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

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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

Crude Hits New Lows After Hopeful Bounce Overnight

Posted by Kelly Burke on Jan 19, 2016 3:35:02 PM

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Overnight and early trading on Crude was up - bolstered by the performance of the Chinese Markets (they went up instead of crashing hard enough to trigger the circuit breaker this time). US Stocks, bonds and equities all climbed along, and it looked like today was poised for a rally, or at least the proverbial "dead cat bounce"

However, once the temporary amnesia wore off, Iran coming back online came back into play and the markets took a beating across the board.

WTI Crude closed out at $28.46 - slightly below the $28.50 sub-$30 benchmark some analysts had projected (or more likely hoped) would be the new "bottom". That remains to be seen.

ULSD followed suit with WTI, dropping .0256 to settle at $0.9087, while gas was up 50 points to stay in the $1.02 range ($1.0262 to be precise).

Stocks unfortunately also followed suit with WTI  - as of writing  the Nasdaq, Dow Jones, and S&P are all down - keeping 2016 in the red as it has been thus far. 

The EIA inventories later this week could have a major impact, particularly if there are builds. Most predict draws, but a build on gas could be significant as we could in theory see RBOB follow ULSD below the $1 benchmark. 

Stay Tuned!

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Topics: Iran, Iran Sanctions, RBOB, WTI Crude, $1

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

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

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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

Will Crude Break $30? Will RBOB follow ULSD Below $1?

Posted by Kelly Burke on Jan 13, 2016 4:14:35 PM

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Yesterday, Crude briefly dipped below $30 per barrel for the first time in 12 years, before closing slightly over at $30.34. Crude was up on the overnights, as a result of the API forecast projecting draws of close to 4mmb.

The EIA report this morning, however, quickly reversed the market trajectory when it showed a build of 230K barrels. A modest increase, but the market registered it as significant in the face of the projected draws - at least initially.

At the close, Crude was essentially flat, up slightly to $30.48/bbl.

Despite the slight edge up today, so far Crude is still down almost 15% since the end of 2015.

On the refined products side, analysts correctly projected builds in gasoline - sort of. The expectation was a build of 1.6mmb but EIA data indicated an astounding build of 8.4mmb which sent RBOB tumbling, especially as it comes on the heels of last weeks 10.6mmb build.

On top of product builds, gasoline consumption is down a little over 4% compared to this time last year, which is also weighing on RBOB. At the close today, gas was down over 3, settling out at $1.0528.

Two weeks ago the debate was would RBOB break $1.10 - now it looks like the question over the next week or so could very well be "will RBOB follow ULSD below a dollar?"

Distillates showed a build of 6.1mmb as well, and this on the heels of ULSD dropping below $1 on the screen, following its drop on the cash markets. Tuesday broke the $1 level - closing down .0248 to $0.9901, and today ULSD shed another 2 to settle at $0.9694.

In addition to the build, distillate consumption was reported as being down 12% versus this time last year, partially as a reflection of the precipitous drop in heating oil usage due to our unseasonably warm weather.

On a macro level, the Chinese economy continues to stumble, and US stocks continue to get battered as they essentially have been since the opening bell of 2016. Today, as of writing, the Dow is down over 300 points, the Nasdaq is down triple digits as well, and the S&P is officially in correction.

Additionally, as mentioned before, the ongoing standoff between the Saudi's and Iranians after severing diplomatic ties ensures that at least for the time being, OPEC production will remain at record levels. Add in the unseasonably warm weather and the drops in demand/consumption across the board, and all of the sudden that "crazy" projection by some that we could see oil in the $20's doesn't seem so crazy after all.

 

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Topics: CRUDE, RBOB, NYMEX, EIA Inventories, ulsd, $30 barrel

Stocks & Oil Markets Take a Wild Ride Into 2016

Posted by Kelly Burke on Jan 6, 2016 3:25:23 PM

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The last day of trading in 2014 saw Crude close out at $53.27/bbl, which was down 45% from the prior year. 2015 continued the trend with WTI dropping another 30% over the year - with December 31, 2015 settling out at $37.04.

This week we crashed down through the $35-36 dollar support levels and are rapidly approaching the next one of $32.50/bbl after todays tumble resulted in Crude closing out at $33.97/bbl.

Let's take a step back and look at what went on this week to push oil prices down 8% since December 31st.

Monday, January 4th, markets initially shot up with ULSD and RBOB both jumping over a nickel by 10am (+.0516 and +.0576, respectively), before almost immediately changing course - both products were down by noon to flat on ULSD and only up .0156 on gas. So what happened?

Monday brought the news that the Saudi's had cut all diplomatic ties with Iran and ordered all Iranian diplomats to leave the country within 24 hours. This was in response to the Kingdom executing 47 people over the New Years weekend, including and most importantly, a renowned Shiite cleric, which prompted riots and vandalism to the Saudi embassies in Iran and Bahrain. 

As the day went on however, the analysis of the story moved from fear of international conflict bumping up cost over supply disruptions, to the realization that the standoff between Iran and Saudi Arabia meant that this could essentially be the death knell for OPEC. As far as the bears see it, this breakdown of relations essentially guarantees the Saudis will not take any moves to cut production in order to stabilize pricing, because to do so would greatly help Iran, in that the newly allowed exports they promise to flood the markets with would generate them much more revenue. 

Economic data from China Monday supports the bears as well. It was a factor in pushing down oil prices, as well as being responsible for crushing European markets and resulting in the single worst year opening for the Dow Jones since 1932. Overnight, Chinese stocks crashed over 7% and led to a halt in trading across the board - a halt that didnt come soon enough not to pummel stocks internationally. One can only hope the old Wall Street adage "As goes January, so goes the year" is wrong this time. 

There was some bouncing around Tuesday, particularly on the overnights as investors and analysts weighed the API projections that predicted draws in Crude stocks to be announced Wednesday. However, today's EIA report showed just the opposite, and swiftly tanked the market across the board. At the close, ULSD lost -.0446 to settle at 1.0807, RBOB shed almost ten cents (-.0949) to close at 1.1618 (very close to the $1.10 support level) and Crude settled down $2 at $33.97.

What next? Bears are predicting oil hits and potentially breaks through the $32.50 support level for a brief stint in the upper 20's ($28 range), while the Bulls are predicting a jump back to the $37 level. We shall see. 

Stay Tuned!

 

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Topics: Iran, EIA, CRUDE, OPEC, API report, FED rates

OPEC Holds Firm on Output Levels

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

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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

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

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