Energy Market Updates

OPEC Tensions and "Break Even" Testing Pause NYMEX Dropoff

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

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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

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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

IMF News, Germany, and the Dollar Pushing Markets Down

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

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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

Monday Puts the Brakes on Friday's NYMEX drops

Posted by Kelly Burke on Oct 6, 2014 3:06:28 PM

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Monday strikes again!

Friday saw Brent Crude drop to almost a 27 month low, dropping to $92/bbl, and WTI for November trading at its lowest level since April 2013.

Today we started with ULSD trending down and gas up slightly, and gas continued to climb through the early afternoon. At the close, ULSD settled up 50 points to 2.6213 and gas shot up +.0347 to 2.4132. Thanks a lot, Monday.  

The dollar continued to strengthen throughout last week, and an unexpectedly good (a relative term) jobs report for the US Friday provided further evidence that the economy is stable to moving forward. The dollar continues to soften commodity futures generally, despite the current geopolitical atmosphere.

Today stocks pushed lower in the US on concerns that the dollar (which actually dropped slightly today) and continued good economic news would push the Fed to raise interest rates. The Fed minutes are due out Wednesday, which should give investors a better idea on the timeline. 

Additionally, supply remains strong and is surprisingly mitigating the factors we almost always see a surge in premium and volatility with. 

There is concern among some analysts slash talking heads that a drop to below $90 per barrel on Brent will spook OPEC into pressuring the Saudi's to cut demand. However, OPEC production hit a 2 year high in September (31 million bpd) and thus far, as discussed, the Saudi's have vowed to hold production targets. We also saw rising production in Russia and Libya, so despite a potential benchmark issue there appear to be no issues on the horizon on the supply side (knock on wood).

 

 

 

 

 

 

 

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Topics: Futures, Dollar falls, Jobless numbers, OPEC, NYMEX

Commodities, Stocks and Consumer Confidence Drop

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

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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

Targeting ISIS - Oil Prices & Air Strikes

Posted by Kelly Burke on Sep 25, 2014 9:27:49 AM

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 Supplies & EIA Data

August saw record high export levels - 3.96 million bpd, up 17% year on year, and refinery output was also up 2.3% over last August. We also saw Crude production surge 16% - largely from Eagle Ford and Bakken shale formation drilling, and on the flip, imports dropped to 7.6 million bpd for the month - the lowest import level seen in August for over 18 years. 

However,EIA data for this past week showed large draws - attributed to those same lower imports we saw over the August period. Crude Supplies were down over 3 million barrels, way off of the 750k barrel gain forecasted by analysts. Gasoline showed draws as wel -lin the neighborhood of 440k barrels.  These draws in supply are supporting the current price levels we are seeing. 

 

ISIL/ISIS & Syria

This week kicked off a coordinateed air strike camaign between the US and primarily Arab Allies bombing ISIS/ISIL targets in Syria.  

Reports are that the major source of funding for ISIS is blackmarket oil - they may be generating up to 3 million dollars PER DAY.

US supplies may actually be a critical factor in targeting ISIS. Why? Because high US stockpiles help stabilize global prices, and lower global prices mean lower blackmarket prices, which hurts ISISs ability to self fund.

Saudi Arabia & OPEC in theory could threaten to curb supply to maintain or force high prices -that would be better for their revenue- however, the Saudis have said they will not change any agreed upon supply. Why? 

Because they want ISIS out of the picture too, so even though this years slide in pricing is hurting the bottom line for some oil producing nations - maintining lower prices forces ISIS to keep cutting the price on black market oil to maintain the discount and the lower it goes, the lower their revenue drops. Add to this that 12 modular refineries are targets for the air strike and you effectively dry up their ability to self fund, as well as their ability to fuel their operations. So, for the Saudis et al - a short term budget shortfall makes long term sense because it can take ISIS out of the equation entirely in the future (in theory anyway). 

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Topics: US Energy Boom, OPEC, Syria, ISIS

Inventory Shocker Reverses the RBOB Slide

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

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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

Stocks Knocked Down on Jobless Numbers, NYMEX Slides Along With It

Posted by Kelly Burke on Jul 31, 2014 7:07:35 PM

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Stocks tumbled triple digits Thursday on a weak jobs report. The S&P 500 and Dow both erased all gains made for the month of July, and todays slides will put July solidly in the negative for the month.

Initial jobless claims spiked last week to 302,000 (up 23,000) over last week - last week being a 14 year low. Continuing claims jumped up by over 30,000 as well, indicating that the economy is still very much wounded, despite some other positive data last week (home sales, CPI, etc). US employment cost ticked up sharply as well (up 0.7 - the highest upswing in since 2008) due primarily to higher health insurance benefit costs per employee (read: Obamacare)

NYMEX continued down today as well, with September ULSD closing down 70 points to 2.8899, and RBOB closing down 0.0183 to 2.8311. Speculation is that with continued stable to increasing supply, the lack of demand means excess gallons so gas pricing is backing off (gasoline inventories were up 0.3MMbbls last week). Low demand/high supply concerns are obviously escalated with a dissapointing jobs report - a high number of initial and continuing unemployment recipients obviously does not bode well for consumer demand for gasoline. 

