IEA Forecasts and Inventory Numbers Push Commodities Closer to New Lows

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

MArket Analysis

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

The Bears Have It - EIA Report Slashes Tuesday's Gains

Posted by Kelly Burke on Nov 4, 2015 3:22:39 PM

WTI Crude

Today's EIA Inventory Report indicated that Crude Inventories were up 2.8 million barrels for the week ending October 30th, and the market reacted accordingly. API had forecast a build as well, so prior to the EIA release we were trending down about 1%, which accelerated to over 3% once the official numbers came out. 

A few interesting notes about the build - it occurred due to a domestic production increase of 48,000 bpd to 9.16 million bpd. This increase happened despite the Baker Hughes announcement that rig counts dropped another 16 to the lowest level since 2010, and despite US imports falling to their lowest weekly level since 1991. (Down to 6.4 million barrels per day, if you're keeping score at home.)

It also happened despite the fact that every single issue that spiked the market yesterday is still very much in play. The Libyan port is still closed under occupation. The Brazilians are still on strike at PetroBras. The Colonial pipeline's Houston facility is still flooded and not allowing any deliveries or originations to occur. (You can get a recap of yesterday here: Monday sinks on Demand, Tuesday Surges on Supply )

And yet here we are, narrowly missing a complete reversal of yesterdays surge across the board. 

Gasoline was projected to show a 1 million barrel drop, but instead dropped 3.3 million barrels - yet RBOB settled down -.0536, not quite erasing yesterday's 7 cent jump but coming close, considering the drop in inventory should in theory have pushed gas further ahead. 

Distillates did the reverse of gasoline stocks - they were projected to drop 1.8 million barrels, but instead dropped 1.3. ULSD closed down .0625 to 1.5035, more than erasing yesterday's jump of just under 6 cents. 

The October Jobs report is likely the next major news for the market, due out Friday. Maybe we will get lucky and get a breather tommorow. One can always hope. 


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Topics: RBOB tumbles, CRUDE, EIA Inventories, oil glut, Jobs Report

Monday Sinks on Demand, Tuesday Surges on Supply

Posted by Kelly Burke on Nov 3, 2015 3:22:33 PM

Yesterday we saw the beginning of a reversal of last week's rally on more bad economic news from China that came out over the weekend. Specifically, manufacturing dropped again, remaining under the level that is seen as official contraction. Once again, this impacts the oil markets because we're counting on their demand remaining high, or even increasing. That doesn't happen when your manufacturing slows down. Monday settled down marginally with the exception of gasoline. (Crude at 46.14, ULSD down -.0098 to 1.5069 and Gas up 37 points to 1.3753).

Today however, was an entirely different story. At the close, ULSD settled at 1.5660 (+.0591), Gas was up (+.0702) to 1.4455, and Crude was up almost 4% to 47.90, with Brent settling up 3.5% to $50.51.

 What Happened?!

Bloomberg & The Wall Street Journal are reporting that in yet more infighting between Libyans and militia factions, Libyan Oil Ministers announced the indefinite closure of a major port by force majeure after the port came under control of "an armed militia". No word yet on who that militia was. The closure will drop Libyan production/export by approximately 70,000bpd. As discussed before, Libya was a major exporter historically, with a capacity of about a million and a half barrels per day but since the country essentially went into a tailspin, that's been dropping. This latest closure brings them down to under half a million barrels a day - less than a third of their capacity.

In Brazil, oil workers began striking Sunday, and reportedly have already dropped State run Petrobras' output by approximately 25%.

So today obviously jumped on supply disruptions - but globally, we are still looking at a supply glut, especially when we look at Chinese economic data and Iran's announcement that they are working towards another half a million barrels a day coming online.

Barring extreme scenarios, one would assume prices would back off some, or stabilize on supply, rather than continue to surge on it. A big mover tommorow could be the EIA Inventory report, and later this week we're looking at more Fed talks. Also, the October Jobs report out on Friday will undoubtedly move Wall Street, but we will have to wait and see how that may or may not impact the NYMEX. 

Stay Tuned!





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Topics: Libya, WTI Crude, china, brazil

Two to Contango - Weather & Supply Crush WTI & Nat Gas

Posted by Kelly Burke on Oct 26, 2015 4:49:36 PM

Another day, another price drop.

