Energy Market Updates

Inflation Reduction Act Helps Keep Downward Trend Intact

The past two weeks has seen ULSD rise, and subsequently fall almost $.20 on the front month.  Much of the dip in the last few days came as market players were able to digest some of the details in the 785 page Inflation Reduction Act which appears to moving its way through.  One piece which many believe will have the most impact on futures is that the bill revives lease sales canceled or delayed by President Biden including: one in Alaska’s Cook Inlet  and three in the Gulf of Mexico.  This section also appears to require the Biden Administration to adopt Trump era directives for 2022 oil and gas leasing established.

 Yesterday was clearly driven by inventories and demand concerns with gasoline.  However, distillates were the red headed step child, shrugging off any loses and actually finishing the day higher as demand numbers stayed healthy and inventories dipped.  Crude and gasoline took all the attention with a surprise build in crude and an almost 8mbpd drop in gasoline demand.  It’s really an odd disconnect but many of us actually see it on a daily basis.  Construction, trucking, etc remains strong but on a personal level we may be starting to pull back our own driving habits. 

An OPEC+ hike of 100,000 bpd is rather insignificant as they usually over produce or under produce by that much anyway.  Markets will always have bounces in either direction but often time the trend is still intact, and it appears the downward trend is still there. 

August 4 ULSD

 

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Despite Early Week Gains, the Trend is Still Your Friend on ULSD

With Friday and Mondays' sessions cutting into the recent losses on ULSD by about $.35, it’s important to keep in mind the trend is still your friend. With early morning action seeing ULSD down $.08, we are still down over $.80 in the last few weeks. 

Downward pressure continues on the pit with yesterday’s build across the board on crude and products, the Inventory report erased nearly all of the early morning gains.  Inventories are now almost to the low end of the 5 year average. 

The daily volatility in both gas and diesel makes it extremely difficult to provide quotes.  Shameless plug….  The DKB Exchange allows you to secure real time pricing on product…..   Yesterday, ULSD was up almost $.11 at one point and down over $.05 before closing up marginally $.0033 to $3.6659.   

Inflation is now at a 40 year high, which also posed concerns as its widely expected we will see another rate hike by the FED, which will likely pressure demand and continue to push futures down.  This time of year we always have to keep in mind NOAA hurricane estimates, and with an “above Normal” estimate in place with 14-21 named storms for this season, there could be some storm premiums shed in the market if this does not materialize.   Supplies of finished product still remain tight in areas with the backwardation not going away, albeit getting smaller. 

The hope is, that in the next 60 days or so we get back to normal spreads.

 

7-14 ULSD

 

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Energy Prices Improve as Other Economic Indicators Worsen

In just over two weeks time, front month ULSD is down $1.00, with over $.50 coming in the last two sessions alone. 

It appears that many decided over the long holiday weekend that there is a real concern of a global recession on the horizon.  The economic contraction would ultimately be a demand killer.  Funny thing about recessions is that we are typically in them for a quarter prior to actually labeling it officially.  A recent GDP tracker indicated that the US contracted 2.1% in Q2.  Adding a Citibank forecast posted Tuesday putting WTI Crude trading in the $65 range by years end should a recession take hold.  Currently WTI is just under $100 at $99.41. This along with a surprise build in crude inventories of 3.8mbls pushed all products sharply lower yesterday despite larger than expected draws in both gas and distillates. 

The question remains if the fundamentals in the fuel markets still exist or if this is merely a speculative long position fear sell off.  As we mentioned earlier, domestically, we have the crude.  However, we lack the ability to transport and refine it quickly.  This fear/reality is what was primarily responsible for this years rise.  Shortages were and are real, but they appear to be getting better.  The backwardation prevented many from putting any finished product in tank for fear of overnight value losses.  The backwardation in ULSD still exists but is only about $.05 month to month, at one point it was over .$30. 

The good news bad news appears to be what is coming, we should see lower energy prices and more product available, but other economic indicators will likely suffer. 

7.7.22 ULSD

 

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Prices continue upward; high costs fail to derail consumer demand

Over the last 2 weeks front month ULSD has risen almost $.80  in futures trading,  but it looks like the driver of the run up maybe that crazy cousin RBOB.  Gasoline typically rises this time of year but many thought this year would be different.  Sky high retail prices and massive inflation concerns were thought to put a dent on demand.  However, this weeks inventory report showed a surprise draw in gasoline stocks and strong demand numbers.  It may be a holiday weekend anomaly, but Americans appear to be taking it all in stride, thus giving buyers no reason not to keep buying. 

Diesel has been the passenger the last two weeks.   With a surprise build in inventories (still lowest levels since 2005), most believe it would take a substantially large increase to derail the upward trend.  Demand numbers started to show softening, which is concerning to many, as it may start to show some slowing in the US business cycles. 

While OPEC agreed to hike production for July & August by about 600bpd and China put the kibosh on fully reopening major cities, futures shrugged it off as we have only had 2 down days in the last 14 sessions.  Physical supply issues in the Northeast is still a lingering concern as the backwardation, while thinning, is still $.10  to AUG and $.18 to SEPT (see close chart).  This is preventing many from bringing in large slugs of product on fear of the carry loss.  Put it this way.  If you were to buy a house today for $500,000 but were told that in 20 days it would only be worth $400,000, would you do it? 

At this point, it appears that the only thing that will bring us back to reasonable levels is strong builds in inventories which will only come with a reduction in the backwardation which will likely occur with weakening demand.  And let us not forget the Ukraine and export situation.

 

 

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Diesel remains Volatile at the Rack, Despite some Supply & Market Easing

Diesel prices remain the talk of the table as they have shed over $1.00 in the last 15 days.  Spot cash prices which at one point in early May were $1.25 over futures have since retraced to be roughly $.20 over.   Still, by way of comparison, high to the first quarter of the year where they were pegged mostly flat  to the screen.   (see below). 

As we mentioned, these blowouts are typically short lived - but nonetheless still very painful for many. 

Northeast diesel supply appears to be slowly loosening up as the backwardation from JUNE to JULY screens sits at roughly $.13, still very high but not as high as a two weeks ago.  While some suppliers are willing to take in product, it has made rack pricing extremely volatile.  Typical spreads from high to low are maybe $.08 to $.10, at present, these spreads are $.40 to $1.00, not to mention figuring out who actually has product to sell.  On que, refiners' distillate production is up over 5% thus far in Q2, capitalizing on the high prices and pipeline scheduling appears to be full.  While this a good news for consumers, we are still at very high prices. 

With China slowly reopening, expected high US gas demand and all eyes on the FED wondering if there will be another rate hike to tame inflation, I would expect it to be a while before we start to see substantially lower prices. 

The suggested release of diesel reserves is not typically looked at as a fix of underlying issues, more of like taking aspirin for a tooth ache, and will likely not have much of an effect on pricing. 

5.24.22

 

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Northeasts' Diesel Supply Crunch Keeps Price Pressure Up

There is a fair amount of news on the lack of diesel available in the northeast, and it is actually true. Last week’s DOE report showed that PADD 1 (East Coast) had 95mbls of diesel, that is down from 123mbls last year and 142mbls from 2 years ago. 

The question is why? 

There are primarily three main roots to the current situation.  First, the East Coast has only about 7 refineries operating now, with a capacity of just over 800,000 bpd.  That is about half from what it was 12 years ago.  Most have closed due to lack of margins and increasingly more difficult EPA standards to meet and the costs associated with those updates.  This means product must come from the Gulf coast via the Colonial pipeline or barged in. 

Secondly, with the steep backwardation in the market, many traders were not willing to take the chance on sending product into the Northeast. Rather, they are taking the sure bet by shipping distillates to Europe. 

Finally, Europe’s diesel based economy is seeing astronomical pricing for the much needed product.   With about 10% of their typical supply coming from Russia, the ongoing conflict in the Ukraine is pushing pricing for distillate barrels to record highs. 

Again, we know refiners are putting out as much distillates as they can right now.  There will be some trying to capitalize on the current high prices and once those barrels hit, we should see some price easing.  It is just a matter of when.

 

5-16 ulsd

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Volatility on Diesel Keeps Everyone Scrambling

The volatility within the ULSD pit continues to keep everyone scrambling.  $.20 swings from high to low have become the norm.  That coupled the lack of product in the Northeast is putting real stress on not only suppliers but customers alike.  As we mentioned a few days ago, refiners are stocking up on crude and producing as much distillates as they can.  Evident in yesterdays Inventory report that showed Crude surge 8.5mbls and distillate output up over 160,000 bpd.  While diesel inventories still remain low, down almost 1mbls, the demand numbers, down almost 200bpd are pointing to sure fire demand destruction. 

Again, the timing of when that downward drop may take hold is tough to tell.  Judging by the chart below, we may already be at the beginning stages of it.  The backwardation of roughly .20 JUNE to JULY is still keeping many from bringing in any inventory which is keeping cash prices high.  Those differentials, at historic highs, really have only one way to go I would like to think. 

Most of us are hoping to wake up to pit that is down $.50 but it seems that the market is always able to find something to erase the losses.  Today is a perfect example.  ULSD was down almost .20 earlier and found a way to get almost .04 higher during the session.  As I type it is down roughly $.04.  Inflationary risk buying appears to be the driver, which I would have though that we would have seen less of as last month’s squeeze that sent shockwaves through the market with lingering effects. 

We are working day and night to maintain our service standards and product levels.  Please do not hesitate to reach out with any questions.

 

Thu 5-12

 

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High Prices are the Cure for High Prices?

The other day I mentioned how the futures markets rose, yet the cash markets fell.  Yesterday was the reverse for some.  While ULSD futures closed down $.1557 to $4.0413, ARGUS cash trading edged up .0193.  We are obviously in the most volatile period I have seen in all my years.  

Of note in the last day we have heard that OPEC+ nations will stick to their planned production increases that were set in place back in July 2021 rather than opening the spigots to temper prices.  Additionally, it appears as though most European nations will move forward with a stepped embargo plan of Russian fuels. 

The backwardation in the diesel pit over the last two weeks put crimp on in tank inventories especially here in the Northeast.  That situation appears to be getting better as the JUNE to JULY backward spread is roughly $.20 and word is that the supply picture is getting better.  But again, when prices shoot up like a rocket, they fall like a feather.  It will take some time for these prices to get back to a “normal” level as it noted that most refiners have moved to what is called Max Distillate Production,  meaning they are trying to produce the most Diesel, Jet Fuel, Heating oil, etc. possible, so that they can capitalize on the high crack spread. 

We have said many times before, high prices are the cure for high prices. 

As you have all now seen street diesel prices over $6 per gallon, this has to be a hit on demand in the short term and those extra distillate barrels should hit the market at the same time.  I would like to see us retrace a $1.00 from here, but my guess is that it might take the summer to do so. Then again, as shown below on March 9th we did drop almost .50 in a day.  I would think we would need a cease fire in Ukraine for that to occur.

ULSD MAy 6

 

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ULSD Continues to Skyrocket on Short Squeeze

Unfortunately you are all reading your nightly pricing correctly.  As seen below, ULSD prices have risen almost a full $1 in the last four sessions. 

2022-04-28_12-40-27

As I mentioned earlier in the week, it is likely due to a short squeeze versus anything fundamentally related to the Oil Markets.  Although there are some pointing to distillate stocks being at their lowest level in 14 years as a driver, it appears that is being over played because demand for ULSD has fallen for the fifth week in a row. 

Front month MAY ULSD (which falls off the board Friday) is a full $1 higher than JUNE trading presently at $4.9950.  It is $1.50 higher than front moth NL @ $3.5250.  Its important to note the disconnect to Crude which is “only” at $103 and change.  For those of you that remember July of 2008, when Crude was at an all time high of $147, Diesel was trading just above $4.00.  All the more evidence to point towards a squeeze versus fundamental factors. 

The problem is, how long does this last?   Looking at the strip above, the backwardation is still healthy out through December, not as pronounced but still present. 

I would like to say that we are past this after Friday, but my feeling is the rocket ship-feather theory will hold true. 

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News & Fundamentals Reverse ULSD Slide

On Tuesday morning we were feeling pretty good, relatively speaking, as the ULSD pit was almost .40 less than a week ago.   Demand concerns over China’s lockdown and slowing production rates put pressure on an already inflated market. 

Unfortunately, in the last two session we have gained all that back and then some.   News flow is the clear driver, although fundamentals gave support for yesterdays jump.  As fears of no end in sight for the conflict in Ukraine heighten, it forces NATO countries to impose stricter sanctions on Russia - even floating the dreaded “embargo” word around.  Additionally, OPEC stated it does not intend to increase output to offset any Russian barrels in the marketplace. 

Fundamentally speaking, Wednesdays inventory broke a cardinal rule for traders…. Don’t surprise them.  

Expectations for gasoline were for a 800,000 bl draw with a 3.6mbl draw being reported.  Distillates were expected to fall 1.5mbl and that doubled with a 2.9mbl draw on inventory.  Keep in mind, we typically see a destocking period this time of year due to product changes.  It doesn’t appear that domestically there will be any policy changes that could calm the market. 

Looking forward, as you can see from the chart below, are a full $1.00 higher than where we should be.  It certainly is a challenge for all dealing with these prices, as it affects every part of your business. But as we have seen in the past, this market has the ability to pivot at any time and we could very well see another .50 down day.

4.14 ULSD

 

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Wild Intraday Swings on ULSD

The last three sessions have seen .4373 get peeled off the ULSD front month contract, with massive intraday swings.  Yesterday at the open, APR22 ULSD fell almost .25 before rallying back to finish down only .0673. 

The big drop on Monday was attributed to China locking down Shanghai amid new outbreaks for a minimum of four days thus putting demand fears into the market.  Tuesday saw traders take into account that there appeared to be progress in peace talks amongst Ukrainian and Russian delegates, but that subsided as the day went on.  This morning that sentiment furthered as it appeared there was nothing to report on the situation other than both sides would agree to meet again.  It is clear that many sanctions that have been put in place, may have a longer stay even if there is a withdrawal.

Pricing is wild right now, cash markets are making it even more challenging. 

The Chart below doesn’t do much other than confirm Warren Buffett’s take “that if you flip it over, it says the same thing.” 

With Demand appearing to take a hit in this week’s DOE report, and subsequently Inventory rising, products have come off there morning highs by about .15 and are only up about .04 at present.  On a positive note, most OPEC nations have come out and stated the they would not let Politics get in the way of production levels, which may calm supply fears, evident in the .32 backwardation APR to MAY.

ULSD 3.30.22

 

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March Comes in Like a Lion -ULSD See-Saws on Russia, Inventories

March came in like a lion, lets hope it goes out like a lamb…..  

So far this month, front month Diesel shot up over $1.80 to peak just above $4.60, then proceeded to fall $1.60 to just under $3.00 and now has risen back over $1.00 to be currently trading just north of $4.00.  What’s even more wild are the intraday swings.  Believe it or not, yesterday morning we were actually negative for a bit earlier in the session before finishing up over .25 on the day.  Today is opposite thus far, being up almost .10 early on, and now trading down .04. 

Obviously the Russian invasion is still the main catalyst for the rise, as fears linger that the US does not have a quick enough reaction time, or a plan in place to domestically produce more should this conflict linger.  Unfortunately, politics are weighing in on some rational decisions.  Many sanctions put in place have special caveats carving out energy like todays joint action from the European Union to date has carved out sanctions exemptions to allow continued imports of natural gas and oil from Russia, given the difficulty and expense of quickly finding alternative supplies “  Yesterdays big rise was after the weekly inventory report that showed large draws in all products, again not fundamentally tied to any Russian sourced product, just the fear of our inability to react. 

I am asked 50 times a day, What is going to happen? I honestly wish I knew, but what I can say that from a business perspective is that you need to be nimble and able to pivot. While I doubt this is going to be the new normal and will likely short lived, the effects of these records prices are going to linger for some time.

Market Screen 3.24.22

 

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No, You're Reading that Right: ULSD Futures up .80 in 5 Sessions on Ukraine

What you are seeing on your nightly pricing is real, unfortunately.  ULSD futures have risen over .80 in just 5 sessions.  Since late November 2021, when the concern of the latest Covid Variant were announced, the pit has risen over $1.65. 

As we all know that leading driver is the uncertainty surrounding the Russian- Ukrainian ordeal.  Financial Sanctions on Russian assets, banning imports, along with OPEC+ group not willing to increase production has attributed to the fear spike in the markets. 

There is a bright side. 

Front Month ULSD is presently trading at the $3.60 level… however, if you look at the outer months, such as JUL & AUG, they are in the $3.00 range.  This is a .60 backwardation in the market.  In all my years, which has seen Hurricanes, Wars, Attacks on US Soil, I have never seen this large of a backwardation.  As we all know, there is typically a “carry” in the markets where outer months are typically higher.  This is a very good indication that we are in a short term situation.  Its just a matter of getting through this.  I am sure we are sick of the phrase “WHEN THIS IS OVER”! but....

Below you can see the live market chart along with last nights settle highlighting the backwardation.

apr 2022 candlestickapr 2022 price chart

 

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Russian Strikes in Ukraine Push Prices to Multiyear Highs

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Oil prices surged another 7% today. At peak intraday highs, WTI hit $105.14/bbl before settling at $103.41.

Refined products followed suit skyward, with front month ULSD up +.2198 to $3.1511, and RBOB up .1562 to $3.0887 (May trading closed +.1915, $3.0381 ULSD/+.1532 $3.0621 RBOB).

Monday we saw WTI close over $100/bbl for the first time since 2014.

The obvious driver for the spiking prices we’ve been seeing has been the ongoing military strikes in Ukraine by Russia, and the resultant fears of not just supply disruptions themselves, but the further impacts that multinational involvement in the conflict could have globally.

Today, the US and allies (Germany, the UK, Italy, Japan, Netherlands, and South Korea) announced their agreement to release 60 million barrels from strategic reserves, half of which will come from the United States.

Markets were not comforted much by the announcement (although we did see a slight tempering), largely because the strategic reserve release is much more a symbolic gesture than one that solves supply concerns on a fundamental level.