Meanwhile on the Russia/Ukraine front the newer sanctions are starting to have an impact on US & UK Energy companies. Most companies have been business as usual in the region, even as the conflict rages on, but the more recent sanctions may technically preclude certain slated or ongoing projects from going forward at this time. BP, ExxonMobil and Total all have projects or proposed projects in Russia and its unclear what impact they may be dealt. 

 

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Stocks Slide, Energy Rebounds, and MH17 Fallout Intensifies International Standoffs

Posted by Kelly Burke on Jul 25, 2014 3:31:26 PM

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Continuing fallout over the downed Malaysian jetliner led to increased international tensions today (deja vu?). Russia called US accusations that it supplied the anti aircraft missles responsible "groundless". President Obama insisted that Russian involvement warranted further sanctions by Western nations. And thats what we saw happen this afternoon - Canada issued new sanctions targeting financial and energy related companies (much like the US sanctions from last week) and instituted travel bans on certain individuals. 

Brent was obviously up on the news and continuing tensions that undermine stability in the markets and international relations in general. WTI was up today as well. ULSD closed up a whopping 0.0448 to 2.9157, despite distillate inventories hitting 125.9 million barrels (up 1.64 million barrels) . Gasoline took an unexpected jump as well today - after initially hanging flat to slightly down this morning and closing down 0.0233 yesterday. Inventories have been up on gas, while demand is uncharacteristically low for mid-sumer  (aka mid driving season). In fact, gasoline inventories hit a four week high - but demand hit a 6 week low, and prices still went up. Funny business. 

Additionally, its just breaking this afternoon that Israel has rejected a cease fire proposition brokered by the US, so expect ongoing turmoil there for the time being.

In the broader markets, - stocks slid basically across the board globally, with the exception of the S&P 500 and the Shanghai Index. US Treasury Yields were down and the dollar was up after dissapointing durable goods order numbers - poor numbers on durable goods indicate that there is a lack of capital expenditure still ongoing which is presumably due to a lack of confidence in the stability of the economy.

All in all another busy week with a lot of balls still in the air, and next Friday we can expect the Jobless Report, and the Fed makes a scheduled announcement on their continuing direction next Thursday,,,,, in other words the saga continues! 

Have a great weekend everyone!

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Topics: RBOB, russia, ukraine,, WTI Crude, Hamas, Israel, mh17

International Issues Increase, but Positive Domestic News Keeps Futures Stable

Posted by Kelly Burke on Jul 23, 2014 4:42:01 PM

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Futures ticked down yesterday on positive domestic economic news, even as international turmoil escalated. Inventories were expected to show draws, but other economic data out indicates the economy is continuing to recover. The CPI (consumer price index) was up 0.3%, and existing home sales came in up 2.6%, both of which are good indicators. Today, gasoline continued downward, closing down -.0206 but ULSD inched up a little to 2.8754 (up 0.0212 on the day). Not too shabby considering all the insanity internationally. 

Here's a quick rundown of the international issues that could play out in the markets in the coming days:  

In the wake of the tragic Malaysian aircraft crash, tensions between Russia and the West have hit almost Cold War proportions. Russia and Ukraine both wasted no time blaming the other for causing the crash, and the US jumped in and immediately implicated Russian Seperatists in Ukraine for launching the fatal missle. France and the US are proposing further sanctions, with the US sanctions targetting financial and energy companies by way of denial of bonds with a 90 day plus maturity. 

Today, two Ukrainian fighter jets were shot down by Russian seperatists, lending creedence to the theory that seperatists downed the Malaysian jet, and perhaps implying that sanctions against Russia may be escalated, which could potentially have an impact on markets.

Israeli ground troops invaded Gaza earlier this week after a ceasefire agreement was violated by Hamas in under 4 hours. Tuesday afternoon the FAA grounded all US flights to or from Israel for at least 24 hours on concerns of a Malaysian like incident after a rocket struck within a mile of Israels largest airport. Israel called the US flight cancellations a "coup for hamas", at least on a PR level, which isnt helping urge reconsideration of a cease fire on either side.

Hopefully, in addition to international crises being negotiated, the Domestic news will continue to suggest a strengthening economy and mitigate price spikes.... Stay tuned! 

 

 

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Topics: Commodities, Futures, russia, ukraine,, Hamas, Israel

Energy Market Updates

The information contained in this report has been taken from trade and statistical services and sources believed to be reliable. Dennis K. Burke, Inc. makes no representations or warranties with respect to the content of such news, including, without limitation, its accuracy and completeness. This bulletin is provided for informational purposes only, and is not intended as a recommendation to buy or sell commodities.

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