Both Brent and WTI Crude have shed about 10% of their value over the past two weeks, and those losses continued today.

Today, front month (December) WTI dropped from Friday’s $44.60 to $43.98, while front month (November) ULSD dropped from 1.4544 to 1.4259 (-.0285) and RBOB dropped (-.0157) from 1.3036 to 1.2879.

WTI Crude is continuing to show an ever widening contango, with front month discounts at a 5 month high and still going. 

What’s behind it? Supply, supply, and more supply, with an added kick of above average temperatures for the season and a forecasted lighter winter.

Despite the fact that US rig counts have dropped to their lowest level since 2010, supply just simply has not slowed down enough domestically - US Crude is up 5% in just the past 4 weeks, to the highest level we’ve seen this time of year since the 1930s. And as we’ve covered extensively, OPEC output remains at sustained high levels abroad.

As an aside - we talk a lot about the supply glut in reference to Crude, but it’s becoming a serious issue on refined products and Natural Gas as well. There is fear in Europe about refined products, specifically diesel, hitting “tank tops” – in other words the supply hitting or exceeding maximum storage capacity.

Although it’s not likely tank tops will actually be hit, the fact that the concern exists speaks to the level of over supply we are looking at. (According to Reuters, aforementioned stockpiles of refined products are resulting in diesel and jetfuel cargoes taking longer routes and backing up outside of European ports.)

Natural Gas has been plummeting as well, and today NYMEX Nat Gas saw its largest single day drop since February of 2014. It dropped almost 10% on the winter forecast and supply gluts, the same concerns that have been pummeling Crude. Natural Gas, like WTI, is in contango at present, and there is no real indication it will reverse course any time soon.

To add some gasoline to the fire (pun very much intended) – Goldman Sachs today warned that it expected downward pressure on oil and distillates through Spring 2016 based on supply and weather forecasts, while other analysts proclaimed Natural Gas would be facing the same issue, with concern about capacity max outs and no foreseeable reason it should have the price spike we almost always see as we round into the winter months.

Who wants to bet on how those announcements impact trading tomorrow?


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Topics: natural gas, wti, oil glut, contango

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

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

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

Crude Rallies Again on Escalation in Syria & Uncertainty in Iran

Posted by Kelly Burke on Oct 8, 2015 3:38:13 PM

Crude came back in a big way in trading today – with intraday highs briefly breaking $50 before settling out at $49.43/bbl. (Fun fact – we haven’t seen WTI break $50 since July)

ULSD and RBOB rallied as well, with ULSD closing up (+.0222) to 1.6018 and RBOB up (+.0178) to 1.4078.

It appears that yesterday’s inventory-induced drops were a one-time thing, and the market has shifted its focus to escalation in Syria.

On Wednesday Russia launched its first round of naval assaults on Syria, and today saw more airstrikes. Of note, in one of today’s campaigns, the Russians reportedly fired 26 Cruise missiles at Syrian targets. Reportedly however, at least 4 of them hit Iran instead. Yes, Iran. There has been no comment from Moscow, but US sources are confirming the hits.

This obviously fuels concern about the conflict in Syria not just escalating, but spreading throughout the region. Adding to the regional uncertainty, Ayatollah Khomeini has reportedly balked at further negotiations with the US on the controversial so called “Iranian Nuclear Deal,” claiming the US would use it to undermine the Islamic Republic’s fundamental interests, which will likely lead to more uncertainty in the Middle East, and also led to speculation that Iranian sanctions may not, in fact, be lifted which would obviously result in their exports not coming back online.

However, despite today’s jump and the ongoing conflict, there is still consensus among many that the US stockpiles are the indicator to watch. Goldman Sachs announced they would not only not be raising their price forecast for 2016, but that they were not ruling out dropping it further. Their calculation is based on the continued presence of the oil glut and record production.

Of note domestically, the House is expected to vote on and pass a repeal of the Crude Export Ban tomorrow. It’s unclear whether it will pass the Senate yet, but the White House has already issued a statement that it will veto the bill. There may be some market rumblings depending on how the bipartisan bill fares in the Senate early next week.  

