OPEC Chatter Drives up BRENT, Friday Trading Reverses CRUDE Rally

Posted by Kelly Burke on Oct 24, 2014 1:52:54 PM

Line charts depicting the stock market scattered on a table

Thursday saw prices tick up after it was reported that the Saudi's output dropped from 9.69 million barrels to 9.36 million barrels. There has been some chatter and concern around the scheduled OPEC meeting in November. The concern being that OPEC will push curbing supply to stop the price declines we've seen in recent months. Brent Crude was up 3% on the news, the highest its been in 4 months.

However, despite the OPEC chatter, the Saudi's have said they will keep output at scheduled high levels even with lower pricing to maintain market share. Additionally, reportedly only a small number of members have suggested supply curbing.

US Inventories surged on this weeks EIA report as well, up 7.1 million barrels to a little over 377 million barrels, which was about twice what analysts predicted, and hopefully helps to calm some of the potentially unfounded fear of OPEC that's pushing volatility. 

If we look back, the 20% drop in crude pricing we've seen over the past several months have been directly related to an abundance of supply, and with US oil production surging ahead, and the Saudi's not indicating they will initiate any sort of hold back to drive prices up, the situation remains the same and the volatility should back off. However, it's possible that some roller coastering will remain until after the meeting, when its officially settled whether or not we have to worry about supply curbing. 

The market seems to concur today, though, with both Brent and WTI trending back downwards.

ULSD & RBOB are trending down on the NYMEX today as well, down about a penny and a half on both at the moment. Both products closed up significantly yesterday - ULSD +.0256 to 2.499 and gas up +.0513 to 2.2069, which effectively cancelled out Wednesdays drops of .0398 and .0578, for those keeping score at home.

 

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Topics: Brent Crude, CRUDE, RBOB, OPEC, WTI Crude, EIA Inventories, ulsd

OPEC Tensions and "Break Even" Testing Pause NYMEX Dropoff

Posted by Kelly Burke on Oct 17, 2014 9:08:15 AM

Abstract image of an oil rig, dollars and a calculator

Thursday we saw ULSD settle out to erase most of Wednesdays drop - Wednesday it closed down -.0136 to 2.4586, and Thursday settled out at 2.4703 (+.0117). Gas not only erased Wednesday's 3 cent drop, but rebounded up +.0622 for the day to 2.2109. This morning, ULSD is trending up about a penny/penny and a half, while gas is hanging in the +.005 range, both having backed off earlier jumps.

So what's going on?

EIA stock reports came out Thursday (thanks to Columbus Day) and showed a build in Crude (+8.9 million barrels), a drop in gasoline (-4 million barrels) and distillates were down as well (-1.5 million barrels). CRUDE actually hit a 52 week low for a brief moment Thursday morning prior to the reports' release but ended up settling out at 82.70

With a decent stock report though, why is everything up when we've been on such a streak? Most likely culprit is the increasing tension slash standoff within OPEC. Historically, when prices dropped below a certain benchmark and started impacting the revenue of OPEC nations they could slow production output somewhat to stabilize. 

But now with thee US becoming a major player in global supply, thing have gotten a little awkward. Its possible that normal rampdowns in output will no longer have the huge impacts on price they once did, given that these nations are now not essentially the only players making an impact. 

However, a lot of analysts speculate that the reason OPEC is taking the giant hits to their nations' revenue without stalling production is an attempt to "find the bottom" and let supply run up to test what level American production can maintain in the face of dropping prices, especially given that the projected minimum level would be around $80 in order to still be profitable production from Shale.

Additionally, in comparison to OPEC operations, a lot of American projects are just that - projects - and in the face of falling revenue, its possible some of the higher cost, longer payout projects will stall out. However, given the remarkable jumps in efficiency from fracking to refinining we've seen domestically, it will be interesting to see where that level might actually be.

Given the weakness of the global economy, raising prices may be a tricky game with less return than anticpated as well, given the concurrent drop in demand. Saudi Arabia, who produces about a third of the OPEC output also looks motivated to maintain market share by any means necessary even at a short term loss in revenue. Specifically it appears motivated to maintain market share in the Asian teritorries - which will probably become even more relevant to them over the coming years, especially if the Alberta to St John pipeline project is approved which would open Canada up to export and become yet another global competitor on supply. 

 

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Topics: CRUDE, OPEC, EIA Inventories, shale

Retail & Market Prices Drop on Crude Supply & Pricing

Posted by Kelly Burke on Oct 8, 2014 1:44:23 PM

Fuel pump filling up a commuter car

EIA weekly petroleum report showed inventory gains across the board.