A multinational agreement to release gallons is more of a statement of solidarity against what is seen as Russian aggression, and a message that countries are willing to take extraordinary measures to prevent global impacts rather than softening their stance on Ukraine. It’s also meant to reassure citizens of allied countries that are facing rapidly increasing prices at the pump that all available measures are being taken to minimize the impact. Currently AAA figures have gas prices in the US averaging $3.62 today, up 9 cents this week and 24 this month, and without a reversal on the markets and an end to the Russia-Ukraine war, that’s not likely to change.

Other measures being taken on the Energy Market side of things have included talks with the Saudis about supply adjustments to backfill any potential shortfalls. It’s unclear that such a jump in production for stability of the markets would be in the cards, however. The thought seems to be that assistance from OPEC/Saudi countries to offset disruption would mostly be necessary should Russia choose to restrict supply or short commitments in an attempt to manipulate the situation. As of right now, they have not given any indication that would be their next move, but as sanctions begin to take severe effect on the Russian economy, essentially anything is possible.

Sanctions and specific company withdrawals from Russia seem to be having impact already on some fronts. Maersk, the worlds largest shipping firm, has halted service to and from Russia, and countries like Britain are not accepting Russian ships at their ports. Major oil companies, including BP and Shell are exiting Russian operations, and TotalEnergies announced a halt to any further capital investment in Russian projects. The Ruble (Russian currency) is tanking after SWIFT banking sanctions took effect and it is currently valued at less than a penny in American dollars.

Long story longer, the situation is very much ongoing, escalating, and uncertain on the ground in Russia, and it remains anyone’s guess how the real world impacts and the market impacts will shake out.

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Energy Markets Spike on Escalation in Ukraine

shutterstock_1009265824Oil prices closed up over 3% today, shooting up again on both continuing supply issues, and escalating tension at the Russia/Ukraine border.

This week we saw Russia reject NATO & US offered compromise measures aimed at deescalating the situation. Subsequently, it was announced that extremely strict sanctions would be imposed by NATO allies should Russia use the troops they continue to ramp up at the border to make an actual physical strike on Ukraine.

Sanctions mentioned included both bans on financial transactions, and potential closing of the newly constructed Natural Gas pipeline to Germany. (As we saw when the prior Russia/Ukraine issues occurred in 2014, the implementation of sanctions can ultimately end up its own conflict down the line, but that’s another story for another day).

Putin Administration officials continue to insist that Russia has no intention of striking Ukraine, while simultaneously increasing troop presence across multiple possible fronts. Thus –anxiety is building.

Trading volumes hit peaks shortly before the closing bell, presumably some of the jump in pricing during that period is Friday afternoon related – no one wants to be short Monday morning should an invasion happen over the weekend that could impact supplies, understandably. However, should an invasion NOT happen this weekend (which is equally likely) we could see modest corrections early next week.

At the close, Brent and WTI Crude both broke the highs we saw Monday (that we hadn’t previously seen since 2014). Brent closed 3.3% higher at $94.44/bbl, and WTI shot up 3.6% to $93.10/bbl. Refined products closed up sharply as well, front month ULSD jumped .0837 to $2.9109, RBOB jumped .0732 to $2.7386. (April trading moved just as sharply, +.0755 on ULSD, +.0812 on RBOB.)

As discussed previously regarding Russia, the risk posed to the overall global supply picture should disruptions occur in their region is hard to overstate. (Refresher on that here: WTI Breaks 90/bbl for first time since 2014)

Definitely a situation to keep an eye on, as it will likely continue to rattle energy markets until some sort of resolution is found. Watch for either a correction or a ramp up in pricing early next week, likely dependent on the developments this weekend.

Stay Tuned!!

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WTI Breaks $90/bbl for First Time Since 2014

shutterstock_1740797837Today saw WTI Crude prices break the $90/barrel threshold for the first time since 2014.

2022 has seen WTI shoot up 20% (despite it still being the first week of February), and that’s in addition to the gain of 50% in value we saw throughout the course of 2021.

So what’s going on?

At the OPEC+ meeting Wednesday, the group announced they would be adding 400K bpd to agreed upon production levels for March, continuing their apparent strategy to slowly bring production back online.

If you recall, in April 2020 OPEC+ pulled around 10 million bpd from production in an effort to “stem the bleeding” as energy markets collapsed due to demand plummeting across the globe in the wake of sudden shutdowns for the coronavirus pandemic.

The initial OPEC+ strategy to slowly bring production back online to keep energy markets balanced appeared wise at the time, but in the wake of global economic struggles and skyrocketing prices, the group has come under enormous pressure and criticism from non-member nations, including the U.S.

Domestically, we have seen prices shoot up over the past several months in the wake of global economic concerns, growing tensions abroad, and changes to the domestic energy policy enacted by the incoming Biden Administration in January 2021.

The feeling in the U.S. is that OPEC+ needs to revise the slow and steady approach given the current circumstances in the energy market. OPEC accounts for 40% of global oil supply, so the consensus outside the group is that reupping production levels would take a lot of the pressure off markets and allow prices to settle.

In 2014, when we saw prices hit these levels before, the United States was in the midst of its fracking & shale production heyday and had become a major price influencer, having overtaken Russia & Saudi Arabia as the largest single oil producing nation. That was an enormous factor in stabilizing prices, and subsequently pushing global prices down. (For a refresher on that, read this: Fuel Marketers News: This Time it is Different )

Currently, moratoriums on drilling and financial and permitting difficulties for existent producers post the COVID price crashes are making the US essentially unable to exert the same control this time around. 

In addition to the already existent demand crunch, growing tensions and war games between Russia and Ukraine are raising fears of additional, and potentially severe, supply disruptions.

Russia (an OPEC+ member) produces approximately 10 million barrels of oil per day, so any disruption of their supply output or pipelines puts a huge portion of Europe at risk for outages, and analysts just don’t see alternative supply being available to cover any Russian shortfalls.

So as always, it ultimately comes down to three things – Supply, Demand, and Politics. And as always, its anyone’s guess how any one of those factors ultimately shakes out.

Stay Tuned!

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Demand Concerns Temper Prices Despite Supply Crunch

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Oil prices are continuing to slide back down some after multiyear highs last week. (At time of writing at 10 this morning, both refined products are trending down)

All of the issues with energy supply and labor shortages are still in play (obviously) so what’s going on?

The other side of the coin – demand, is once again raising concerns and tempering some of the bullishness on the markets.

The US reported lower industrial output for September, which is dampening enthusiasm over economic rebound and rising demand in the industrial sector. A large factor in play in the lower U.S. numbers is the continuing (worsening?) global semiconductor shortage. The lack of availability is severely hampering production and availability of motor vehicles and slowing progress on large scale tech projects.

Additionally, China’s data did not do much to allay demand fears, third quarter economic growth hit a low for the year, as did daily Crude processing levels. China’s lackluster reports are largely due to supply bottlenecks and shortages like the US data is.

As mentioned however, seasonal supply concerns for the upcoming winter, labor shortages (particularly in the trucking industry), generally positive economic rebound, OPEC cuts, and an uncertain trajectory for COVID-19 cases as we enter the flu season are still all factors very much in play in the markets, all of which we would normally expect to push prices higher.

So the ongoing question becomes which way the pendulum will swing between the supply issues and the demand requirements. Supply (at the moment) is what it is, the major variable is whether demand moves up and forces supply crunch related price hikes, or if the labor situation and slowing economic growth drop the demand enough overall to drop prices in the longer term.

All that being said – make hay while the sun shines as they say. Not a bad time to lock a prompt in case tomorrow flips the screens positive again.

Stay Tuned!

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Spiking Prices & Labor Shortages Complicate Energy Outlook

Lots of interconnected events in Energy News this past week or so – we’ll run through and touch on some of the major items and attempt to keep it (relatively) brief.

Here we go:

US Crude Oil prices hit $80 Monday for the first time in 7 years, largely on the basis of surging demand and simultaneous supply issues for power & gas globally, particularly in China, India and Europe.

Last week we saw Natural Gas hit historic highs of $185 per mwh on the supply crunch, although prices have backed off highs this week upon the announcement from Russia’s Vladimir Putin that Gazprom would increase output to Europe to help ease their supply woes.

Speaking of Putin, he went on record Wednesday that he believes Oil could reach the $100/bbl mark (again). OPEC+ (which includes Russia) has been resistant to calls to up their production increases, choosing instead to stick with the previously agreed upon increases.

The Biden Administration has reportedly been relaying their concerns about rising energy costs to unnamed OPEC+ senior officials, and more publicly has called on oil producing nations to “do more” to up supply in order to ease price increases and global supply issues. So far they have not been successful, largely because longer term economic and demand growth numbers don’t look exceptionally promising, so OPEC+ member nations are unwilling to jump up supply to ease pricing when the longer term demand required to keep pricing reasonably benchmarked does not appear to be there.

Additionally, Reuters is reporting  this afternoon that the White House has been speaking with domestic producers about helping to bring down costs. It’s unclear exactly what they are hoping for on that front, or what may have been discussed specifically.

Gasoline in the US is at a 7 year high (averaging $3.29) and the EIA Short Term Energy Outlook reporting this morning indicated that consumers can also expect to pay substantially more for energy this winter

(you can read that report here: https://www.eia.gov/outlooks/steo/report/WinterFuels.php)

Domestic output has not rebounded to pre pandemic levels, and is well off from 2019 highs. In addition, the surge in natural gas pricing means dual fueled power generation systems are likely to be looking at diesel to offset some of the cost this winter. This is what helped dampen prices on Crude & Diesel today somewhat – Crude demand will exceed earlier expectations if power generation does in fact move toward a more diesel heavy mix than we see in a typical winter…. Theoretically.

One of the factors we will need to see play out however, is that increased diesel demand is all well and good, but the ongoing (and apparently worsening) labor issues in the United States may complicate that option. The driver shortage is impacting delivery times and logistics across the country, nowhere is that more clear than the ports. The Biden Administration just announced the Port in Los Angeles will run 24/7 in order to attempt to catch up with backlogged demand and offload stranded container ships. The problem however, is these are backlogged in the first place because of labor & driver shortages, so it isn’t clear how effectively 24 hour runs will solve the backlog. The news is warning of transportation issues already ahead of the holiday shopping season rush, so the lingering question becomes how well will transportation companies and fleets be able to pivot and meet demands with the pressure of labor shortages on their backs, if in fact they continue. 

At the end of the day, lots of news directly or indirectly impacting the energy markets the last few weeks, most of it less than optimistic. However, its worth remembering that we’ve seen supply crunches, or demand outlook changes, or OPEC pivots, or US Presidents’ remarks rile up the markets and send the news analysts into a tailspin, only to resolve themselves in the short term a million times. As always, it ain’t over til it’s over, and we will have to see the longer-term implications of the multiple competing factors currently at play.

Stay Tuned!

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NYMEX flirts with Double Digit Increases on Vaccine Approval, Weaker Dollar

Oil prices reversed their 7 day losing streak this morning. Last week WTI shed 9% to hit multi-month lows, and this morning it rebounded up to 5% on intraday trading.

Refined products are up huge with both products flirting with double digit increases. At time of writing (1:30pm), refined products were up substantially, with ULSD up $.0997 Sept, $.1001 OCT and Gasoline up $.0937 SEPT, $.0926 OCT. Additionally, WTI is up over the $65/bbl benchmark at $65.68 (+3.54).

The causes are being cited as both a weaker dollar (it's down from highs on Friday) and FDA full approval of the Pfizer-BioNTech COVID-19 Vaccine for everyone aged 16 and over (versus the Emergency Use Approval it has had since December). There is some hope that full FDA approval will quell some skepticism and lead to higher overall vaccination rates among eligible people. 

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One of the major factors that has been weighing on commodities (as discussed) has been the looming threat of shut downs and travel restrictions that would continue to effect demand in the event that COVID has a resurgence from the delta variant. 

It would seem, however, that approval of the vaccine may not be a valid reason to fully discard those demand concerns in the longer term. After all, we are seeing some restrictions being placed in China and other countries regarding travel. Additionally, supply levels are high, and Baker Hughes indicated a higher domestic rig count last week which indicates further upticks in production (despite demand lowering). 

On the other hand, full approval may signal to markets that shut downs will not be an inevitability and thus the demand hiccups we are seeing will be shorter term than has been priced in so far. 

As usual, we will have to wait and see.  

Stay Tuned! 

 

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Uptick in COVID Cases & Strengthening Dollar Push Prices Down

Ramped up COVID cases and a stronger dollar pushed oil prices down today - intraday prices had Crude down to 3 month lows (off 4%) . Refined products tanked as well, lunchtime saw ULSD off almost 7 cents (.0674) and RBOB off .0868 on front month trading. 

At the close, the losses pared somewhat with ULSD settling at 1.9690 (-.0522) and RBOB at 2.0815 (-.0662) for September contract. (ULSD 1.9714 and RBOB 1.9525 for OCT). WTI Crude settled out at 63.69/bbl.

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As discussed previously, the uptick in COVID cases has been making traders (and the rest of us!) nervous, particularly as it relates to economic growth and demand slippage.  Goldman Sachs has revised projections for third quarter GDP down in anticipation of Delta variant induced economic slowing. 

In addition, although demand outlooks are lower, it looks extremely unlikely that OPEC+ will walk back their recent production increases, as despite prices slipping, they are still at a profitable level for member nations (at least for the time being). 

The paring of losses we saw on the screen as the afternoon wore on were largely the result of the US Dollar strengthening. Somewhat ironically, the dollar is strengthening largely because of indications from the Fed that stimulus measures put in place to mitigate COVID impacts will be phasing out over the coming year. 

So on one side, the dollar is stronger on phasing out COVID measures and on the other, demand outlook is weaker on the back of rising COVID cases, and both of those factors are dropping prices. Riddle me that. 

The other wildcard in play generally with the markets is the ongoing situation in Afghanistan, where the Taliban have (re)seized control of the nation. It is unclear for the moment what the longer term impacts will be both on the region and internationally. That is true both in terms of the markets and how the international handling of the humanitarian crisis unfolding develops . We will keep an eye on that developing situation. 

Stay tuned!

 

 

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High Outputs, High Case Numbers, and Low Economic Growth Crush Refined Product Prices

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Weak economic data from the United States & China, combined with higher OPEC outputs and rising COVID cases have again raised concerns about oversupply and weakening demand and pushed markets into sell off territory.

Today saw Crude drop 4% to 71.26/bbl, and refined products followed suit, with front month trading closing down .0598 on ULSD to 2.1358 and down an even .06 on RBOB to 2.2747. 

So what's going on?

China reported its slowest factory activity growth in almost a year and a half, which has raised concerns about the strength of the global recovery, particularly as China, in addition to having the world's second largest economy, has had the most robust recovery of the Asian region thus far. In the US, manufacturing activity slowed for the second month as well - so we are two for two on the world's largest economies showing signs of weakness and slowing recovery. 

Globally, we are also seeing an increase in the number of COVID cases reported as a result of the delta variant. Despite reassurances from Fauci and the government at large that the United States will not be looking at a second round of lockdowns because vaccination rates should be sufficient to avoid them,  the resurgence of mask mandates and other protocols in some areas has led to some skepticism that economic recovery and therefore demand growth will continue. 

At the same time these concerns mount on the demand side, on the supply side, the output from OPEC+ countries for July hit its highest level since the beginning of the Pandemic (April 2020).  The OPEC+ member nations had begun a reversal on previously agreed to output cuts largely based on oil price recovery and a sunny outlook on demand.

It's possible, but unlikely, that the strategy will be reversed again even as we see the demand outlook be flipped on its head. 

So once again, the standing headline conclusion is "we have to wait and see" on both how COVID shakes out, and what OPEC+ may do. 2020 Deja Vu all over again!

Stay Tuned! 

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EIA Draws Slow COVID Resurgence Induced Sell Offs

shutterstock_1707677488EIA Inventory report showed much larger draws across the board on all products than anticipated. By the official count, Crude drew down 4.1mmb (2.9 expected), distillates 3.1mmb (435K expected) and gasoline 2.25mmb (916K expected). 

  The draws indicate a continuing tightness on the supply side in     the face of massive demand recovery as economies by and large get back to work as "normal". However, the past few weeks we've seen drops consistently on heightening concern about COVID resurgence and the spread of the Delta variant. 

Concern lingers as countries report a rise in cases and some have reintroduced some lockdown measures, or revised guidelines (including new guidance by the CDC on masks in the US). The growing fear is that extension of lockdown measures, or a return to lockdowns in a given sector could once again plummet demand and send markets reeling.  . 

On the other hand, global market supply is still extremely tight, even with additional produced gallons by OPEC+ member countries coming online. 

So, we essentially are in a weird spot where demand alone is the critical piece of whether the market will rally or slide - global supply is low which would support price increases, but if China does in fact crack down on imports of Crude as they appear to be doing, and COVID continues to tick up globally again the demand drop could be such that we don't see a rally materialize.

It's really anyone's guess as to how the world responds to continuing COVID fears should the cases continue to rise. 

Stay Tuned!  

 

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Prices Rally as EIA Reports Say Lower Inventory, Higher Demand

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By noon trading today Crude was up almost 5%, and on the refined products side, ULSD was up 7 cents and Gas up almost 6 (+.0586) and the market looked like we could see the highest close since mid-March. 

So what's going on?

EIA Reports! The EIA demand outlook was increased signaling the agency sees a continuing growth in demand for petroleum products going forward. On top of that, the EIA Inventory reports this morning showed a draw of 5.9mmb on Crude for the week ending 4/9. This is actually pretty close to the number analysts had predicted on Crude - however, analysts had predicted builds on gasoline of 5.65mmb, and that's what kept prices in range Tuesday. The actual reporting from the EIA showed a build of only 300K, obviously a far cry from the priced-in 5.65mmb, and that took the brakes off of holding prices back.

So essentially, the EIA is predicting more demand and reporting dropped inventories at the same time, and that's pushing prices north. 

Other bullish factors behind prices moving up include substantial growth in Chinese oil usage (imports increased a reported 21% last month) and continuing positive economic indicators in US.