Stay Tuned!

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Topics: Iran, Iran Sanctions, CRUDE, Syria, russia

Crude Reverses Early Gains on Surprise Inventory Data

Posted by Kelly Burke on Oct 7, 2015 3:57:52 PM

Today once again started in positive territory, with Crude up almost 2% and refined products creeping higher, but we saw a quick reversal mid-morning when products dropped into the negative, where they would end up settling at the close. (Crude ended up settling down to $47.81, ULSD was down -.0319 to $1.5796 and Gas dropped -.0462 to $1.390)

What happened?

Early in the day products were up on the EIA announcement that they are projecting demand for Crude would hit its fastest pace in 6 years in 2016, even as US production is expected to decline.  This implied further easing of the so called oil glut, which could keep a stable pressure on prices going up, in theory.  

Additionally, API projected yesterday that Crude stockpiles would show a draw of 1.2mmb.

Consequently, WTI hit a brief intraday high of 49.71, just under the $50 psychological benchmark.

However, gains were pared quickly when the EIA Inventory Report showed a build in Crude stockpiles of 3.1mmb to 461mmb, higher than any analysts had predicted. That puts Crude and petroleum product stockpiles at a high of 1.3 billion barrels. So much for a slow-down of the oil glut, eh?

Another bearish signal is that thus far into hurricane season, we have not seen any major supply delays, or refinery damage/shut downs, which are usually cause for temporary price jumps this time of year.  There is also still the looming question about what happens to global pricing when Iranian exports come back online at full capacity.

Some analysts are cautioning that traders and speculators are taking the proposed Russia/Saudi Arabia meeting too seriously, in that they don’t see them coming together on any type of agreement on raising prices by cutting supply. That would seem to be supported by the recent Saudi price drop for exports. It’s also worth remembering that Russia and Saudi Arabia are diametrically opposed in terms of the war in Syria, which may not bode well for any sort of collaborative action.

Stay Tuned!

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Topics: CRUDE, Syria, russia, WTI Crude, EIA Inventories, saudi arabia, oil glut

Crude jumps 4.9% on Rising Tensions, Dropping Rig Counts, and Russia

Posted by Kelly Burke on Oct 6, 2015 3:32:20 PM

Yesterday we saw Crude jump almost 2% on a weaker dollar and speculations about Russia and OPEC’s upcoming meeting. Today more fuel was added to the fire (no pun intended) and we saw Crude continue to jump, settling out up an additional 4.9% to $48.53/bbl. Going along for the ride, ULSD closed up (+.0632) to 1.6115 and RBOB jumped (+.0509) to 1.4362.

What’s going on?

Primarily Russia and their proposed meeting with the Saudi’s on energy projects and outlooks, as discussed yesterday. (for a quick refresher, read this: Russia, OPEC and a Weaker Dollar - Oh My!).

Interestingly, before the meeting news broke on Monday, the Saudi’s had abruptly announced they would be slashing the price of their oil exports to retain market share – not a good sign for the global economy (demand), or the global supply situation. But the signal that OPEC may be willing to talk, specifically that the Saudi’s are, has more than eliminated any pull back the price cut could have been expected to have.

 Additionally, the Baker Hughes rig count report indicated further drops (down an additional 29), causing Goldman Sachs to project that US production will drop by 225,000 barrels per day in 2016. Reuters is also reporting that Libya’s production has fallen below 25% of the levels it sustained prior to the ouster of Ghaddafi.

Its possible traders are seeing at least a slow-down in the growth of the oil glut on the heels of these news items, reading it as a bullish signal for prices, and acting accordingly.  

There is rumor of a Chinese stimulus attempt as well, aimed at ramping up economic growth in that country, and therefore oil demand. As we’ve discussed before, news out of China is almost always a big driver of market moves, as they’re still the “hail Mary pass” on global economic recovery everyone is holding out for. Positive news from China = Positive numbers on the screen.

Keep in mind - the tense standoff between the US and Russia in Syria may become an increasing factor over time. Yesterday the Russians violated Turkish airspace, and we’ll have to see if there’s more sabre rattling from the Russians, or equally likely, hawkish overreaction by the US or NATO.

Stay Tuned!