Analysts had expected much smaller builds in CRUDE than the actuals, and had anticipated drops in both gasoline and distillate inventories - neither of which came to fruition. (Who are these "analysts" anyways - not even CLOSE, guys!)

  • CRUDE: inventories jumped 5 million barrels. (Expectation was a build of 1.9 million barrels)
  • Gasoline: inventories jumped 1.2 million barrels, while the EIA showed a drop in consumption of 1.3%. (Analysts had anticipated a 900K barrel drop)
  • Distillates: inventories were up 400K barrels. Both production and consumption levels dropped for distillates. (Analysts had antipated a 1.2 million barrel drop) 

Retail gasoline prices in the US have been trending downward big time, spurred on by the drop in CRUDE prices, as well as weakening demand. The reported average for last week was 3.41/gal in September which is almost 30 cents below the average price 4 months ago. AAA is reporting that the current average gasoline price is $3.267 - a little over 8 cents a gallon cheaper than this time last year. 

Lower global demand, high supply, and a bleak global economic outlook (we're looking at you Europe) dropped Brent Crude to lows we havent seen in years - September was the first time Brent traded under $100/bbl in 2 years, and last week saw Brent hit $92, close to a 27 month low.

WTI is trading down as well, having broken through several resistance levels, and hit $86.20 after the EIA report hit this morning. (At the moment its -1.53 to 87.32 on the electronics)   

The NYMEX is trending down today again, currently ULSD is down over 3 cents (-.0326 to 2.5747) and RBOB is down over 4. (-.0466 to 2.3217)

Stay Tuned!

 

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Topics: European Economy, Brent Crude, Gasoline demand drop, CRUDE, WTI Crude, EIA Inventories, retail gasoline

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

Inventory Shocker Reverses the RBOB Slide

Posted by Kelly Burke on Aug 6, 2014 5:13:22 PM

Line charts depicting the stock market scattered on a table

A continuing poor outlook on gasoline demand and (presumably) increasing stockpiles continued to push RBOB futures down this week -  that is until it took an abrupt about face today on a shocker of an inventory report. Analysts were predicting a build of around 300,000 barrels but - surprise! - the report showed a draw of over 4 MILLION! 

ULSD settled up as well  - analysts had predicted a 900,000 barrel build and instead we saw a 1.8 million barrel drop. 

If you were stuck to the screen today, we saw NYMEX react to the panic, with gas going up over 5 cents and ULSD up over 3 breifly, before both backed down some. At the close, gas settled up .0242 to 2.7397, and ULSD closed out up .0292 to 2.8761. 

Prior to today prices were looking to go the right way - Monday saw CRUDE futures hit a 6 month low. The month of July saw WTI fall by over 6%, which is the biggest drop we have seen in more than 2 years. Prices had hit a high of 104.59 on fears over Russian supply (export) disruption after the MH17 flight crashed in Ukraine, but have backed off since those fears haven’t come to fruition. 

Earlier this week additional seemingly positive economic indicators also pushed the dollar up, which often causes a drawback in commodity pricing - which we saw happening until today's inventory numbers were released. 

Reports indicated strong growth in the manufacturing  and service sectors, with the Commerce Department pegging manufactured goods orders and durable goods orders both up over 1%.  All of these are good signs (in theory at least) that the economy is continuing to strengthen, particularly given that the positive numbers surpassed projected expectations.  

Hopefully given the generally positive economic data for the week, traders adjust to the inventory shock quickly and we'll see a correction over the next few days. 

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Topics: RBOB, Inventory Draws, WTI Crude, EIA Inventories, economic data

Sino-Russian Gas Deal, Ukrainian Post Election Violence, and Contracting US GDP Numbers - Oh My!

Posted by Kelly Burke on May 30, 2014 2:14:20 PM

 

Russian and Chinese leadership

(image credit: Wikimedia Commons)

This week the market once again bounced around on conflicting data - likely to do with inventory numbers versus economic growth (actually a lack thereof), demand projections, Ukranian violence, and a whopper of a Nat Gas deal between Russia and China.  So much for a nice quiet 4 day week, hmm?

Internationally, Ukraine saw an explosion of fighting and casulties above and beyond what we have seen thus far in the wake of the Presidential election (which went to Petro Poroshenko, former foreign minister). Poroshenko reportedly stated he would deal with the rebel forces in "hours not months" and vowed Ukraine would refuse to aknowlege Russia's annexation of Crimea. Thursday the 29th saw helicopters shot down, killing 12 Ukrainian soldiers, and over 100 people killed in a second airport assault. Like we've talked about, bad news for Ukraine is bad news for Brent generally, and Thursday was no exception, it shot up over 35 cents on the ICE - but dropped back down today - it looks like it will settle the month out up 1.3% but down around 1% for this week. 