On the other side of the equation however, we are seeing a continually slow vaccine rollout (particularly in Europe) while we simultaneously see explosions in cases in some areas (ie Brazil). Yesterday, we also saw an announcement that the United States is "pausing" administration of the Johnson & Johnson one-shot vaccine for COVID-19 after reports of potentially fatal blood clots in a small number of recipients. The pause reportedly will be for "weeks or even days not months" according to officials, but the major concern is a PR one, that the pause will cause hesitation in getting vaccinated among those who have not yet, which could hypothetically impact both case numbers, and how quickly the country is able to be fully back open for business. 

So vaccination concerns and case numbers are basically the black rain clouds over a potentially stronger, longer rally on prices, and it's anyone's guess which side of the equation wins out over the next few weeks. 

Stay tuned!

 

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OPEC+ Production Reversal signals Economic Optimism, Props Prices

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Last month, the OPEC+ decision to stay the course on previously announced production cuts pushed the market up. Yesterday, the OPEC+ decision to reverse course and bring more supply online over the next 3 months (May, June, July) resulted in....surprise! The market going up! 

The announcement on the OPEC+ production level change came initially around noon - normally we would see an immediate drop on the screens in the event of a production increase announcement.

So why not yesterday?

It seems the sentiment is that the sudden reversal is a strong vote of confidence for global economic recovery and a resulting surge in demand, and that confidence, along with some hopeful signs of demand upticks (resuming air travel, refinery utilization increases, import resurgence) is supporting higher price levels. 

This morning, the first jobs report published under new Labor Secretary (Boston's own!) Marty Walsh showed a surprising uptick in jobs. Non farm payrolls shot up 916,000 jobs (analysts had predicted 675K), and the unemployment rate dropped to 6% (last April the unemployment rate was 14.7%).

The markets were closed today in observance of Good Friday so we were not able to see the reports full impact, outside of some upticks in bonds, but it would seem to support the optimistic stance taken by OPEC+ regarding economic recovery. Major economic indicators are still up in the air however, and while countries are making progress with vaccinations and easing of restrictions, we are certainly not "past" COVID as of yet, so optimism should likely be tempered with some caution. 

In terms of the numbers, yesterday Crude closed out at $61.45/bbl - surprisingly tight to the close on the last day of trading in February despite March's volatility (last day of Feb trading Crude settled $61.50). April 1 close for ULSD on front month trading was $1.8316 (+.0618) and gasoline was $2.0223 (+.0626). 

Stay Tuned! 

 

 

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Oil Spikes on OPEC+ Agreement

shutterstock_651733465WTI jumped over 5% late this morning, as news broke that OPEC+ members would be agreeing not to raise production levels in April. According to reports, the current established levels for each of the member countries will be continuing as is through April and May, and the Saudi's are planning to forge ahead with continuing to keep the additional 1 million barrels per day offline as agreed to for February and March.

The news of continued cuts leaking from the (currently still happening) meeting surprised the markets, which is part of why we are seeing such a jump - often the predicted outcomes are "priced in" but today analysts fully expected that the ruling would be to let production cuts expire at the end of March as scheduled, and assumed Saudi Arabia would be ramping up production. We have started to see signals of demand levels returning, which, along with the ongoing price rally, had made analysts comfortable that OPEC would begin to ramp production levels back up. Reports indicate that Saudi Arabia urged caution and pushed for today's cut extensions, with Energy Minister Prince Abduliziz bin Salaman saying "Let us be certain the glimmer we see ahead is not the headlight of an oncoming express train"

Yesterday, prices jumped as well as the weekly EIA data for the US showed that the snowstorms and widespread freezing that impacted states in the Gulf Coast region continued to wreak havoc on refinery utilization. Crude stockpiles ramped up by 21.5 million barrels for the week ending Feb 26. That build is even larger than what we saw last April when the sudden imposition of COVID lockdowns demolished demand across essentially all sectors immediately. Crude built as a result of the lack of refinery capacity still in effect, and the opposite was seen (of course) on refined products. Although draws on refined products were clearly predicted, the EIA report still shocked as it showed draws on gasoline of 13.6 million barrels (about 5 times the anticipated draw) and distillates drew down 9.7 million barrels, versus the 3 million predicted.

In other news today, Houthi rebels in Yemen are claiming responsibility for a missile strike on a Saudi oil facility in Jiddah, in a continuation of infrastructure strikes in the ongoing proxy war. The conflict is definitely something to keep an eye on - as we saw in September 2019, attacks on Aramco infrastructure can rock the markets pretty severely. 

At today's close, WTI settled at $63.83. ULSD +.0603 to $1.8960, Gasoline up .0461 to $1.9979

 

 

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Despite Friday Drops, Gains for the Week on NYMEX

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Despite today's across the board drops on refined prices, (-.0262 UL & -.0255 RBOB) this week saw oil prices overall continue to tick upward. 

What's pushing prices up? A weaker dollar, and stronger confidence in economic rebound as the vaccine rollouts continue. At play as well is new agreement on supply curbs by Saudi Arabia in tandem with larger than expected draws in US inventory levels. 

Wednesday prices came close to hitting 1-year highs at the close, briefly going over in intraday trading for Brent Crude. So far, halfway through January, Crude prices are up ~9% or so as confidence builds in eventual recovery from the COVID induced shut downs and resulting dips in demand that we saw push WTI into negative territory about 10 months ago. 

In terms of the supply side, EIA reports indicated that US Crude inventories dropped a little over half a million barrels for the prior week, with gasoline dropping 1.1mmb & distillates dropping 2.3mmb - double what some analysts had projected. More broadly, Saudi Arabia has pledged to cut its output by 1mmb/day which will drop overall production levels, even though Russia will actually have allowance to produce slightly higher levels than before. Sort of an odd twist to the usual OPEC+ setup - you can read more about the specifics on the deal here in the New York Times: Saudi Arabia Will Cut Its Own Production, Allowing Russia's to Grow 

On the demand side of the equation, talks regarding further stimulus under the Biden Administration, as well as continued vaccine rollout seems to have traders (and everyone else) hopeful about eventual demand recovery as the economy hopefully strengthens and rebounds once immunity levels hit threshold. 

We did however see drops today to close the week out across the board. Front month ULSD & RBOB settled at 1.5929 & 1.5284 respectively, with Crude at 52.36/bbl. March numbers closed out with ULSD off .0263 to 1.5942, and gasoline dropped .0261 to 1.577. 

Who knows what happens next. Enjoy your weekend & stay tuned! 

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New COVID Strain Stops the Spread of Price Rally

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Last week's market pushed up on hopes of progress against COVID with vaccine rollouts and encouraging signs of demand growth on fuels. This week however, those hopes were dashed as talk turned to a variant strain of COVID found in the UK that has caused surging infections, and prompted the "Christmas Lockdowns" in other European nations to become increasingly severe. This has all but wiped out any hope of demand stabilizing in the near term.

Sunday France closed it's border to the UK, stranding truckers and travelers in the process. This afternoon they are allowing drivers who test negative to cross, if they have an essential purpose for travel. No travelers will be permitted without a reason for travel and negative test within 72 hours going forward, according to current reports. Overall, more than 50 countries have banned travel to & from the UK in the wake of the new strain's discovery, in an attempt to keep it from spreading. 

Even the passage of the second stimulus in the US that's been hanging over the market for what seems like eons didn't do much but slow today's declines as compared to yesterday's losses. 

Yesterday we saw both Brent & WTI shed over 2%, where we saw increases of 1.5% on both just Friday (Friday saw the highest front month settle on both flavors since late February). News moves fast.

Yesterdays close on WTI was $47.74, and $47.02 today. In terms of refined products, ULSD shed .0158 to $1.4616 for front month & -.0152 to $1.4630 for February trading. Gasoline followed suit, dropping -.0209 to $1.3395 Jan, -.0193 to $1.3355 Feb. 

It remains to be seen how things shake out when the second stimulus takes actual effect, but more importantly it remains to be seen what the implications of the new COVID strain will be. If it's contained, or vaccines are effective in slowing or preventing its spread, it may end up just a blip on the radar. If not.. well, we can only hope for the best. 

Stay safe and stay tuned. Hope everyone has a safe and happy holiday season, despite how different it may look this year. 

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NYMEX Ends the Week on a Calm Note

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Markets backed off slightly today across the board. At the close, we saw front month ULSD settle up .0012 to 1.4369 (1.4416 +.0006 for Feb), RBOB dropped .0089 to 1.3077 (-.0087 to 1.3137 for Feb) and WTI closed out at 46.57

Yesterday was another story - markets shot up and we saw Brent Crude hit & settle at $50 for the first time since March. Most upward trajectory in the markets lately has been Vaccine news related, as we've discussed previously. This past week, FDA emergency approvals for the Pfizer vaccine continued the optimism and pushed pricing up. 

Another factor appears to be demand growth globally as compared to last month. Bloomberg is reporting an uptick in road fuel usage in both Europe & Latin America as compared to November, although use is still down a staggering 30% from pre pandemic levels, according to their reports. (Great article - you can read it here: Global Oil Demand is Rebounding Again )

While there is some optimism then with regard to Europe & Latin America in terms of demand growth, the continuing surge of COVID cases in the United States is still a sort of cartoon anvil hanging over the market.

Massachusetts this week rolled back their reopening to a prior phase, California is enacting extremely strict lockdowns for affected zones, and other States are following suit with their own lockdown protocols. Optimism in Europe may be overstated as well, as Germany announced today they were heading into another national lock down. 

Beyond COVID, the counterweight to some demand growth is the new OPEC+ production agreement, under which they will increase production by 500K barrels per day. While not a devastating increase, it's worth remembering that the prior cut in May by 9.7 million barrels per day was revised to only drop 7.7 million 4 months later. So, we shall see if this production increase remains modest, or gets revised upward. 

Stay tuned! Happy Friday, everybody!

 

 

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Markets Soar on Vaccine News, Presidential Transition

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Final answers to lingering questions shot markets up today - Oil markets hit an 8 month high and the stock market soared,  with the Dow breaking 30,000 for the first time. Airlines, Cruise Lines, and Energy stocks all pushed up on continuing positive news regarding a COVID-19 vaccination. 

In intraday trading, WTI surged over 4 % to $44.80 (the last time we saw the $45 benchmark hold was in March, prior to both the Saudi/Russian price war and the expanding of COVID into a full blown global pandemic. In other words, its been quite some time. Who can even remember life before lockdowns started?).

Since November 9 (first vaccine announcement) Crude has gained ~15% and Brent is in backwardation, another positive sign. 

ULSD & RBOB both traded up over .05+ the majority of the trading day. At the close, ULSD was up +.0490 to 1.3595 for December & +.0484 to 1.3642 for January. RBOB gained +.0542 for December to 1.2582, and +.0539 for January to 1.2510. Crude closed at $44.91/bbl - juuuuuuust under that $45 benchmark. 

Earlier in the month (November 9) we saw markets jump on the announcement by Pfizer that they had developed a 90% effective vaccine. AstraZeneca and Moderna have also announced success on their iterations of a vaccine, one of which has the potential to solve some of the logistical issues regarding cold storage transport posed by the initial vaccine. Obviously, a vaccine means markets are hopeful that we will see a transition back to "normal" sooner rather than later, and the rally in industries particularly hammered by lockdowns, including air travel and general transportation would seem to bear that out. 

The other factor pushing markets today is the official start of the transition of power to the Biden Administration. Given the legal challenges being raised by the Trump Administration regarding vote counts, there was substantial uncertainty around the transition, and if there's anything the market hates, its looming questions without answers. It seems that the clarity is boosting confidence.

Lest we get overly optimistic however, it's important to note that although vaccine news is good news - none of the vaccines announced have been approved for general use yet. We are also still in a surge of COVID cases right now and there is no timeline on when a large enough contingent of citizens will be vaccinated in order for restrictions to begin easing. Goldmann Sachs & JP Morgan have revised economic expectations due to surging, New York City has closed schools again, and even in Massachusetts we are seeing field hospitals being reopened to handle expected increases in cases. All of this to say while today was great for 401(k)s, it is probably premature to be overly optimistic about the next few weeks to months. 

Despite all the craziness of 2020, we're Thankful to be here still working for our customers. We hope you have an amazing and relaxing (social distant) Thanksgiving. Enjoy the long weekend! 

 

 

 

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Markets Up on Second Stimulus Hopes, Unemployment Numbers

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Today we opened up slightly on the NYMEX, and the big drops kicked in around 11am, (up to almost 3% on WTI temporarily) when Speaker Pelosi announced that they expected "pen on paper" for a second round of stimulus packages. The announcement came as somewhat of a surprise, as much of the activity on the second stimulus as of late has involved blocking, show bills, and discussions of everything being postponed until after the Election (and other typical political maneuvering).

The other factor lifting hopes and the market today was the jobless claims number released this morning by the US Department of Labor, which put new weekly jobless claims in the US at 787K, much lower than analysts expected. (Projections were 870K+ new claims would be filed, so the report was MUCH better than anticipated)

At the Close, ULSD gained .0208 to 1.1607 (Dec: +.0211 to 1.1687), Gasoline was up .0078 to 1.1581 (Dec +.0181 to 1.1452) and WTI was 40.64 (up about 2%). 

Wednesday we saw prices slide, largely due to the EIA inventories showing massive builds in gasoline (+1.9 mmb), and lower production than the prior week - both of these indicate a continuing drop in gasoline demand domestically and were more than enough to overwhelm the slight draws on Crude also reported by the EIA.

Overall, the demand outlook seems to be pretty grim globally for the short term, particularly as COVID-19 cases continue to trend upward in the West, so it remains to be seen how the markets will play out. If job numbers continue to improve and there is movement on stimulus, it could signal continued upticks in pricing based on economic outlooks improving.

One of the wild cards at play however, is COVID-19 and more specifically, it's impact economically and on global oil demand. We saw Ireland become the first European nation to return to lockdown today, and if that becomes a continuing trend, it's hard to see the market maintaining optimism about economic recovery. 

We will have to wait and see how it shakes out over the next several weeks.

Stay tuned! 

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Double Hurricane Threat Spikes Markets

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Gasoline hit 5 month highs today, with distillates and Crude following upward as well, as twin storms Marco and Laura continue their trek towards the Gulf. 

Bloomberg is reporting that 60% of offshore production is already offline ahead of the storms, as of this morning, Additionally, Motiva & Valero are slated to close their Port Arthur plants and Exxon is planning to shutter Beaumont facilities.

The storms are anticipated to make landfall in a sort of one-two punch and could cause estimated billions in damages (depending on model accuracy).

What we wont know until its over, obviously, is whether plants and the Colonial Pipeline are impacted severely enough to cause a longer term spike in prices by impacting supply, or if we will see a reversal. 

This will be an interesting one to watch, in terms of longer term market impacts. The continuing pandemic has put enormous pressure on demand & consumption levels as much of the world slows down, so we have seen relative price stability in the face of factors that would normally push longer & sharper rallies, like back to back draws in US inventories, and continuing OPEC drama. Despite steadily creeping upward over the past month or two, Crude appears to be staying stable around the $40/benchmark for WTI, at least for now. (Of course, keep in mind that $40/bbl levels mean shale production coming back online, so it's anyone's guess where pricing heads next. )

At the close, September ULSD added .0396 to 1.2476, Gasoline jumped .0830 to 1.3671 and Crude settled at 42.62. October distillates were up .0357 to 1.2640 and gasoline added .0468 to 1.2598.

Stay Tuned, and Stay Safe out there!

 

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Oil & Stock Markets Plummeting on Trump Travel Ban

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Oil opened down 6% this morning, and has continued to slide. We are currently off ~7.9% at time of writing (10:30am)

Crude oil (both Brent & WTI) have shed almost 50% of their price since the beginning of 2020. Currently, on refined products we are looking at ULSD -.0872 &  RBOB -.1907 (@ 10:30am)

In addition to the Saudi/OPEC price war, we now have yet another factor weighing on oil prices, which is the 30 day travel ban President Trump has imposed on European countries in an attempt to contain the Coronavirus.

The announcement sent stock markets crashing this morning (even worse than yesterday, when the DJIA entered bear territory).The so called "circuit breaker" kicked in to halt trading at 9:35am for 15 minutes.

The markets are now down ~8% - if they hit 13% another trading halt will kick in. 

The stocks being hit particularly hard are Cruise lines, airlines, etc - in other words, basically the stock market is setting demand expectations for major transportation companies extremely low - which means demand for oil products overall are an increasing concern. 

Obviously, this is developing as we are about 12 hours out from the original announcement, and the markets are open in full swing. You can follow developments here:  Business Insider 

(For specific live updates on the stock market itself versus meta analysis, go here: Stock Market Live )

 

 

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Price War! Oil drops 24% on Saudi Reversal & Continued Economic Carnage from Coronavirus

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Oil markets were tumbling well before the open today, and unfortunately we didn't see that turn around at all through the course of the official trading day.

At the open, we were down -.2076 on ULSD, and -.2362 on gas and it only went downhill from there.

At the close, Crude settled at an incredible $31.13/bbl (down 24%!!), ULSD dropped -.2223 to $1.1629 & RBOB dropped .2521 to $1.1369.

Stock markets took a pounding today as well, dropping precipitously enough for trading to be temporarily halted when the Dow Jones Industrial Average dropped over 2,000 points after the open this morning. (Both the S&P and DJIA are down over 6% as of writing)

So what's going on?

In response to Russian refusal on the proposed OPEC production cuts, Saudi Arabia has completely changed course on cuts and announced they will not only be pumping at capacity starting April 1 (upon the expiration of the current cuts) but they are also additionally discounting by a reported 4-8 $ per barrel, with preferential pricing going to the US & Europe.