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Topics: CRUDE, OPEC, Stimulus, russia, china

Russia, OPEC and a Weaker Dollar - Oh my!

Posted by Kelly Burke on Oct 5, 2015 3:38:37 PM

The markets are up across the board today, from stocks to Crude oil. 

ULSD was up +.0284 to 1.5483, and RBOB shot up +.0439 to 1.3853, front month, at the close. WTI Crude was up almost 2% to close at 46.26/bbl. 

What happened?

Reportedly, Russia is open to talks with OPEC and other oil producing nations to discuss pricing and global supply. Although no actual meeting has been proposed, traders were still optimistic, and both WTI and Crude jumped up on the news. (Prices were also bolstered by a perceived weakening dollar – more on that in a moment.)

Additionally, apparently Russia and the Saudi’s have a meeting scheduled this month to discuss energy projects, and one can probably assume this will include how they will approach the OPEC meeting, if there ends up being one.

On Wall Street, disappointing job numbers from last week, coupled with a statement from the Boston Fed Chair that growth would have to be hitting 2% target rates to justify an interest rate increase resulted in a semi consensus that the odds the interest rate goes up in October is around 10%. As a result, stocks were up….but for how long?

While the Fed delay was good for Wall Street today, it’s not really a good sign bigger picture, both for Wall Street and the US in general. We saw one effect of that today, where the jump in commodity pricing can be somewhat pegged on the dollar starting to weaken on soft economic data and the implication that the US economy is not strengthening on its anticipated trajectory, as implied by the Fed delays.

Something of note internationally, that could have broad impacts on the markets, is that tensions between the US and Russia are approaching Cold War levels as Russia continues air strikes in Syria. The strikes, ostensibly part of a multifaceted attack on ISIS in Syria have apparently actually been hitting anti-Assad rebels, who are at least nominally supported by the US. To add another splash of gasoline to the fire, this weekend a Doctors without Borders hospital was bombed in Afghanistan, and it appears a US aircraft may have been involved, which could obviously have devastating international consequences, both geopolitically and otherwise.

Stay tuned!



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Topics: OPEC, FED rates, Syria, russia, WTI Crude, ISIS

Standing Headline: Fed Talks,Chinese Economic Data Pummel Stocks,Crude

Posted by Kelly Burke on Sep 28, 2015 3:46:53 PM

WTI dropped 2.8% today to close out at $44.43 a barrel, while Brent closed out down 2.5% . On the refined products side of the NYMEX, ULSD and Gas both took a pummeling as well, with both down over 4 on the day. To be exact, ULSD closed out down (-.0453) to 1.4772 and RBOB closed down (-.0471) to 1.3488.

So whats going on?

For one, the news from China today was that industrial companies there have seen profits plummet at a faster level than they have in four years, resparking speculation that China's economy is really struggling a lot more than everyone has been assuming. As previously discussed, Chinese economic data is such a huge indicator because they are a top commodities consumer, and strong economic data from China is basically what traders and analysts are "hanging their hat on" as a potential for growing demand to stave off the price crushing effects of the oil glut.

The IMF Managing Director also announced today that although the economy was still recovering from the recession, the pace had decelerated, and the 3.3-3.8 GDP goals for 2015 & 2016 were now "unrealistic". This in combo with the bleak Chinese data pushed crude down quickly both overseas and domestically. 

In related news, Shell announced today that they will be pulling out of Arctic drilling exploration in Alaska. This is primarily a result of the sustained drop in oil prices, and follows a growing trend industry-wide. Over half of American rigs have been decomissioned, and investment into new oil sands projects and new gulf drilling projects has dropped substantially.

Simply put, theres just too much oil out there now to invest huge sums of money into procuring even more of it.  

Wall Street took a beating today as well on Chinese data, the IMF remarks, and continued rumor milling over the timing of the Fed Rate hike. The president of the NY Fed suggested it could happen as soon as October, where others have speculated December was the likely target date. So once again, Fed talks and the resultant speculation, combined with some more "surprise" bleak economic data hammered stocks today - which is starting to seem like a standing headline at this point. 

Stay Tuned!


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Topics: CRUDE, FED rates, economic data, stock market, IMF, brent, wti, china, fed

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