after starting the early morning in the green. RBOB was up as much as 2 cents prior to the opening bell on news of Spain having a successful bond sell off to avoid yet another European debt scare. That bullishness turned however as Germany was said to be at odds with other Nations on how to proceed with the European Zone bailout plan. Simultaneously, Moodys was said to be ready to announce a downgrade of France's debt rating that caused the US dollar to push higher. A higher Dollar generally has a negative affect ( or positive affect from some viewpoints) on Commodities. Crude looks to be poised to fall below $100 for some time, getting as low as $101.67 before closing at $102.27, down .40. NatGas inventories were in line with estimates and on a whole remain roughly 700 bcf higher than the 5 year average. Even with the sessions slight bump in HO, finishing up .0069 to $3.1251, we are still roughly .15 less than two weeks ago. RBOB continues to be the dog falling another .0486(almost .25 in two weeks) to $3.1541. While it is nice to see the prices fall, realistically most think another .25 needs to be pulled off to get back to a "normal" state.

 

Daily Heat Chart

Heat map

RBOB CLOSE
CLOSE CHANGE
 
MAY 31541 -.0486
JUN 31158 -.0331
JUL 30758 -.0220
AUG 30367 -.0176
SEPT 29974 -.0152
OCT 28550 -.0110
HEAT CLOSE
CLOSE CHANGE
MAY 31251 +.0069
JUN 31284 +.0065
JUL 31320 +.0060
AUG 31353 +.0053
SEPT 31388 +.0048
OCT 31445 +.0039
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Topics: Commodities, Spanish Bonds, CRUDE, Dollar Strengthens

Flat Demand and Gasoline draw push NYMEX

Posted by Mark Pszeniczny on Aug 17, 2011 5:12:00 AM

When the always suspect API's were released last night at around 4:30pm,  I couldn't contain myself when I saw the massive 5.2mbl draw announced for gasolines.  By in large, estimates were that we were only to expect a 1.2mbl draw down in stocks.  Obviously overnight markets reacted strongly to the pending news pumping up values almost .06 on all products ahead of the 10:30 announcement of today's DOE numbers.  And to much of my chagrin,  the inventory report confirmed the API gasoline read as a 3.5mbl draw was announced in gasolines.  Yet Crude showed a large 4.2mbl build vs estimates of a 500k draw and distillates grew by 2.5mbl while expectations were for only a 500k barrel increase.  While the draw in gas can be explained by a seasonal switch over, on relatively flat demand, it is difficult to explain away the builds in Crude and distillates.  Unfortunately the Market has a way of making its own reality and could never gather enough momentum to sell off hard enough to turn negative today.  Values still appear to be on the high end of the range as the HEAT low of 2.70 a few weeks ago may have been the seasonal low.  We have now added about 20 cents in value over the last five sessions.  At the close, WTI Crude rose .93 to $87.58, RBOB added .0165 to $2.8703 as outer months were about two cents stronger, and HEAT jumped .0290 to $2.9616.
heat map
RBOB CLOSE
                 CLOSE       CHANGE 
  
SEP    28703       +.0165
OCT    27402      +.0386
NOV    27069      +.0409
DEC   26915       +.0411
JAN    26937       +.0407
FEB    27051      +.0400
HEAT CLOSE
          CLOSE    CHANGE
SEP    29616     +0290
OCT   29706      +.0285
NOV    29812      +.0284
DEC   29908     +.0281
JAN   30010       +.0281
FEB   29906       +.0280
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Topics: S&P Downgrade, Dollar Strengthens, Expected Draws in Crude and Gas

Dollar Surges, Nymex and DOW plummet

Posted by Mark Pszeniczny on Aug 4, 2011 5:17:00 PM

The trend is definitely your friend!  As bearish tones continue to make tsunami like waves throughout the market, commodities took a beating along with the entire equity complex today.  The DOW fell a massive 3% on continued fears of a weaker than expected US economic picture.  The dollar soared higher today against the foreign basket as the European Central Bank bought bonds in an attempt to ward of a debt crisis taking over the region.  A weaker jobs outlook also played heavily into the mentality of traders today that had most running to book profits as quick a they could.  As fears of the dreaded double dip recession continue to make their way to the front page, Markets across all lines have taken huge hits.  I must say, from an end user perspective, this is OK.  The major hurdle for the Country to leap over  and to finally overcome the recession has been higher fuel prices.  Without a less expensive way for Americans to go from place to place, ship goods,  heat their homes, etc. etc. ,it is impossible to even think to believe we are in a better place.  It all starts with lower fuel pricing.  The key now is for these levels to maintain for a reasonable amount of time, if not fall further.  Demand will be a central player in the equation "where do we go from here" .  At the close, Crude fell $5.30 to $86.63, HEAT dropped .1250 to $2.8939 and RBOB lost a staggering .1941 to $2.7372.  Expect to see a buy back on Friday with Monday's action setting the tone for the remainder of the summer.

heat chart

RBOB CLOSE
                 CLOSE       CHANGE 
  
SEP    27372       -.1941
OCT    26288      -.1763
NOV    26120      -.1659
DEC   26049       -.1605
JAN    26100       -.1593
FEB    26239      -.1587
HEAT CLOSE
          CLOSE    CHANGE
SEP    28939     -.1250
OCT   29048      -.1270
NOV    29169      -.1293
DEC   29293      -.1308
JAN   29416       -.1319
FEB   29424       -.1324
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Topics: Weak Jobs Report, Double Dip Recession, Dow falls 3%, S&P Downgrade, Dollar Strengthens

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