The move is meant to undercut other producers across the board  - somewhat reminiscent of the strategy employed to attempt to push out U.S. Shale production back in 2014-2016(ish) and retain market share at the expense of other producer nations (refresher/throwback on that here: 2015 - backstory on that strategy impact on Russia back then here as well: 2016 ) 

The thing is though, the math has changed substantially on both the Russian & US fronts in terms of capital on hand to withstand the drop in the case of Russia, and production cost and infrastructure in the case of the United States, so it will be interesting to see who blinks first. It's unlikely to be Russia, they announced they can withstand $25 oil for 2 years. (whether that is true or not remains to be seen)  

The second half of the equation today is that the ongoing Coronavirus outbreak is seriously dampening both global economic expectations, and oil demand. In particular, as US cases rise, concerns rise as well on economic impacts. Fear of the virus becoming a full on global pandemic are also in play now as Italy made the move to quarantine an entire region this weekend in an attempt to contain the spread. 

Basically, falling oil prices and falling demand paired with virus induced low global economic growth is igniting fears of a recession. In particular, the US, who has recently become a major producer and net exporter, could feel major impacts that we are not used to. 

Again, it's anyone's guess if we are seeing the bottom or not yet or how long it will take for the factors involved to reverse course. In the mean time, stay tuned (and wash your hands!)

 

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Oil Tanks 10% on No OPEC Deal & Continued Pandemic Fears

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Wild day on the markets today! Oil plummeted on news that the production cuts proposed at the OPEC+ meeting in Vienna were rejected by the "plus" contingent of the OPEC+ coalition - namely, Russia.

Current cuts will remain in place through March, but technically there is no agreement for continued production cuts past the 31st, which means its anyone's guess how production will be ramped up among OPEC+ nations (assuming another deal is not hammered out). Proposed cuts were contingent on Russian agreement and well... they said no. 

Upon the news, the market dropped 7% essentially immediately, and continued on down throughout the day, closing down 10%  - with WTI settling at $41.28/bbl (lowest it has been since August 2016!). ULSD dropped .1033 to settle at 1.3852, and RBOB dropped a whopping .1328 to close out at 1.3890.

The timing on this could not be worse, as global economic demand growth has been taking a pounding from the Coronavirus' impact on major economic players, specifically China. There was some indication in late February that the virus was being contained in terms of slowing new cases, but that appears to have been wildly inaccurate - infections have now surpassed 100K, and spread to over 93 countries, according to the CDC. 

The stock market was hit just about as hard as the oil markets today in the ongoing panic, despite positive jobs numbers and the signing of an 8.3 billion dollar epidemic relief package in the US aimed at ramping up efforts to contain and combat the virus, as well as develop a viable vaccine as soon as possible. The bill also includes SBA loan options for industries hit particularly hard by the outbreak (like airlines), which was in part meant to combat some of the economic fallout and panic - but today's stock market numbers would indicate it was not successful in that endeavor. 

All of this to say - it's anyone's guess if we have hit the bottom on pricing yet, and it's likely to be a day-by-day analysis until the pandemic fears subside... at which point global supply (and potential supply cuts) will again become the main driver.

Stay tuned! 

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Markets Up on OPEC+ Hope and Coronavirus Slowdown

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WTI Crude traded & settled below $50/bbl earlier this week, as prices continued to slide across commodities. Today, however, we saw the trend reversing, with the market up this morning by almost 3%. (Early on, we were up over the 3% mark but gains dropped off slightly after the EIA inventory reports were released this morning.) 

EIA Inventories showed builds on Crude of 7.5mmb, well above analyst expectations. Gasoline drew down 100K bbl, and distillate stocks dropped 2mmb, as well. Distillate numbers were essentially in line with expectations. Crude pared about .5% on the builds, and gasoline moderated but stayed up, as analysts were predicting builds of ~700K barrels versus the actual drop of 100K barrels reported. 

In broader news, most of today's increases are being pegged on confidence that the OPEC+ production cuts supposedly forthcoming will both be in effect quickly, and will see full member adherence to new lower limits.

Also, China is reporting the lowest number of new Coronavirus cases since January, which is continuing to restore confidence in their economy and calming fears regarding a longer term global slow down on oil demand growth.

At the close, Crude settled back up over $50 again at $51.17/bbl (Tuesday's close was $49.94), ULSD closed up .0490 to $1.6757 and RBOB closed up .0668 to $1.5810.

Stay tuned!

 

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Crude drops 15% in January

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After what seems like 76 days, January is finally over. 

As it goes into the books, January 2020 will go on record as having the largest drop in Crude prices since January 1991 - with a drop of 15% (around 12% on Brent). That's a lot on it's own, but it's especially surprising if you remember that the beginning of the month saw huge spikes on the US-Iran Strikes.

The largest driving factor dropping prices now is growing concern about the potential global economic impacts of the Coronavirus spreading from the Wuhan province in China. There have been several cases now outside of the original geographic area, including the first confirmed human to human transmission in the US.

Late Thursday the World Health Organization (WHO) declared the virus a global health emergency. Rumors abound that the State Media in China is vastly under reporting the numbers when it comes to official infection rates and the death toll. Whether that is true or not, it has thoroughly spooked investors and traders, as global markets and the NYMEX tumbled this week.

Wednesday's EIA report showed domestic Crude builds shot way past expectations, clocking in up 3.5mmb for the week ending January 24. (Gasoline also hit a high of 261.1mmb). Obviously builds do not bolster prices, but Wednesday was relatively calm as compared to both Monday & Thursday. Thursday alone saw a 2.2% decline in Crude prices (to $52.14), and a drop of over 6 cents on ULSD at the close. 

Markets kept the downward trend going today as well, with March contract month numbers closing down .0136 on ULSD & off 14 points on RBOB, with Crude settling out at $51.56/bbl.

Reportedly, OPEC is already in discussion to move their March meeting up to promote cuts and stem losses. It's worth noting that the Libyan outage had essentially zero effect on prices this week, where it otherwise (presumably) would have - so the OPEC changes will likely need to be substantial to move the needle, unless the Coronavirus dies down relatively quickly. 

So while we don't know how long prices will be depressed, or when they might reverse, what we do know is that times like this it makes sense to reevaluate the strategies you use to hedge against the market with contracts or variable options, so you can get ahead of the next spike.  

See you in February! 

 

 

 

 

 

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US-China Trade Deal Keeps Markets Range Bound

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Prices have been somewhat up and down, but largely range bound over the past several days of trading.

It's not because there's nothing going on but because there is a lot happening but it's sort of up in the air which way everything will go. 

The ongoing US/China trade tension situation is both the major factor and a good example - "Phase One" of a trade agreement is in the books as of Wednesday, including a pledge by China to buy "at least 52.4 billion of US Energy products over the next two years" (although what that entails specifically was not clarified)... That sounds like news that should be pushing oil up substantially -  but we don't actually know if any trade deal will change demand forecasts, so it may be that pricing is largely unaffected. 

Some of the confusion is that this is "just phase 1" and the US has announced that they are not removing tariffs on billions of dollars of Chinese goods until phase 2 (whatever that is) is agreed to, but we have revised tariffs down substantially on 120 billion OTHER Chinese goods previously at a higher rate.

Essentially, no one is really sure what we can expect to see in terms of real impacts from Phase 1 -or how long Phase 2 will take. 

(You can read the details of Phase 1 in this article on MarketWatch: "Trump signs landmark China deal and says removal of tariffs would come in next phase"). 

Yesterday (Wednesday) The EIA inventory report for the week ending January 10 showed surprisingly huge builds on distillates and gasoline, 6.7mmb and 8.2mmb, respectively. (Analysts had predicted 3.3 on gas and 1.3 on distillates). Crude also surprised traders with a 2.5mmb decline (against a 1.1mmb speculated build). Wednesday's close reflected the report with a drop of .0324 ($1.8779) on ULSD, a drop of .0176 on gas ($1.6368) and a final number of $57.81/bbl on WTI Crude. 

Today we have been mixed most of the day as the trade deal news gets analyzed and digested, primarily. At the close, ULSD was down .0179 to $1.8600, RBOB gained .0180 to $1.6548 and Crude settled at $58.52, from $57.81 Wednesday.  

This week the EIA also revised its expectation for WTI & Brent crude for 2020, putting WTI at an average of $59.25, pretty close to where we have been trending the past week or so (1/8-1/16: 58.08-59.61/bbl)

Stay tuned! 

 

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De-Escalation Walks Back Overnight Oil Gains

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What a wild start to 2020 for the oil markets! 

Friday saw morning trading jump ~4% on the Pentagon's confirmation that the United States had launched airstrikes and taken out Iran's top commander in Iraq. Prices gave back about half their gains during trading on Friday with the settle at $63.05/bbl Crude, $2.0614 ULSD & $1.7488 RBOB. 

Gains continued to slowly pare off through trading Monday & Tuesday, for the most part.

That is until Tuesday night. 

After a few day's of relative quiet (outside of Twitter, anyway), last night Iran commenced retaliatory strikes against the US by launching missiles at two US Bases in Iraq housing military members, as well as towards the US consulate in Ebril (the consulate was not hit). There were no casualties in the strikes. 

Upon news of the missile strikes, the market shot up almost 5% on overnight trading. 

Despite the overnights being up so sharply, by today's open when it was clear there were not massive US casualties (which would all but guarantee further action), the market was essentially flat and plummeted through the day as news updates became available.

Today's round of press conferences and news briefs indicated strongly that Iran was signaling that they would not retaliate further, and as of the moment the US position is apparently to de-escalate by working on sanction proposals versus further military strikes. Of course, both of these positions are subject to change at a moments notice, and it's entirely possible sanctions are interpreted by Iran as escalation, but for the moment we at least have some calm on the Iran/US tension front and hopefully that continues. 

At the close,Crude settled out below $60/bbl again, at $59.61, ULSD shed .0742 to close at $1.9582, and RBOB lost .0734 to settle at $1.6488. 

Stay Tuned! 

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2020 Starts with Surging on Iran Strikes

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Today, the market surged up to 4% on intraday highs as the Pentagon confirmed that US Airstrikes in Bahgdad killed Iran's top commander, Qasem Soleimani. Soleimani was considered to be responsible for the attacks by Iran on the US Embassy earlier this week, and the strikes have been framed as a retaliation for those attacks, as well as a preemptive action to prevent alleged further attacks in the works on US targets in the region.

This afternoon, Iran's Supreme Leader Ayatollah Khamenei promised retaliation ("Severe Revenge"), and the US announced that 3500 additional troops would be deploying to the Middle East. 

Concerns are obviously mounting about the nature of Iranian retaliation for the strikes, with the major concerns being either an escalation to war between the US & Iran, or that we will see Iran begin to attack crucial infrastructure in the region again, like they allegedly did in Saudi Arabia this past September. 

It is important to remember however, that when last September's attack took 5.7mmb out of global supply instantaneously, and essentially halved Saudi Arabia's production capacity, the markets spiked, but had essentially returned to flat within a few trading days.

That is to say - it's anyone's guess whether we continue to climb or the market does a quick turnaround over the next week of trading.

We did back off intraday highs by the close, where ULSD was up +.0373 to 2.0614, RBOB was up +.0446 to 1.7488, and Crude settled at $63.05/bbl.

However, the story is still developing so it's hard to know what impact any late afternoon & weekend developments may or may not have on the the electronics as well as Monday's open. 

Stay Tuned! 

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Inventories & Rumored OPEC+ Cuts Boost Oil Prices

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Markets shot up today after relative calm earlier in the week, on EIA inventory reporting this morning that showed a 4.9mmb drop in Crude, once again far surpassing analyst predictions.

This week's report marks the first time in 6 weeks that US Crude inventories have showed declines.

At the close, WTI settled at $58.43, ULSD was up .0430 to $1.9229, and RBOB was up .0413 to $1.6042. 

In terms of larger ongoing issues affecting markets, the OPEC meeting is still looming (this Thursday & Friday). Analysts expect that the OPEC+ agreement will both be extended and strengthened as a result of the upcoming meeting, and they expect deeper cuts going forward to be the main outcome of the meeting (rumor is cuts will be an additional 400K bpd).

However, there has been some drama recently with Saudi Arabia and other member nations over adherence to production caps.

Basically, Saudi Arabia has kept production well below their agreed upon level in order to offset the overproduction by non compliant producers (Iraq being chief offender - they over pumped by around a quarter million barrels per day). As a result of that, Saudi Arabia is essentially subsidizing and taking the financial hit for other countries over production in order to keep global pricing levels stable. 

Understandably, they are a little tired of doing so and last week threatened to unilaterally boost their own production and send the whole pricing house of cards tumbling if other nations don't step up their compliance rates. Its likely an empty threat - even though they're taking a hit covering for the other nations, they also stand to lose the most (by a LONG shot) if prices were to crash now. The threat is meant to keep other producers in line, but who knows what will happen if they don't. We will have to see how the meetings go at the end of this week. 

Stay Tuned! 

 

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Mixed Market Week on Same Old Concerns

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Happy Friday!

We are ending out a mixed week on the NYMEX today, to put it mildly. Monday & Tuesday were both substantial down days with the market shedding over 4 cents (.0433 and .0473, respectively) on ULSD both days, and landing Crude at $55.21 at Tuesday's close. 

Wednesday & Thursday however, saw the NYMEX jump up substantially.

Wednesday's inventory numbers fell short of expected builds and we saw intraday highs over 5 on refined products, with the close reflecting +.0347 on ULSD ($1.8921) and +.0526 on RBOB ($1.6563) and Crude closed at $57.11. 

Thursday gains were around 2% with ULSD closing up +.0526 to $1.9447, RBOB +.0481 to $1.7044 and Crude up to $58.58, a two month high. 

Today we saw the market shed some of the week's earlier gains, with ULSD down -.0153 to $1.9294, RBOB off -.0301 to $1.6743 and Crude closed out at $57.77, about back where it was Wednesday mid-morning. 

So what's going on? Good question. It seems a lot of the back-and-forth action this week (and for a few weeks prior) has primarily been the result of ongoing speculation and reaction on three repeating themes 1) China-US Trade War 2) OPEC Cut questions 3) Global economic concerns.

Essentially we have been bouncing up or down based on reaction to inventory reporting, economic reports, rumors of progress then retreat on ongoing China-US discussions, tariff delay questions, and uneasiness about what OPEC may or may not announce regarding cuts at their December 5th meeting. 

Hopefully there is some solid direction on any of these questions over the next few weeks, or it's anyone's guess when the see-saw action will subside. Until then, it's Deja Vu all over again, as they say. 

Stay tuned!

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Supply vs. Demand Concerns Temper Early Gains

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The markets were initially up somewhat today on EIA inventory reporting and projected slowdowns in US Shale production through 2020.

However, ongoing positive hopes regarding a trade deal between China and the US, as well as some unexpectedly positive demand numbers from China allayed some concerns on the demand side of the equation and prevented supply related spiking on the NYMEX today, and we ended up closing down on Crude & RBOB, and up slightly on ULSD. 

Official numbers at the close: Crude $56.77 (from $57.12), ULSD $1.9179 (+.0054) and RBOB $1.6158 (-.0207)

On the OPEC front, no "major changes" are anticipated on current supply curbing measures and member adherence. There is some question though if going forward there will be further cuts to prop prices, which seems important both for Aramco valuation and to compensate for continually dwindling demand. On the other hand, the ongoing concerns for the cartel regarding the portion of demand loss that has been taken by non-OPEC producers, including the US, makes further supply cuts anything but a sure thing.

As we've discussed, OPEC nations, particularly the Saudi's have the lowest oil production costs globally, so while they can withstand "cheap" oil, producers of Shale who are looking at both higher production costs and high overhead and financing debt on newer exploration projects cannot. Thus far, obviously, the multi-year campaign to push higher cost producers out has not worked - and some analysts think that should OPEC decide to pursue further cuts to prop pricing, (rather than continuing to ride it out), it could signal an acceptance of this fact and potentially signal a major shift in their approach going forward.  

The next meeting is scheduled for December 5-6. The way the news has been going, it's probably a good assumption that we will see enough volatility from other issues that it will sneak up on us again. 

Either way, stay tuned! 

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EIA Data drops prices, but OPEC cuts loom ahead of Aramco IPO

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The NYMEX was down across the board today, with Crude settling at $56.35 (from $57.23), ULSD dropping .0288 to settle at $1.9278, and Gas shedding .0484 to close out at $1.6262.

We've been up and down on the markets recently with the news doing a tug-of-war around trade tensions, global supply fundamentals, and demand/economic outlook concerns.

Today's drop, however, we can attribute to a pretty straightforward factor - huge builds in supply on this morning's EIA report. 

This week's EIA data showed an increase of a whopping 7.9 mmb in Crude supplies, almost triple the number (2.7mmb) analysts had predicted. This is the second week in a row that analysts pegged a build of around 2.5/2.7mmb and the actuals dwarfed the estimates, which explains much of today's quick drop (no one had it "priced in"). 

Gasoline & Distillate inventories both showed draws, but came in relatively close to analyst predictions, with actuals showing 2.8mmb on gasoline (2.4mmb predicted) and 600,000bbl on distillates (versus 1mmb predicted). Gas & Diesel have had unseasonably high demand as of late so draw downs are actually a positive sign in that regard.  

So supply is up more than anticipated, and there are still concerns regarding global demand & economic growth... but before deciding that means prices will stay depressed, its important to note that OPEC is again discussing further supply cuts across the board, despite the ever present concern regarding US Shale production.

Word on the street is that Saudi Arabia has been pressuring producers in their region to agree on further cuts in an effort to boost market valuation of the Aramco IPO. (High valuation on the IPO may make risking a resurgence in shale production in the US worth it, when it otherwise would not be).

It's unclear if and when the cuts could take effect, but its definitely something that could impact near term pricing and is worth keeping an eye on. 

Stay tuned! 

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NYMEX spikes in wake of Saudi Arabia attacks

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Saturday, ten unmanned drones struck a major Saudi Aramco facility in Saudi Arabia, and immediately took 5.7 million barrels out of the global supply. The Abqaiq plant that was impacted is one of the world's largest processors. 

The Saudi government indicated that Iranian weapons were responsible but stopped short of blaming Iran for the attack, (although US Secretary of State Pompeo did NOT stop short and explicitly called Iran out in a series of tweets).

Yemeni Houthi rebels have taken credit for the strike, and threatened further escalation but it's unclear if they are, in fact, responsible.