Russia and China signed a $400 Billion (with a B!) 30 year gas supply contract this past week as well. The Moscow newspapers claim the deal is not just about Ukraine (although they admit its a tipping point). Merryl Lynch's analysis is that the deal is a good move politically, but may not be the best business deal going. With the EU market shakier for Russia's Gazprom over Ukraine, and the EU also looking into alternate supply options/relaxing regulations, it may well prove to be a good deal in the long run business wise as well, though. The deal was also somewhat inevitable, given the Chinese demand levels and proximity. It also takes the wind out of Canada's LNG-exportation-to-Asia sails to some degree, or at least gets Russia ten steps ahead in the Asian markets. An unintended consquence for the EU though is that now they are under pressure to actually diversify supply, not just threaten to. Be careful what you wish for, right?

On our side of the pond, the news was more peaceful but not much more positive. The Bureau of Economic Analysis released its revised data on the US GDP for the first quarter of 2014. If you recall from our discussion last week, most people were not thrilled to hear the original number of GDP growth at 0.1% for Q1 - and now, the revised numbers actually show US GDP at -1.0%. Personal income and personal spending levels both barely increased at all (0.3 and 0.2%, respectively; and home sales fell 60% short of estimates. On the other hand, both the S&P 500 and the Nasdaq 100 hit all time highs. Go figure.

US Crude inventories were up again - but down again at Cushing, which should have supported (in theory) the current WTI pricing. Thursday saw prices up on the inventory news as traders zeroed in on Cushing levels, versus the overall supply increase. Distillate stocks were down and Gasoline supplies fell by 1.8 million barrels, despite expectations that we would see builds in the 200K barrel increase. This pushed gasoline up during trading yesterday, specifically on July trading, although at the close it crept down to only a 77 point gain. ULSD ended up closing down over a penny (-.0116), and both RBOB and ULSD are down today on demand expectations based on the horrendous GDP revised numbers published this week (more on that later). This number has an across the board impact because the US is the number one consumer of petroleum products, and a slow economy indicates lower demand and therefore lower prices. 

Essentially, it appears that because there are so many different factors at play domestically and abroad, they're sort of cancelling each other out (at least most days) and keeping pricing within the range we've been seeing for a while now. This will probably continue until either the US economy rebounds, the Ukrainian crisis abates, or some other wrench gets thrown into the mix. Stay tuned!

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Topics: CRUDE, RBOB, russia, ukraine,, EIA Inventories, Sino-Russian Gas Deal, Gazprom, Russian Chinese Gas Deal, US GDP

Libya, Labor Participation, & GDP Woes Keep NYMEX Positive Despite Projected Inventory Builds

Posted by Kelly Burke on May 20, 2014 2:26:19 PM

Line charts depicting the stock market scattered on a table

Analysts expect that the EIA report due out tommorow will show US Crude stocks hitting a new record high. So why isn't the market coming down?

For one, levels at Cushing (the NYMEX physical delivery point) have hit multiyear lows since the pipeline to the Gulf came online in January, which has an impact seperate from overall crude levels. WSJ cites some analysts who think Cushing could hit minimum operational levels, and thats keeping some skepticism in the market and supporting the price.

Secondly, international concerns are always a factor, and Europe is dealing with more than a few energy related headaches this week. Brent Crude is hanging in there at over $109, which is largely being blamed on the ongoing issues with Libya. Libyan production has been capped well below 2013 levels, and major oilfields remain closed down despite government promises they would be up and running by now.  Perhaps more of a dire sign for the area though -  France's major oil player in Libya, Total, has cut presence in the country down severely, and Algeria's Sonatrach has evacuuated their employees - both companies did so on security and safety concerns. Not good news for hopes that war torn Libya would be stepping back in as a major supply player anytime soon. 

Russia and Ukraine are still essentially in a standoff as well, with the usual reports of progress being made but none seeming to really materialize. 

On another note, Domestically, like we talked about before, the economic recovery picture is not looking particularly sunny. There is a lot of heated discussion about the "real" jobless numbers and the labor participation rate. At the start of the summer job season, the amount of people under 25 in the work force dropped almost half a million, and the unemployment rate for 16-19 year olds hit the second lowest number ever.  Additionally, the GDP is moving at a crawl, the Bureau of Economic Analysis estimated GDP grew 0.1% for Q1 of 2014 - not a great number in and of itself, but especially painful given that projections put it at a full 1%. Not very confidence inspiring, which tends to lend itself to higher commodities pricing (just ask a gold nut). 

 

 

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Topics: Brent Crude, Libya, CRUDE, russia, EIA Inventories

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