Initial reports seem to indicate the attack did not come from Yemen, but Iran has denied any involvement. A lot of the long range implications of the attack will of course hinge on whether military escalation from other nations becomes probable, which directly depends on whether Iran, Yemeni rebels, or a third party was responsible. 

Markets reacted in a big way - Crude was up on the overnights, and Crude, ULSD & RBOB all surged within seconds of the open, and never came back down. 

At the close, ULSD was up a whopping +.2060 to $2.0838, RBOB +.1993 to $1.7524 and Crude $62.90 (+8.05 over Friday's settle) 

This is still a developing story - CNN has a great, continually updating article you can follow new developments on in real time here: Saudi Attacks Send Oil Prices Soaring 

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Talk of Easing Iran Sanctions Trumps Crude Draws

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After starting the morning up on the EIA inventory reports of large crude draws (-6.9 mmb), the NYMEX dropped later through today's trading, as more information about the firing of US National Security Advisor John Bolton came to light, and as global demand growth estimates were revised downward yet again. 

The reason an Advisor firing is at all relevant to the oil markets is: Iran.

There was speculation immediately that Bolton's firing was a good sign for US-Iranian relations, and as details emerge it seems that speculation was not only accurate, but an undersell.

Bloomberg is reporting that the Administration discussed easing sanctions in order to broker meetings with Iranian President Rhouhani and kickstart negotiations. Evidently the support voiced for doing so led to a blowout of sorts that prompted the firing. 

Prices dropped almost instantaneously on the news that sanctions could potentially be eased on Iran. 

Additionally, today OPEC's estimates for global growth demand were revised downward (but worth noting is that the revision puts their estimates in line with those of other analysts and economists already existent predictions). The EIA numbers were revised slightly down yesterday as well (down 100,000 bpd from the August prediction to 900,000 bpd).

Overall it appears that for at least today's session, the current market of OPEC cuts and US domestic crude draws did not outweigh longer term concerns about a potential future supply glut in the face of low growth demand. 

At the close, Crude settled at $55.75/bbl, ULSD shed .0280 to close at $1.9032, and RBOB dropped .0209 to close at $1.5699

We'll have to see what happens tomorrow. 

 

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Today's Market = John Bolton Firing vs OPEC Cuts

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This past Friday, ahead of the scheduled OPEC meeting this week, Saudi Arabia abruptly announced a new Energy Minister, Prince Adbulaziz. The move sparked momentary concern that this was a signal the Saudi's would be reversing course on the OPEC+ production cut agreement, but it appears they are actually doubling down.

The kingdom announced they would be adhering to and encouraging the production cuts going forward, and Russian officials announced that they fully anticipated continuing the current trajectory with the new leadership. 

This consensus initially let prices continue their several day climb, with WTI hitting a 6 week high momentarily ... BUT!

But this afternoon, the Trump Administration announced the firing of US National Security Advisor John Bolton.

Bolton was extremely vocal regarding his hardline stance against Iran, and his "resignation" may be a positive signal for future progress on peace talks with Iran, and in the near term, may be a good move to de-escalate the current situation, a lot of which has impacted the oil industry via threats to tankers & the threat to block the Strait of Hormuz. 

Prices have backed off intraday highs following the Bolton announcement. Essentially any hint of resolution with Iran, while positive, also renews concerns about Iranian supply flooding the market, and that is pushing down on pricing (despite the prematurity of any concern). 

Time will tell how the interplay between production cuts and lingering supply concerns levels out, particularly depending on inventory reporting (which we should see tomorrow) and domestic production.

For today, at the close, we ended essentially flat. ULSD +.0035 to $1.9312, RBOB +.0062 to $1.5908

Stay Tuned! 

 

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Crude, Refined Products Jump on Tariff Delays

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NYMEX shot up today on news that the Trump Administration would be delaying the onset of tariffs on some Chinese made goods (including most electronics) to December, rather than September when they were supposed to take effect.

The other half of the headline is that trade talks will reportedly begin again informally in "two weeks" - prior to the announcement, no talks were expected until after the tariffs hit. This seems to be giving hope that the issue may be resolved ahead of the September deadline, although whether that happens that remains to be seen. 

WTI & Brent were both up over 3% on the announcements and refined products followed suit, jumping an immediate .05 and remaining high throughout the trading day. At the close - ULSD was up .0715 to $1.8773 and RBOB climbed .0712 to $1.7364, with Crude settling at $57.10/bbl. 

The other supports in place today are the API report due this afternoon which is expected to show draws in US inventories. (They are expecting 2.8mmb draw, but we wont have the "real" numbers until the EIA report on Wednesday)

Additionally, OPEC is vowing to keep production caps, if not expand them aggressively, according to a statement by the Saudi Oil Minister who indicated Saudi Arabia would keep September levels below 7mm bpd to keep down global levels.

Saudi Aramco is reportedly considering going IPO, so the thought is they will be doing whatever it takes to prop prices that is needed, particularly in the short term. 

All of this of course, could reverse on inventory data (or maybe some tweets) tomorrow, so stay tuned!

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NYMEX Drops Again on EIA Data

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Markets dropped again today on continued news of both upticks in supply, and drops in demand. 

The EIA report this morning showed a 2.4 mmb build in Crude, 4.4 mmb build on gas, and 1.5 mmb build on distillates.

The API & other analysts had expected another draw (in the neighborhood of 3.5mmb on Crude), which appeared to be priced into yesterday's trading. Today however, Crude plummeted 2% on the report's release, and refined products dropped steadily throughout the day.

At the close, Crude settled out at $51.09, ULSD was down .0708 to $1.7532, and gas dropped .0670 to $1.6203. 

For the second half of their one-two punch, the EIA also revised down its 2019 World Oil Demand forecast by 70,000 bpd. The 2020 number was not revised down, which is good, but the current year revision is still a worrying signal regarding economic growth, and therefore, longer term demand. 

The Bank of America report from Friday continues to weigh on prices as well, as the ongoing tension between the US and China is being watched carefully. Slowdowns in the Chinese economy are a huge factor for global demand on one hand, but robust growth supplied by (sanctioned) Iranian oil would be perhaps an even worse outcome in terms of market stability and general international relations - both between the US & China, and within the Middle Eastern region.   

It pays to keep in mind that despite how clear cut the drops may seem when looking at supply & demand factors alone - we also have a developing situation in the Middle East, specifically Iran. Sanctions are in play against Iran, and their economy is struggling which promotes civil unrest (as we have seen). Oil tankers are being seized in the Strait of Hormuz, while other vessels smuggle sanctioned oil to unscrupulous buyers, drones are being shot down, and so on.  It's not difficult to imagine that situation spiraling out of control and becoming a serious international crisis far beyond the impact it would have on markets. All of which is to say - it's never a great idea to assume the future is certain for the markets (or anything else). 

Stay tuned!

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Markets Tumble on Trade War Tensions

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The NYMEX tumbled back down today, erasing Friday's rally. At the close, ULSD shed .0546 to $1.8356, and RBOB dropped .0635 to $1.7180, with Crude closing at $54.69, which puts us back in the territory we saw on Thursday, essentially. (We were $1.8529, $1.7499 and $53.95 at the close Thursday after record slides).

The NYMEX wasn't the only market down today, as global stock markets slid on US/China trade war tensions.

So today, China threatened retaliatory action after the Trump Administration did not back down from tariff imposition threats. And then (stop me if you have heard this one before) Chinese currency hit suspicious new lows against the US dollar, which prompted renewed accusations of currency manipulation on the part of China by President Trump, which didn't sit well with Wall Street, who is looking for any sign of hope that tariffs and a potential full on trade war are not looming on the horizon....And then everything tumbled across the board, from the Dow Jones to the Nikkei. Phew. 

Bank of America also announced today that should China choose to purchase Iranian oil in response to US Tariffs, we could see oil tumble to "$20-$30/bbl" (although they did not revise their 2020 prediction of $60/bbl). The decision to purchase from Iran would serve to both weaken the impact of US backed sanctions on that country, as well as take a substantial amount of the impact out of the tariffs imposed on China. However, the move would not be without consequence, as Iran would be stepping outside the agreed upon production cut strategy in the region and that would likely not go over well with their neighbors (particularly Saudi Arabia) and would essentially force a heavier partnership than China may be interested in maintaining.

On the fundamentals, supply is still vastly outpacing demand, and economic indications continue to suggest that global demand will continue to soften. Whatever does or does not happen in terms of shorter news cycle events - seized tankers, trade disagreements, etc, the fundamental supply/demand levels will ultimately dictate a large portion of where crude & refined products settle out.... at least until another short term cycle event throws a wrench in the gears.

Stay Tuned!  

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Markets Rebound After Thursday's Slide

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Markets rebounded somewhat today from yesterdays massive slide.

Brent & WTI both closed up 2.7% today (to $62.07 & $55.40, respectively) after each saw the greatest single day slide in over three years on Thursday. 

At the close ULSD was up .0373 to $1.8902, RBOB up .0316 to $1.7815 and WTI at $55.40. 

So what's going on? 

Analysts are accounting today's rally to the idea that yesterday's sell-off was probably more extreme than was warranted, so some of the rebound is simply a re-balancing of sorts.

The other assumption is that the Trade War concerns brought on by yesterday's Presidential tweets and the potential impact of looming tariffs on the economy may have been an overreaction. Time will tell on that one. 

Overall it's a little hard to tell whether we are returning to range bound numbers or waiting for another shoe to drop, as a lot of the usual "leading indicators" are mixed.

The US economy expanded 2.1% in the second quarter, which beat analyst predictions - but also fell short of Q1 numbers.The jobs number was up - but not as strong as was hoped, and the unemployment rate is low - but unchanged from prior month. The economy expanded - but manufacturing activity and construction spending fell.

Oil production levels in the US are expected to surpass records, while OPEC cuts production to bolster prices. 

Each of the factors we usually consider is somewhat counterbalanced by another. 

It will be interesting to see how things begin to shake out.

Stay tuned!

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NYMEX Plunges on Fed Rates, Supply, Tariff Tweets

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Oil & Refined products all plunged today on a series of events. Both Brent & WTI were down over 3% this morning, and by 2pm refined products were down over 11 cents.

At the close, ULSD was down .1178 to $1.8529, RBOB shed .1129 to close at $1.7499, and WTI Crude was $53.95, down from $58.58 at the close yesterday.

Yikes.

So here's what appears to be going on in a very basic nutshell:

The Federal Reserve announced a single rate cut of 0.25% versus the series of cuts expected to be coming down the road. The interest rate cut was expected to begin a series of cuts to shore up the domestic economy against global economic concerns about general weakness but evidently will be a one shot deal. 

The dollar hit two year highs post Fed announcement, and oil crashed as a result. 

U.S. supplies were down for July and OPEC production hit record lows (below 2011 levels) as a result of the OPEC+ deal, which normally would serve to boost prices, or at least hold them steady. However, global supply & output levels are still very high, particularly from the United States, and additional influxes from former member nations who opted out of the OPEC+ production cut agreements. (When combined, that's an offset of around 12mmb per day against the cuts by OPEC countries) 

Finally, this afternoon, the Trump Administration announced abruptly that effective September 1, the US would impose a 10% tariff on an additional $300 billion dollars of Chinese goods. Not exactly helpful for allaying concerns about global trade, the global economy, or weakening demand, to put it mildly.

The announcement came out later in the day, so we will have to see how the markets shake out tomorrow - whether the demand concern seeming to dominate now holds out, or if we flip the markets the other way on overall economic concerns tariffs can raise. 

As always, stay tuned & feel free to reach out if you have questions. 

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Iran Seizes Tankers in Strait of Hormuz

 

BREAKING - Iran's Republican Guard has reportedly captured 2 oil Tankers in the Strait of Hormuz this afternoon, one tanker being British and the other Liberian flagged.

News broke of the first  around 1:30pm EST, the second being just announced 3:15pm EST. 

So far the market is up but not sharply, but it's unclear that the impact of news of a second vessel has hit yet. The obvious fear with multiple seizures is that Iran plans to deliver on the perpetual threat of closing the Strait of Hormuz, although it is obviously entirely too soon to make any such prediction. 

CNN is live updating on the unfolding situation, you can follow those updates here:  CNN - Iran Seizes Tankers in Strait of Hormuz

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Inventories & Gulf Storm threat push NYMEX higher

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Crude slipped past the looming $60/bbl benchmark this afternoon, as pricing surged over $2/bbl (~4%). Prices have been largely supported the past several weeks by looming Iranian-US tensions and price level support from the continuing OPEC+ production cuts.

Today's surge was the result of the perfect storm of, well, an actual storm, and unexpectedly high Crude inventory draws announced by the EIA. 

This morning several major oil producers announced they were beginning evacuations of rigs and halting areas of production along the Gulf of Mexico ahead of an impending tropical storm expected Thursday into Friday. (According to CNBC, who has a fantastic piece being continually updated with info on everything happening in the Gulf & the market impacts that you can read here: CNBC )

The EIA Inventory report this morning showed Crude draws of 9.5mmb, well above the anticipated levels (expectations were that draws would be around the 3mmb range, so they came in at over triple expectations, essentially). Gasoline drew down 1.5mmb, and distillates showed builds of 3.7mmb. Those distillate builds did little to slow the across the board impacts this afternoon, and refined products closed up right along side Crude. 

At the close, Crude closed out at 60.43, ULSD was up +.0804 to $1.9910 and gas settled up +.0783 to $2.0052

 

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G20 Summit Answers Looming Market Questions

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Prices surged this morning after a slow down on Friday, on news from the G20 Summit that Russia and Saudi Arabia have agreed to extend the OPEC+ production cuts by another 6-9 months. The agreement still needs to be ratified at the upcoming OPEC meeting, but that is essentially a formality at this point, given Russia & the Saudi's are in agreement. 

The demand side of the equation also got a boost from the announcement by President Trump that no new sanctions would be put in place on China, at least for now. Speculation on potential tariffs has been a cloud over trading for several weeks. 

Markets were up huge this morning, with gas briefly up over 5 cents and diesel not far behind, and Brent Crude up over 2%. It calmed over the trading day however, and at the close we saw ULSD +.0144 to $1.9538, Gas up .0339 to $1.9305 and Crude settled at $59.09

Looking backward, despite closing down on Friday, the month of June was up 9% on concern about Iranian-US tensions, Chinese tariffs, and the OPEC/G20 production discussions. Now that some of these have evidently been resolved, at least temporarily, it will be interesting to see what July holds for market moves. 

Stay Tuned! 

 

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EIA Data, Refinery Closures & International Tensions Spike NYMEX

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The NYMEX is up big this afternoon in the wake of surprise draws in inventories, ongoing international issues, and the potential closure of the largest gasoline refinery on the East Coast. 

Inventories: Crude was projected to drop ~2.5mmb but EIA data showed a surprise drop of a whopping 12.79mmb for the week ending June 21.

Gasoline & Distillates were both expected to show builds, but gasoline drew down 1 mmb, and distillates dropped 2.44mmb (projections were for builds of 0.29mmb & 0.52mmb, respectively).

Crude jumped over 3% on the news, and refined products shot up as well. Gas has been up over 8 cents most of the day, with diesel up .04-.05. 

At the close, Crude settled at $59.38, ULSD jumped .0479 to $1.9713, and Gasoline was up .0932 to $1.9704

International Tensions The ongoing tension between the US & Iran continues to make markets nervous as we wait to see what the next steps may be after the abrupt calling off of air strikes last week in response to Iran shooting down an American drone. 

Continuing concern about the ongoing saga regarding US-China relations and the potential ramifications of proposed tarriffs on Chinese manufactured goods is also serving to keep markets on edge. 

The G20 Summit is slated for this week, and all eyes are on reported meetings to occur between Russian President Vladimir Putin and the Saudi Crown Prince. The previously scheduled OPEC meeting for the end of this month has been postponed, purportedly in order to allow for Russia & Saudi Arabia to discuss the so called OPEC+ deal on production caps, and what the ongoing supply curbs under that deal may look like at the summit. 

Refinery Closures  In addition to inventory draw downs, the Philadelphia Refinery that suffered an explosion last week when a vat of butane ignited is reportedly seeking to shut down permanently. The site is the largest gasoline refinery on the East Coast, and the long term supply impacts of it's shuttering could be substantial.

Stay Tuned!

 

  

 

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Refinery Explosion & Iran/US Escalations Push Prices Up

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Gasoline spiked this morning, after a refinery explosion shook Southern Philadelphia. At around 4am, a butane vat exploded at the East Coast's largest  refinery, causing large fires and prompting an shelter in place order for the surrounding areas. There are no injuries reported, and CNBC is reporting the flames were relatively controlled with the SIP order lifted around 7am. You can follow this story here: Massive explosion at biggest gas refinery in East Coast 

We won't know how long term an impact refinery issues will cause, but looming larger on the horizon is the US/Iran tensions hitting crisis point. The market has jumped substantially this week in response to the escalations.

In lieu of the deep dive really looking into the Iran/US issues would require, the following is a quick synopsis of what's been happening in the past weeks' escalations: 

Tensions have been simmering since last May, when Trump withdrew the United States from the so-called "Iran Nuclear Deal" reached with that country & President Obama that would have capped uranium enrichment for Iran at 3.67%.
  • Last week, as discussed, oil vessels were attacked in the Gulf of Oman.  The Trump Administration has placed the blame on Iran for the vessel attacks, although it is unconfirmed still at this moment in time. 
  • Monday, Iran announced that by the 27th, they would officially breach the caps on uranium enrichment set by the "Iran Nuclear Deal"  As mentioned, the Trump Admin withdrew from that deal in 2018, but it is important to remember that the other countries involved did not withdraw, the deal was supposedly still in effect between Iran & several other European nations.
  • In response to the announcement about uranium, President Trump announced he would be redirecting 1,000 troops to the Middle East.
  • Thursday, Iran shot down an unmanned US drone. Iran claimed the drone was within Iranian airspace, while the US argues their coordinates show the drone within International airspace near the Strait of Hormuz (there is about a 9 mile variance between the coordinates cited by Iran and those cited by the US)
  • Thursday night, President Trump ordered retaliatory strikes on Iran, but held off at the last minute. According to him, he called off the strike because the expected casualty rate would be higher than what he considered proportional to the attack by Tehran, so it is unclear whether a different type of retaliatory strikes will commence in the next several days. (This is still developing, follow live updates here: "Trump confirms he called off retaliatory strike against Iran in last minutes" 

We will continue to keep an eye on developing news and how it impacts the market.

If you have questions regarding current pricing, or want to learn about the options for fixed prices or prompts available in the face of volatility in the market, please don't hesitate to reach out. 

Stay tuned! 

 

 

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Markets Spike on Vessel Attacks near Strait of Hormuz

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So much for no major events on the horizon.. After yesterday's drop, where Crude closed out at a 5 month low, this morning the NYMEX was up sharply across the board on developing news of tanker attacks in the Gulf of Oman. 

The attack was reportedly on two tankers at 6:12 & 7:00 am this morning local time. Crews were evacuated, and thus far both vessels are still afloat, according to Fox news this morning. 

The area the vessels were hit in is close to the Strait of Hormuz, a critical passageway for oil in the Middle East, with approximately 20% of Global volume passing through the Strait. 

The market was up 4% this morning on the news, and we will have to wait and see what further impacts there are as the story develops. It is unclear how safely vessels are able to travel the Strait currently, and it is unclear who attacked the vessels (although some unsubstantiated claims from a group in Iran have surfaced).

Again, this is developing, so we don't yet know what exactly happened, or what the full impact may be. 

For a great explanation of this morning's market reaction, as well as continuing updates, follow this story on CNBC here:

Oil Jumps 4% on Reports of Tanker Attacks in the Gulf of Oman

 

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WTI Hits Lows on Inventory & Projection Data

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Prices continued to slide Wednesday as the EIA reported builds in Crude supplies of 2.21mmb for the week ending June 7th. (Yesterday, the API report indicated even more drastic build of 4.9mmb). This afternoon, WTI closed out at $51.14/bbl, the lowest close since January. WTI has dropped close to 20% since April peaks. 

On the NYMEX today, both gasoline & distillates tumbled alongside Crude, shedding -.0702 and -.0422, respectively. (The session closed out at $1.6861 for RBOB, $1.7799 on ULSD.) 

In addition to pricing being low, demand forecasts have been revised downward for 2019 & 2020 by the EIA, by around 100K bbl per day, globally.  

However, despite both the drop in prices and the slowing demand, forecasts indicate that not only will production continue in the US, but will ramp up by approximately 1.4mmb/day in 2019, according to the EIA. This is supported by statements made by the Deputy Energy Secretary of the United States, Dan Brouillette this week, who said production would continue to increase domestically despite pricing and demand concerns and he expects that demand concerns will resolve "as the economy begins to rev up". He also dismissed concerns that the ongoing tariff dispute with China would adversely impact US production, which remains to be seen. 

Analysts seem to be in agreement that OPEC is unlikely to seek any more curbs in output for their member nations, so essentially, with no major impact events on the horizon, we are just waiting to see if this is the bottom, a new normal, or a temporary blip. 

Stay tuned!

 

 

 

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OPEC vs "NOPEC" Drama Pushes NYMEX Up

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The NYMEX was up today across the board, with Crude closing out at $63.08/bbl, comfortably above that $60 benchmark, and refined products both edged up almost 3 cents, with ULSD closing at 2.0424 (+.0290) and RBOB settling at 1.9687 (+.0288).

So what's going on?

March Oil production from OPEC on preliminary reporting is down 570k barrels per day, primarily driven by drops from Saudi Arabia and Venezuela.

Domestically, rig counts are up, suggesting some level of confidence in prices stabilizing or continuing to increase on the part of producers. Crude production levels are still up overall as well.

Another factor coming back into play this week was the so called “NOPEC” (“No Oil Producing Cartels”) bill in the US that aims to hold OPEC nations potentially liable for what are considered “cartel-like” practices. Currently (and historically) there is no real legal recourse against things like so-called market fixing and this bill aims to change that in terms of establishing liability.

The reason we care about this bill popping up again is that rumor has it the Saudis are responding to the prospect of the bill being pushed through by threatening to drop the dollar as the currency basis for their oil trading.

This might sound familiar because the same thing happened a few years ago. Threats over currency changes and essentially market flooding by the kingdom led to prices crashing (back when we ended out at $30/bbl, from the $100 ish its hard to remember being used to), which drove a substantial number of US based producers out of business (particularly those highly leveraged on shale plays). At the time, the Saudis essentially had enough cash in hand to allow the prices to bottom in order to retain market share and production dominance, where anything under $50-60 a barrel was unsustainable for US companies. 

 So long story short, the threat to replace the dollar is the threat to wreak havoc on the US economy via crashing the market. (One would hope the irony of that being your response to being called a cartel would register)

A point to remember is that at the end of the day, despite production level increases, the US is still a marginal producer, not a swing producer like OPEC, so production is almost fully determined by market price levels. And the dollar being removed as the basis for trading could seriously impact those price levels.

 So at least for today, we closed up on all the drama, but also the fundamentals.

 Time will tell if we hang around the $60 benchmark, or continue to move upward and a substantial portion of which way we go will depend on continuing production cuts globally, and what happens on currency basis changes.

 Stay tuned!

 

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EIA Levels Push Gas Lower, Distillates Hang Steady Ahead of IMO Change Questions

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EIA Inventory reports for the week ending March 22 indicate that Crude inventories showed a build, while finished products (Diesel & RBOB) showed draws. 

Reports indicate a 2.8mmb build in the period for Crude, draws on gasoline of 2.9mmb and a smaller draw of 2.1 mmb on distillate inventories. 

We have seen WTI trending toward the $60 benchmark, where it continues to trade today after inventory levels were announced. Gasoline on the other hand, was down over 5 today after the news.

At first blush the drop on gas seems surprising, given the draw down, but production levels are still very high (9.7 million barrels per day) and very much outpacing projected demand, even as the U.S. heads toward "driving season".

Of note among analysts, diesel has remained relatively stable in the face of fluctuating inventory and international headlines, and the thought is that this period of calm is caused by (and will be short lived because of) the IMO Bunkering regulation changes set to take effect in January. Refiners, marketers, and end users are all eyeing potentially huge upcoming shakeups in the market there and the anticipation is putting a damper on major swings or selloffs in the current market. Or that's the prevailing theory, anyways. 

So what is IMO 2020? The short version is that as of January 1, 2020 marine fuels will be subject to a global cap of 0.5% sulfur (the current level is 3.5% in non-ECA/Emission Control Areas). Since this is global, it will impact essentially all refiners and supply point inventory options out there, in addition to the obvious end-user impact. 

(If you want a more in depth version of exactly what IMO 2020 is about and its anticipated impacts, Sea Trade Maritime News has a fantastic explanation here: Seatrade Maritime News: The 2020 IMO Fuel Sulphur Regulation  )

At the close, ULSD closed off $-.0093 to $1.9806 while RBOB shed $-.0602 to close out at $1.8955. WTI closed out at $59.41/bbl, continuing to hover around the $60 benchmark. 

 

Stay Tuned!

 

 

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OPEC output keeps upward price pressure on, while PDVSA sanctions have little impact

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Prices have been trending upward this week, largely based on OPEC following through on production cuts. Namely, we saw a drop in output of around 800K bpd in January by its member nations. This would seem to indicate that the so called "OPEC+ deal" to cut output and thus global oversupply is actually being followed, and it appears it is starting to have the desired effect - stabilizing prices higher than we have seen over the past year or so.

On the other hand, US domestic production continues to surge, which is holding off the major jumps in pricing we would expect to see on the OPEC move normally. 

This afternoon WTI settled out at $53.90 (from 52.41 Monday), ULSD closed up +.0316 to $1.9388, and RBOB jumped +.0379 to settle at $1.4651.

Assuming we see the existing dynamic continue to play out over global (OPEC) vs domestic (US) output, the main question on how widely pricing will swing in the next few weeks hinges on Venezuela.

The sanctions placed on state run PDVSA by the Trump administration are the type of political event that normally rocks the market, but so far in terms of benchmarking they have had little effect (on the NYMEX - that is not to say they have not or will not have a serious impact Venezuela/PDVSA, to be clear).

CNBC has a great piece today detailing the impacts the IEA expects to see from the sanctions, and why they don't see them having an outsized impact. You can read that piece here:  "Don't expect US sanctions against Venezuela to fuel a rally in oil prices, IEA says" 

Stay tuned! 

 

 

 

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Today's Takeaways from the EIA Short Term Energy Outlook

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The US Energy Information Association - EIA - is out today with the Short Term Energy Outlook report with projections for 2019 & 2020.

Here are what I think are the major takeaways:

  • 2019 Price forecast for Crude oil - $61/bbl Brent, $53-57/bbl WTI. The Brent average for 2018 was $71/bbl, so we are expecting to continue to downward overall trend in pricing. 
  • 2019 Projected retail gas price - $2.47 (Down from 2018 average of $2.73) 
  • US Crude Production hit a high in 2018 - it is expected to continue to accelerate from the current level through 2019 & 2020. Over the next 2 years, experts expect an increase of over 1.5 million barrels per day. 
  • US Importing of crude & refined products is expected to continue to decline. Although we temporarily saw the US become a net exporter in 2018, the actual average per day imported was around 2 million barrels. That's expected to decline to 1mmb/d for 2019 and a shocking 0.1 mmb/d per day in 2020. (You read that right - .01, amazing)
  • US (Dry) Natural Gas production is expected to jump from 83 bcf per day in 2018 to 90 in 2019. 
  • Global Inventories are expected to continue to increase.  
  • On the clean energy front, coal's role in electrical production continues to decline over the next 2 years. Hydropower's share of generation is projected to remain stable. Wind power electrical generation is expected to outpace hydropower for the first time ever in 2019.
  • Carbon emissions are projected to decline 1.2% in 2019 as well, and a little under 1% for 2020 as it stands now. 

 

Long story short - expect more production, more inventory, lower prices, continued progress and growth on cleaner energy and a decline in carbon emissions - all at the same time. Happy 2019!  

 

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Crude Poised to End 2018 Down 20%

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As we head towards the end of 2018, it looks like oil prices will finish the year out down about 20%. We saw wildly fluctuating energy markets throughout the year, but the fundamental factors of supply and global economic growth concerns kept the downward pressure on pricing over the long term. 

Let's look back at what went on this year and what we are keeping an eye on going forward.

In 2018, the United States stepped to the forefront as the world’s largest producer of Crude oil, outpacing both Russia and Saudi Arabia.

Late in the year, Saudi Arabia and Russia, along with other OPEC and OPEC partner nations, agreed to production cuts starting in 2019, but Russia had a record production month in December, so time will tell if the unofficial deal bears out.

Worth remembering, is the US has no involvement in the supply curbing that is the so-called “OPEC+” deal. Historically, we have seen the Saudi’s reluctant to cut output long term for fear of losing market share.

This becomes even more relevant today than it was two years ago, as US output increases and the US becomes a net exporter for the first time in 70 years.

Essentially, the US has gone from an esoteric threat to market share to a very real one, and there is reason to believe that this may affect how the OPEC+ agreement is adhered to (or not) through 2019.

Another factor that can affect day to day swings on the NYMEX is the performance of the stock market. As we’re all aware through this year the market was hitting all new highs, then crashing, and generally bouncing around  (the analysts are writing off this weeks one day gains as a “suckers rally” – ouch!). Stocks obviously are impacted by both the at-large economy and the ramifications of political actions and their accompanying sentiments.

To put it politely, the US political arena right now is very... let's call it “exciting”, so it would probably be wise to anticipate an ongoing roller coaster with stocks – what we don’t know is how that could carry over on energy pricing in the long term.

The other ball in the air is the current Government shut down – prior shut downs were less than devastating in terms of any significant or lasting price impacts on energy – however, we wont know if that is the case with this one until it’s over. Right now there is know way of knowing how long the shutdown will last, obviously the longer it goes on, the more impact it has on federal employees, programs, and citizens. When it will end is anyone’s guess.

Lots to keep an eye on as we round into 2019. Have an awesome holiday, hope to see you all in the New Year!

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Markets Reverse on Strong Demand Signals

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Markets reversed in a big way today, with front month WTI Crude surging 3% after yesterdays 7.3% decline. At time of writing, both diesel and gas are up (ULSD +.0447, RBOB +.0307)

According to the experts, today's reversal is largely based on demand level optimism on refined products. The DOE indicated that distillate inventories dropped by 4.2 million barrels, a sharp contrast to the half a million barrel build analysts had predicted. Diesel demand is at levels not seen since early 2003.

Despite today's jump it's important to remember that prices are still very low overall - both Crudes (Brent & WTI) are down over 30% since the end of September. The strong indicators for refined product demand also don't do much to address the larger issue weighing on prices, namely, global supply levels and overall global economic concerns as they relate to demand. 

The OPEC+ deal wont be in effect until the beginning of 2019, and current production levels are high. Saudi Arabia is anticipating lower global supply levels by the end of March, but their statement on the matter hasn't done much to slow the overall trend of plummeting prices. 

 Economically, the US is doing well but there are concerns that the Fed's response to strong economic growth - raising interest rates yet again may put a damper on growth pace going forward. This concern may or not be borne out, however, as recent rate increases have seemingly been absorbed without catastrophe. It may very well have short term impacts on both the NYMEX and financial markets, however.

The Fed is expected to make a rate hike announcement this afternoon, we will have to wait and see what those impacts are, and how much staying power they have.  

Stay tuned. 

 

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NYMEX Plummets on Renewed Fears of Supply Glut

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Futures are crashing on the NYMEX today, with WTI down around 5% thus far on the day, around the $48/bbl mark, on track to potentially close out at a 15 month low. Refined products are tanking as well, at time of writing, ULSD is off .0472 & RBOB is down .0341

So what's going on?

Once again, it appears the sell off is based on concerns of global oversupply, with the headline being that Russia is reportedly increasing output. The hike could put them at close to 11.5 million barrels per day, according to MarketWatch. 

You may recall that earlier this month prices spiked on the announcement that Russia & OPEC nations were agreeing to cut production by a combined 1.2 million barrels (here's a refresher: OPEC+ Agreement Spikes NYMEX)

Apparently, Russia has changed its mind. 

Along with the news about Russian production (unconfirmed news, for the record) the US has reportedly been upping shale production by more than what analysts had predicted, and globally, it looks like China is potentially poised for a slow down in demand growth, which is also weighing on prices. 

The EIA inventory reports due out later this week may impact whether the decline backs off or continues. Platts is predicting inventory draws on Crude & Distillates, so if they are wrong, we can expect some more downward movement on the EIA release.... theoretically anyways.  

Stay tuned!

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OPEC+ Production Agreement Spikes NYMEX

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OPEC, as well as the so called "OPEC+" partners have reached a tentative agreement on production cuts, causing the oil market to spike Friday. The cuts reportedly amount to 800,000 bpd on OPEC's part, and an additional 400,000 bpd (combined) from allied nations, including Russia. No specific cuts by country were committed to, or at least they were not confirmed in statements. 

The agreement reached purportedly contains "special considerations" for Venezuela, Libya and Iran. These 3 nations have been up and down in terms of supply levels as a result of domestic turmoil, and their revenue concerns obviously differ from those of nations like Saudi Arabia, so concessions for their agreement presumably needed to be made to get the deal done. No word yet on precisely what those concessions are.  

This morning the market was up 5% on Brent Crude, and 4% on WTI shortly after the open. At time of writing,(noon) both RBOB and Diesel are up almost 7 cents. 

What's interesting about the spike today is that the tentatively agreed to cuts are right in line with what analysts expected to see (estimates were 1-1.5mmb, and the agreement came in at 1.2), which should have meant it was already "priced in" but Wednesday & Thursdays' markets don't bear out that assumption. 

Time will tell if this particular OPEC related jump is temporary & speculative, as they often are, or if the production cut agreement will have its intended goal of propping crude at desired benchmarks and holding up the increases going forward. 

Stay Tuned! 

 

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Dow Collapse Pushes Prices Down Despite Storm & Supply Concerns

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Despite earlier in the week price increases on global supply concerns (Iran), and Hurricane Michael making landfall in the Florida Pan handle in the afternoon, Wednesday saw oil prices slump 2% on intraday trading.

Despite the fact that both of those variables usually push prices up, the catastrophic day for the US markets Wednesday overall pulled energy prices down with the ship, so to speak. The Dow Jones was down over 800 points yesterday, seemingly for no clear reason. (Currently, as of writing, the Dow is down slightly today, while the Nasdaq is up slightly).

Hurricane Michael is currently tracking through the Carolina's on its way back out to sea and has been downgraded to a tropical storm, which minimizes further supply interruption concerns. 

The energy markets today are again trending downward, as of 12:30 diesel was down over 4 and gas was down over 6. 

The EIA report this morning showed builds on Crude higher than analysts expected, with inventories up 5.98 million barrels. (projections were a 2 million barrel build). Both gasoline and distillates showed builds as well (951K barrels and 42K barrels, respectively) when projections showed both would be draws.

Presumably that looks good for continuing downward price pressure on refined products, but you never know. 

At the close yesterday, ULSD settled at 2.3949 (-.0289), RBOB at 2.0204 (-.0570) and Crude closed at $73.17. Today, as mentioned, we are trending down as well so we look to hold steady below the $2 & $75 benchmarks for the week.

(as an aside, the exchange platform is a great way to capture market drops like the ones we saw today and yesterday, if you would like more information on how to utilize that buying option, reach out to your rep or contact us via the site)

Stay Tuned!

 

 

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Projected Draws & Hurricane Fears Push Prices Higher

The Carolina's are bracing for a potentially "once in a lifetime" strength Hurricane and evacuations are already underway. Hurricane Florence is expected to make landfall Friday at a category 4, with the preceding rain & storm surge expected to begin early Thursday. 

This is the current projected map (courtesy of googlemaps), although the storm may shift substantially any time prior to landfall. You can track live on CNN.com. 

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On the markets side, there are obviously concerns about supply disruptions. At the moment pipelines are running but there are anticipated planned outages in affected areas over the next several days. 

Tuesday saw refined products jump across the board, including an over 5 cent leap on RBOB.

At Tuesdays close we were $2.2520 (+0342) on ULSD, $2.0142 (+.0550) RBOB, and $69.25 Crude. 

This morning we are seeing modest gains thus far. The API is projecting draws, but we will have to wait and see if the EIA data backs that up.

Obviously, changes in hurricane direction and severity will have impacts, we will update you on relevant changes as we get them.

Stay safe out there!

 

 

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OPEC Concerns Trump EIA Numbers to Drop Crude Prices

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Oil was down today as the market weighed out OPEC speculation on one hand, and a drop in US Crude inventories on the other.

OPEC concerns seem to have won the day, given the drop in the face of an EIA report indicating a 3.4mmb drop (projections were 2.3mmb drop), some of which is presumably attributable to the Keystone pipeline leak & subsequent supply diversions.

Refined products showed builds of 2.7mmb on distillates, 3.6 mmb on gas. (projections were 230K and 1.3mmb, respectively).

OPEC is set to meet tommorow (Thursday) in Vienna to discuss extending production cuts through the end of 2018. 

The current deal keeps 1.8mmb/day off the global markets via production cuts, and is set to expire in March but a new agreement would extend it through December. The running assumption was that it would be a no brainer to extend, but surprise, surprise, a few days out from the meeting and Russia had not yet agreed on anything. Thoughts are they may argue for a shorter agreement or push for renegotiation closer to the March expiration.

What does this all mean?

The assumption in the market currently has been that the OPEC deal extension is essentially "priced in" already. What that means is that failing a 9 month extension, we could see the recent gains evaporate rather quickly and see crude prices dip, with WTI falling back at or below the $50 benchmark, or even lower than that if there is no deal at all. 

From OPEC/Russia's side of the aisle, an agreement on production cut extension to bolster pricing may be met with continued increase in US domestic production, which could both offset gains and damage their market share in the long view. That position is somewhat supported by rebounding US production levels & refinery utilization rates. 

Last week we saw WTI close out at a high of $58.02, but it has receeded over the past few sessions, closing today out at $57.30. ULSD & RBOB tumbled today as well, with ULSD dropping .0286 to 1.9221 and RBOB dropping .0411 to 1.7309. 

Stay tuned!

 

 

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EIA Long Term Projections Dampen Inventory Effects

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WTI was in the red today ahead of the EIA inventory report.

API projections were that Crude would show builds of 3.1mmb - of note on this is API was an outlier of sorts, Platts forecasted draws of 400K barrels ahead of the official reporting.

Internationally, IEA Forecasts for global oil demand growth remained at 1.6m bpd, so flat demand growth amid the continued oversupply that doesnt seem to have much of an end in sight, long term picture wise. 

Anyhow, the official EIA report showed a draw down in Crude of 2.8mmb for the week ending 10/6. Gasoline was up 2.5mmb and distillates were down 1.5mmb. Gasoline had been projected to be down 1.4mmb, so the drop off we saw on gasoline today makes sense given the actuals. 

Side note - the EIA Report showed builds in Nat Gas of 87 billion cubic feet, right in line with Platts projections. The market was essentially unchanged on the builds, presumably because it makes sense there would be a temporary bump in inventories given temperatures havent dropped off, so demand should be low.Usually in New England we are well into the battle to keep the heat off til November 1 by now - this year not so much. I still have my air conditioner in the window.  

Gulf Refineries are back online and at capacity after temporary shut downs for Hurricane Nate, which probably is a factor in pushing pricing down as well in the face of flat demand.

In addition to the U.S. being back fully functional, EIA forecasts put U.S. domestic crude production at 9.9mmb per day for 2018 which would be the highest on average in U.S. history. Continued domestic production is seen as being a factor that will offset moves by OPEC or other nations to push a pricing rally. Theoretically, a rally cannot be sustained long term globally if the U.S. keeps production levels rising. We'll have to wait and see on that. 

The official numbers we closed out at this afternoon were: ULSD 1.7655 (-.0206), Gas 1.5832 (-.0260) and Crude landed right around the benchmark at $50.60

Thats all for today!

 

 

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EIA Draws Keep NYMEX Boosted; Venezuelan Vote & Sanctions Loom on the Horizon

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Today, the NYMEX continued it's winning streak - At the end of the day, we settled up across the board yet again, with Crude settling out at $48.75/bbl (+1.7%), ULSD climbed +.0268 to $1.5953 and RBOB edged up +.02111 to $1.6173. 

Yesterday we talked about the OPEC production & export factors affecting the market, as well as projected slow downs in domestic oil & gas exploration. (For a refresher, you can peruse yesterdays article here: 2017s Largest One Day Rally Hits on OPEC & US Production Projections ) 

Today, while API projections called for a 10.23mmb draw in Crude, the EIA Inventory Report showed an actual draw of 7.2mmb. Current Crude levels are now around 483.4 mmb, or the upper end of average for this time of year. For finished products, distillates drew down 1.9mmb but are still on the upper end of what we normally see for average levels, while on gasoline, projections were calling for a build of 1.9mmb but actuals showed a draw of 1mmb. 

In broader news that can potentially have huge ("YUGE!") market impacts, the Trump administration has floated the possibility of a ban on Venezuelan Crude as a U.S. response to Venezuelan President Nicolas Maduro, should he choose to go forward with rewriting the country's constitution, in what the United States sees as a move to clamp down on opposition. The vote on rewriting the country's constitution is expected Sunday, and Platts is reporting that the U.S. Treasury department is crafting sanctions currently. 

At the same time however, even as the Treasury works out the details, it appears the Administration has already backed off of the idea after looking at its potential impacts. They are now hinting at more targeted sanctions than an overall ban, but that would still likely create some serious aftershocks in the market.

Venezuela is the third largest supplier of imported Crude oil to the United States (after Canada and Saudi Arabia), and supplies a huge percentage of the Crude refined in the Gulf Coast.

A ban could be devastating for US refiners and importers, and even simply not taking the option off the table could impact the markets in a drastic way over the next few days, particularly if the option remains even theoretically possible on Monday after the vote takes place (its expected to be a "show vote" with Maduro's desired outcome essentially 100% certain).

Definitely something to keep an eye on that could drastically change the supply and pricing picture as we know it.

Stay tuned!  

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2017s Largest Rally Hits on OPEC & US Production Projections

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Today saw oil prices have the biggest one day rally of 2017 thus far, with WTI Crude surging up 3.3% ($1.55) to settle out at $47.89/bbl. Likewise, refined products surged, with ULSD jumping over 5 cents (+.0516) to 1.5685, and gasoline jumped +.0394 to settle at 1.5962.

So whats going on?

On the global news front, at an OPEC gathering in Russia on Monday, Saudi Arabia pledged to cut Crude exports beginning in August, and Nigeria stated it will cap its production at 1.8 million barrels per day. (WTI closed out up 1.3% at $46.34 on the day Monday immediately following the news. ULSD settled up as well but by a mere 17 points to $1.5169, while gasoline dropped 65 points to close out at $1.5568.)

An important note pointed out by Market Watch regarding the OPEC news, however - its not unusual for the Saudis to drop exports this time of year, and the "cuts" promised by Nigeria are actually at levels higher than they are producing at the moment (they will cap at 1.8mmb and they are currently producing 1.6mmb) so its likely that this news was another somewhat nothing-to-it story out of OPEC that caused a (presumably temporary) jump on the NYMEX, as most OPEC meetings seem to do. 

Today was likely impacted more from domestic news and forecasts than the OPEC news of yesterday. Cuts are looming in the Oil & Gas sector in the U.S., which signals an oncoming slow down in domestic output. Anadarko, one the nations leading oil & gas exploration companies cut investment guidance by $300 million for 2017 after posting losses for the second quarter of over $415 million, or roughly twice estimates. Add this to Halliburton's forecasts for flat to declining rig counts, and projected crude draws on this weeks EIA reporting and you had the perfect storm in place for todays rally. 

 

 

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U.S. Inventory Projections Slow Today's NYMEX Losses

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The oil markets were down sharply this morning on increasing cynicism that, essentially, global supply will not be driven down sufficiently by either OPEC or "non-cartel" producer production caps, or the summer driving season in the U.S. being upon us (despite the weather here in Boston, technically yes, its summer driving season). 

It would seem that the prior rally was a knee jerk reaction to what basically amounted to a baseless hope that somehow OPEC and other producers would be setting limits that actually addressed the ongoing supply glut, and therefore the lackluster pricing. It was unlikely that would be the case, given that the prior meetings we have seen, despite the hoopla, have also failed to address supply in a meaningful way. 

Despite promising to address the fundamentals involved, we've actually seen some ramp up in production on the part of Libya, Nigeria and Iran - none of which had any sort of ceiling placed on them at the recent gathering. 

We often talk about other countries production as being an unpredictable factor in global pricing & supply, however, it's worth noting that U.S. production has ramped back up substantially as well. Current production is around 9.3 million barrels a day (up over 6% from this time last year) and on the rise.Given this, it's not likely we will see OPEC seriously curb their levels, particularly the Saudi's, as the concern over U.S. encroachment on their market share has been inarguably a major driving factor in the current glut and its failure to resolve. Saudi Arabia has been beyond clear that they are prepared to hunker down and withstand whatever price declines are necessary for market share retention, particularly as concerns the U.S. At this point, it's pretty clear they are not bluffing about that. 

Anyhow - Today, unlike last Thursday's wild plunge,has pared losses as the day goes on, while investors factor in the near term projections on U.S. supply reports (due out tommorow, thanks to the holiday) versus the overall global supply picture.

Platts is projecting a draw down of 3.2 million barrels of crude on tommorow's reports, which would be the 8th week in a row, and definitely helped to stem the bleeding today on the NYMEX by close.

At the close we ended out with Crude at $48.32/bbl, July ULSD at 1.5179 (-.0356) and July Gas at 1.5965 (-0278). 

Stay tuned! 

 

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Benchmarks & OPEC & Hurricanes, Oh My

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Crude closed out today at over $50 ($50.44 to be exact) which is the highest close we've seen since June. ULSD closed up .0135 to $1.5958 and RBOB ended up .0050 at $1.4978.

This week the NYMEX has ticked up steadily on all products, holding firm since OPEC announced they had a tentative agreement in Algiers, despite said agreement not being formalized in any way.

Additionally, this weeks EIA inventory report indicated more product draws as well, which pumped prices almost 2% Wednesday. Analysts had projected builds, but the governments official reporting showed US Crude stockpiles dropped 3 million barrels versus the expected a 2.5 million barrel build forecast by industry projections. 

Despite OPEC chatter and EIA draws, its entirely possible we have already seen an outsized pricing build up on commodities, given that the global demand picture is not an overly rosy one, and supply is not in any way guaranteed to either stabilize or drop anytime in the near future - with or without an OPEC agreement. 

Today (and probably tommorow) whats trending in the news is Hurricane Matthew, which is roaring up the East Coast of Florida currently as a category 4 storm, and would be the strongest hurricane to make landfall in the US in about a decade if it should touch down at its current intensity.

We're hearing reports of local gas outages in the Southeast, as residents flee the coastal areas on the advice of Florida governmer Rick Scott and President Obama. However, given that as its currently tracking, Hurricane Matthew is East Coast centered, versus hitting the Gulf, national or regional supply outages are not anticipated. Obviously all of that could change essentially instantaneously however, and we will let you know what we do, as soon as we do, if there are new relevant developments.

 Stay tuned!

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OPEC "Deal" and Inventory Draws Prop Up NYMEX

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On Wednesday, OPEC countries made a surprise agreement to cap production at 32.5-33 million BPD at their meeting in Algiers (if you’re keeping score at home, current production is about 33.24mmb.. insert yawn here, in other words). This marked the first deal since 2008, largely on account of Saudi-Iranian tensions – more on that later. Oil spiked on the news before backing off slightly over the remainder of the week.

 

Wednesday saw Brent and WTI both surge up over 5% (5.9 and 5.3, respectively). Wednesday ended the day up across the board, with refined products ULSD and RBOB both up over 8 cents on the day (ULSD $1.4910; RBOB $1.4777) and WTI closed out at $47.05/bbl.

 

Analysts are projecting that the OPEC “deal” could add up to $10/bbl to the price of oil. However it is worth noting that there is a reason we put “deal” in quotes – as we have seen previously OPEC is not shy on talking up oil prices, but when it comes to an across the board agreement and even more importantly, ACTION, on said agreements, the jury is still out. Watch for the ongoing standoff slash game of chicken between the Iranians and the Saudi’s to likely cause this so called deal to amount to little more than a few days of upward trending on the screen versus actual, actionable changes to the fundamental supply glut we still find ourselves in.

 

Thursday saw prices continue to climb on distillates, although in a much less drastic fashion as bigger picture doubts about the OPEC deal set in – these were somewhat offset by another draw down in U.S. inventory levels, however, and as a result we saw ULSD gain $0.0192 to close out at $1.5102, RBOB dropped $0.0109 to close out at $1.4668, while Crude settled relatively flatly at $47.83.

 

The EIA report Thursday indicated a 1.9mmb draw down in commercial crude inventories, more than double the API’s projection of a 752K draw, and the fourth draw down in as many weeks. Distillates mirrored crude, also drawing down 1.9mmb, but gasoline saw a build of 2 million barrels to buck the trend.  The timing worked out well on the inventory draws as far as price stability is concerned, given that by the hour the hope for the OPEC agreement amounting to actual supply cuts fades.

Despite the clear incentive for Riyadh and Tehran to bolster their economies and Thursday’s announcement by the Saudis that they are willing to cap production, it’s almost unimaginable that Iran agrees to cuts post sanction lifting, as has been the case for the past several months.

 

Today we saw October trading expire (doesn’t seem possible!) and November trading kept products range bound with WTI closing out at $48.24, up against yesterday’s number. ULSD closed up as well, settling up $0.0281 for November trading at $1.5383, with gasoline again bucking the trend and settling down 37 points to $1.4631.

 

We ought to in theory see either movement on OPEC next week, or see the market shed the bump in pricing. Longer term, it will be interesting to see how things settle out over the next few weeks as we start heading towards the winter and heating oil season – hopefully a colder one than last year’s, at least up here in the Northeast.  

 

Stay Tuned!

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Dramatic Inventory Drawdowns Pump Up Prices

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Crude jumped on today’s inventory report after jumping up on the overnights last night as well. Post close yesterday, the API numbers were indicating significant draws and the EIA release backed that projection up.
The EIA report this morning indicated that Crude inventories dropped by 14.5 million barrels for last week, which is the biggest drop we’ve seen this millennium (since 1999).
Analysts are partly blaming the effects of Hermine on the Gulf Coast delaying production and explaining the draw down in stocks.  
Gasoline stocks also dropped, by 4.5 million barrels, and also unexpectedly.
Today closed out up across the board, with diesel up .0557 to $1.4822, Gas up .0701 to $1.4165 and Crude closing out at $47.62. (significantly up from yesterday’s Crude settle of $45.50)
An interesting aside on gasoline’s jump today was that the lowest Labor Day retail gasoline prices in 12 years were seen this past weekend, and if you jump online there are literally dozens of articles projecting that the post summer driving season price levels for gasoline will drop below $2 per gallon. It’s more likely than not that these articles are correct versus today’s inventory and price rebound. Nothing has changed fundamentally with either Crude or gasoline in terms of long term supply and demand outlooks (despite some new rumblings about Russia and Saudi Arabia, as usual).

Stay tuned!

 

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Dwindling OPEC Agreement Hopes Reverse Rally

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August has been all over the place. Crude futures this month were up 23% in less than 3 weeks as of the 28th. We've bounced from an August 10th low of $41.71 to an August 19th a high of $48.52 -  and today we’re in the middle at $46.35.

So what’s going on?

Last week, optimism reigned. Longs were up and shorts were way down across the board on WTI, RBOB and U.S. ULSD. Citigroup and BOA/ML were saying the global glut is diminishing based on the narrowing Brent discount we were seeing. That was reflected in last week’s rally but we saw that rally reverse yesterday as hopes backed off on just how quickly we might see that supply glut fade.

So what caused the overabundance of hope in just how quickly the supply glut could fade?

Stop me if you’ve heard this one before: OPEC countries are set to meet September 26-28th in Algiers for “informal talks” in which the Saudis are reportedly “prepared to listen” to the input of the other OPEC nations in regards to agreeing on output caps to curb global oversupply. This drove the market higher on hopes of an agreement propping up pricing longer term, but hopes on any such agreement coming to fruition have begun to drop off.

Déjà vu all over again.

If you recall, the last OPEC meeting had a similarly framed narrative and a similarly bullish impact on the markets a few weeks out from the meeting before falling off, as it became clear that the conference would fail to produce a deal. There was no agreement on output cuts last go around largely because of Saudi insistence that Iran be a full participant in agreeing to output limits, which the newly un-sanctioned Iran obviously refused to agree to.  Given the dynamic there has not changed substantially it’s hard to imagine that a meaningful deal is reached this time either.  

That seems to be the conclusion that traders reached as well just like leading up to the prior meeting. Today saw Crude close out at $46.35, down marginally from Monday’s close but over a dollar down from Friday’s $47.64. (ULSD and RBOB followed suit, dropping -.0151 and -.0186 respectively for August trading)

What’s becoming interesting about the other dynamics involved in the OPEC meetings is Russia realistically needs an agreement sooner rather than later. While they are not in Venezuela style meltdown yet, a huge portion of their revenue depends on oil and the ongoing standoff with the Saudis on over production for market share retention will presumably hit breaking point at some time, as both Russia and Saudi Arabia hemorrhage money.

Meanwhile, it looks like long term the supply situation may correct itself, and largely courtesy of the Russia/Saudi standoff, somewhat ironically. Bloomberg is reporting that oil discoveries have plummeted to lows not seen in over half a century as a result of ongoing price depression that has halted new discoveries by severely curbing investment in drilling and exploration. This is especially notable in the U.S. where exploration is at multi year lows after the crash in prices from 2014 highs.

So although this OPEC meeting is unlikely to produce an agreement to cut supply and stabilize pricing this time, in an odd twist of fate, ultimately the ongoing standoff may push long term pricing up over time regardless of OPEC input.

Stay tuned!

 

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OPEC & Inventories Close Out August NYMEX in Bearish Territory

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After a strong start to the month of July post Brexit, markets settled down again today after closing out August's futures yesterday. 

Today's close saw Crude touching the $40/bbl mark at $40.06/bbl, this coming just a few weeks after it appeared we had essentially rebalanced and analysts were looking at Crude staying range bound $45-$50 bbl. Now we are, according to some analysts, looking at a $38 target.

The last week of July delivered a few knocks courtesy of Reuters who reported on 7/29 that OPEC had produced 100,000 additional barrels per day in July, the increases coming from Iraq and Nigeria. If you recall, Nigeria has been dealing with militia attacks on its oil refineries and recently hit 20-year lows on levels of export.

Incidentally, those Nigerian refinery attacks had pushed Crude to over $50 ($51.23 to be exact) in June, its highest since July 2015 - and now we are seeing Crude start to slide back to April lows after July 2016 saw a drop of over 15%. To put that in perspective, we are still up almost 50% from the low for this year in February but it does appear that once again the bears are in sell mode due to perceived oversupply.

(And keep in mind that "oversupply" is with a Nigeria that has not fully recovered capacity, and with domestic turmoil in Venezuela and Libya limiting their production as well. Essentially - the glut could get a lot worse, very quickly, depending on how the domestic situations play out in those 3 OPEC countries.) 

This summer saw seasonal gasoline stockpiles hit 25 year highs, which according to reports, caused refiners to begin blending winter grade gasoline early. Ironically, refiners made a similar decision in the face of lower winter demand and began blending summer gas early this year, and that is probably partially to blame for high inventories that plagued pricing this summer season. Also of note is that due to these inventory levels, forward market pricing for gasoline was not showing the usual slide that precedes the switch to winter blend gasoline (often of around 20 cents or thereabouts) we normally see starting to develop right around the end of July. 

At the end of the day, despite production disruptions in Canada and Nigeria, anticipated economic fallout from Brexit, more terrorist attacks, and dropping domestic production - supplies have gone from what looked like a rebalancing to oversupply once again. This has kicked the NYMEX back to the bearish side, which still sort of amazing when you think about how sharply a single one of the events just mentioned could have spiked the market prior to the US shale boom.

Stay tuned!

 

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BREXIT Surprise Sends Financial, Oil Markets Reeling

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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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Crude Breaks $51 on Nigerian Explosions, US Inventories

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Crude closed out at $51.23 this afternoon, the highest it’s been since July 2015, up from yesterday and holding firm over the $50 benchmark.  

Today’s climb can be pinned on the EIA’s inventory report, which again showed draws in Crude but also on supply disruptions from ongoing rebellion in Nigeria.

In Nigeria, the Delta Avenger group has continued militant action by not simply rejecting proposed settlement talks with the Nigerian government, but blowing up a refinery. The group has brought Nigeria’s oil production and export to 20 year lows according to CNBC – something the struggling and vastly oil-export-dependent country can ill afford, especially given the global price slide of the past two years.

Interestingly, despite the stockpile draws in today’s EIA report, it appears that US domestic Crude production actually edged up by 10,000bpd – this contrasts rather sharply with the beginning of the month where we saw US production languishing at its lowest levels since 2014.

Distillates and gasoline both built this past week, despite projected draws. They closed up alongside Crude – both edging over 2 cents – gas at .0327 and diesel up .0290. Gasoline’s build was a shocker considering “driving season” is officially in gear, but none the less today’s market moves did not reflect the builds… yet.

Last week, the May jobs report roiled markets temporarily after it came in abysmally low – the lowest since 2010. However, things settled out relatively quickly since the report all but guaranteed a rate hike would not be pushed through by the Fed yet, which was good news for Wall Street and also resulted in the 5 year low on the dollar we saw, as built in anticipation of a hike was shed.

The fact is with range bound jumps on inventory, economic data, world events, we may be seeing evidence that the market is hitting a point of stability. How long that lasts is anyone’s guess however. As they say “the trend is your friend” and we’ve been trending upward – but it’s important to remember the big picture and outstanding potential factors. For example, last month’s OPEC meeting in Vienna did literally ZERO in terms of addressing the supply glut. We also still have an Iran hell bent on juicing exports to the max. However, we also have a Venezuela on the verge of collapse, refinery sabotage in Nigeria, and a Chinese economy that may be covertly cooling down a lot quicker than they’ll admit.

Stay tuned!

 

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Today's Tumble Offsets a Quieter Week for Crude

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Before todays across the board tumble, the markets had been rather stable this week, comparatively speaking, even in the wake of several major relevant news events and economic reports. Let's start it from the top: 

Initially helping the markets, especially Wall Street - Fed Chair Janet Yellen's comments this Wednesday stated that the Fed would be cautious moving forward, particularly on the subject of inflation, as it keeps an eye on possible foreign market pressures and the extremely mixed-signals economic data that has come out over the past few months. Historically, March jobless numbers come in 40-50K below projections oftentimes, so her comments earlier this week were also seen as a possible hedge against concerns about Wall Street's reaction to Fed policy in the event of a less than stellar jobs report (which did not come to fruition - more on that later). 

The Fed comments didn't help the Dollar on the day, however, which helped keep commodities flat after builds, albeit smaller than expected builds, in U.S. stockpiles. 

Regarding those builds -  Wednesday's weekly EIA Inventory report showed Crude built less than analysts had projected (2.3 mmb versus 3.3mmb projected). Initially Crude was up 2.5% on the reporting, with WTI hitting $39.30 and Brent cracking $40 at $40.17 shortly after.

However, at the close, WTI settled within a penny of the prior day's close at $38.32. ULSD and Gas also showed draws, 2.5mmb on gasoline (which was close to projections), and ULSD drew down 1.1mmb versus a projected 29K build. Both ended the day relatively flat alongside Crude, with ULSD closing at April $1.1597/May $1.1721, and gasoline April $1.4364/May $1.4661.

The major news is the continuing speculation over the OPEC/Non-OPEC meeting (supposedly) coming in April that could result in an agreement on a production freeze in order to stabilize global oil prices.

However, the lingering question has been whether or not Iran would agree to freezing production after the sanctions against the country have just been lifted. It appears more certain by the day that the answer to that question is "NO". The Saudi Oil Minister Thursday night stated that if Iran will not agree to the freeze, basically there will not be one. This of course came on the heels of Iran insisting earlier in the week that it can, and will, consider going back to pre-sanction production levels. 

Personal opinion - there will most likely not be a freeze. In my humble opinion the markets got far too excited and bought too deeply into what, at least to this point, has essentially been rumor and wishful thinking. The ramp up in pricing we've seen over the past few weeks, with WTI breaking $40/bbl (very briefly) is largely a response to the hopes pinned on the OPEC meeting and a belief they will freeze production -a belief that is most likely not founded in reality, but time will tell. If nothing else, the rumors have temporarily "stemmed the bleeding" for major producers, not a terrible end in and of itself from their perspective. 

Thursday was uneventful, with WTI settling 2 cents over prior at $38.34. It was the expiration of April trading, obviously, and May ULSD and Gasoline closed out at $1.1855 and $1.4467, respectively.   

This morning we saw that the  Friday Jobs report pessimism/conspiracy theorism discussed earlier turned out to be for naught.  Analysts had projected gains of 205K jobs for March and the government data came out with a gain of 215K, leaving the unemployment rate at 4.9%. 

The good news is, that's a great jobs number. The bad news for commodities is that number serves to further prop the dollar up, as it maintains the highest level its held versus the Euro in a little over 6 months. (This despite the dollar's slip on Wednesday). 

Both the dollar and stock markets were up today on the strong Jobs report as well as encouraging data from the Manufacturing sector, indicating continuing economic strengthening in the U.S.

Oil however, took a 4% tumble on both a stronger dollar, and (as previously mentioned) increasing skepticism on the OPEC deal. Skepticism on the deal grew exponentially today, after the Saudi Crown Prince today echoed his Oil Minister's earlier sentiments about a needed consensus including Iran in order for a production freeze to become material. 

Baker Hughes rig count today indicated Crude rigs dropped 10, and overall rig count dropped by 14 to a new record low of 450, but oil continued to trend downward. 

At the Close, Crude settled out at $36.79 (-$1.55), ULSD tumbled .0538 to $1.1317 and gas fell .0451 to $1.4016

 

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Surprise Move by Iran on OPEC Deal Rallies CRUDE

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In a suprise move today, the oil minister of Iran stated that Iran would support the effort by OPEC and non-OPEC countries to stabilize the oil market and oil prices. The now-confirmed rumor that the Saudis and Russians were amenable to agreeing on a production ceiling has been circulating for a while, and served to briefly prop prices Tuesday - but the lack of a solid agreement, and the assumption that Iran would not cooperate had backed prices off their intraday highs. 

Today however, was another story entirely. After the Iranian minister announced the intent to cooperate, we saw WTI surge nearly 6% to once again close above the $30 dollar mark at $30.66 - quite a reversal in a short time when you consider that just last Thursday we saw WTI's lowest close since 2003 ($26.21/bbl)! 

ULSD and RBOB came along for the ride today as well, with ULSD jumping over 6 cents to $1.0879, and gasoline closed up over $1 again (barely) at $1.0034, a gain of over 3 cents on the day. Gasoline has been dancing around slightly under the $1 mark over the past week or so, with the exception of Friday's rally where it jumped over 10 cents to $1.0432.

It's difficult to determine if the nebulous "agreement to have an agreement" on the table with OPEC and other producers will sustain a longer term rally. Even if there is an agreement, it isn't clear just how much of a rally it will bolster long term, since the production ceiling sets production at January levels (read: unsustainably high for higher prices levels), it doesnt actually drop production.

That said, Iran not ramping up production will likely help matters in terms of at least mitigating some of what has been ever-increasing supply. Another concern though, should prices stabilize at higher levels - what impact does that have on rig counts and U.S. production? Although dropping rig counts have not proven to be the bullish signal they would normally be, a rising rig count could be a bearish symbol should the market stabilize around the $40/bbl mark, in my opinion, as it may signal the U.S. kicking over the first domino and restarting the game of chicken for "market share by means of over production" the major producing nations have been playing for the past year and a half.  

Time will tell. EIA numbers are not out until Friday this week because of the holiday - it will be interesting to see what impacts they have in the face of a possibly changing global supply picture. 

Stay tuned!

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CRUDE Rallies Despite Record Inventories

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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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Rally Reverses on Iraq Output, Continuing Glut

Line graphs depicting the stock market scattered over a table

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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Crude Hits New Lows After Hopeful Bounce Overnight

Downwards facing arrow constructed of the words oil and brent

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

Black Friday overliad on 100 dollar bills

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

Picture of a man grasping his head looking at computer screens

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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Stocks & Oil Markets Take a Wild Ride Into 2016

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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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OPEC Holds Firm on Output Levels

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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IEA Forecasts and Inventory Numbers Push Commodities Closer to New Lows

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

Downwards aiming arrow with the terms WTI, Oil and Brent inside of it

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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Monday Sinks on Demand, Tuesday Surges on Supply

Man grasping his head while looking at computer screens

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

The definition of Contango is displayed

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

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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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Crude Rallies Again on Escalation in Syria & Uncertainty in Iran

Line charts depicting the stock market scattered on a table

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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Crude Reverses Early Gains on Surprise Inventory Data

Abstract image of an oil rig, cash and a calculator

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

Oil barrels laid over an upwards growing line chart

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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Russia, OPEC and a Weaker Dollar - Oh my!

Line charts depicting the stock market scattered on a table

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

Man grasping his head looking at computer screens

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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Fed Uncertainty and Major Layoffs Spook Wall Street  

Stock market numbers

Stocks are getting pummeled today in anticipation of Fed Chair Janet Yellen's scheduled 5 o'clock speech on the economy and Fed policy re: rate hikes. (Deja vu anyone?). 

Today Caterpillar announced that they will be both revising sales projections down and cutting 10,000 jobs by the end of 2018. That announcement is really crushing stocks, because Caterpillar is seen as an indicator of strength or weakness in the industrial and manufacturing sectors given their size and dominance in the sphere of heavy equipment. To the traders on the Street, less demand for Caterpillar implies fewer large scale construction projects coming online, which is obviously not good news for the economy.

Their announcement is also not a good sign for diesel usage increases, either,  which we need in the face of oversupply and the resultant continually dropping prices. 

On the other hand  - first time jobless claims were up 3,000 to 267,000, not a bad job market indicator, and new home sales beat estimates, both of which are positive signs. 

Ironically, what some analysts are saying is that these positive indicators signal that we can withstand an increase - and the panicked selling off is essentially coming from a concern about why we did not see the Fed move forward with the anticipated rate hike last week. If the market looks like it can accept it, then not passing the rate hike essentially implies the Fed is concerned about economic strength despite positive signs, and this is apparently making traders very nervous. 

On the commodities side, the EIA report out Wednesday showed inventory draws of 1.9mmb on Crude, draws of 2.1mmb on distillates, and a build of 1.4mmb on gasoline. We actually saw drops at the close however, despite the inventory draws, with WTI settling at 44.48 for November (Brent at 47.82), ULSD for October delivery closed out at 1.5056 (-.0264) and RBOB was down (-.0348) to 1.3816. 

Today, the NYMEX was mixed throughout trading - up on diesel, down on gas, neither straying too far from the open. At the close, ULSD settled up (+.0181) to 1.5237, and gas settled out (-.0164) to 1.3652.

Expect another possible crazy day tommorow, depending on how the Fed Speech goes, and how traders and analysts interpet its likely short term implications. 

Stay tuned!

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Fed Holds Interest Rates, Oil Drops after Wednesday's Gains

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Oil prices continued to tumble early this week - that is until the Wednesday EIA report came out and spiked prices on Crude up 6%. The report showed that Crude stockpiles fell by 2.1mmbbls for the week ending September 11. Additionally, Distillate stocks dropped by 3mmbbl, and gasoline dropped 2.84mmb. That explains Wednesday, when we saw Crude jump up to settle at $47.15 (Tuesday's close was $44), ULSD jumped .0414 to $1.5414, and RBOB jumped .0492 to $1.3821 (it could have been worse - intraday highs were over 5 up on diesel and 6 up on gas!).

Today is trending down like yesterday, with ULSD down .0390 to $1.4907, and gas down .0198 to $1.3562. WTI closed out at $44.68.

The Federal Reserve announced late Thursday that it will not be increasing interest rates at this time, based on concern about global economic growth. This has pushed oil prices down, because global concern means we're unlikely to see a spike in demand that would ease concerns about the oil glut we've been dealing with. As you'd expect, there's been some demand/use increase because of the lower prices we've been seeing, however its simply not robust enough to really make a sizeable dent in the oversupply. 

The issue with the Fed's statement outside of the grim outlook is they are still suggesting a rate hike this year, probably December. That means we will probably see the same up and down volatility with stocks and oil prices as we have seen over the past few months while waiting for this now-passed deadline. 

Rig counts are down in the US again, according to Baker Hughes' report, which may stem some production, but again, not likely to be a huge mover one way or the other. Refineries will be going on scheduled maintainence soon which may lower Crude stockpiles for a while, we'll have to wait and see on what impact that has. Across the globe, OPEC is still maintaining they will not be stemming production, and Iran has stated they intend to come fully back online as soon as sanctions no longer suppress their output. 

On the political side - the House Committee on Energy voted this week to move a bill proposing the repeal of the Crude Export Ban to the floor for a vote. Obama is likely to threaten veto, and its unclear if it will even get through the Senate to force said veto, but it is a potential bright spot for US producers and refiners that the bipartisan bill is moving to the floor.

(If you want to brush up on some of the issues regarding the Crude Oil Export Ban, you can do so in these articles: "Is it Time to Overturn the Crude Export Ban?" and "Energy Security, Not Independence, Should be the Goal" )

Stay tuned!

 

 

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Lackluster Jobs Data Crushes Stocks, Crude

Stock market numbers on a digital display board

CRUDE, ULSD, and RBOB are all trending downwards today in tandem with the Stock Market, after a less-than-robust Jobs Report out this morning. The report showed that the US added 173,000 jobs in August, a relatively far cry from the 220,000 anticipated (hoped for?) by the markets and economists.

According to some analysts, since the official unemployment rate fell to 5.1%,  the report is seen as potentially strong enough to push the Fed into following through with a September rate hike which accelerated sell offs. According to others, lackluster global economic signals are pushing the selling. I find the second assertion is more likely, but either way, the market looks poised to drop 3% on the week.

The past few weeks have seen wild volatility on Crude as well as the Stock Market. As the Wall Street Journal pointed out today - the close Tuesday marked 4 straight days of commodities trading with swings of at least 6% up or down in a row. For example, Monday for October closed up +.1101 on ULSD, and +.1020 on RBOB, then Tuesday more than erased those gains, closing out -.1233 on ULSD and -.1035 on gas. 

With the production level battles still ongoing with OPEC between the so-called "Fragile Five" and the Saudi's which so far hasn't had any curbing impact on output, and a lack of any real bright spots in the global economy, it's more probable than not that we will continue to see serious volatility for the time being. 

Stay tuned!

 

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Gains After Another Black Monday - Dead Cat Bounce or Rebound?

Line charts depicting the stock market scattered on a table

Today we saw some reversals in the abject panic selloffs we saw Friday and especially Monday. (Click here to recap Friday)

First, lets recap Monday's insanity:

Monday saw WTI tumble another 5.5% to close out below $40 to $38.24 for October delivery. Brent fell in tandem, about 6% to settle out at $42.69 for October delivery. 

We saw stocks extend losses as well - shortly after Monday's open, the Dow was down an unprecedented 1,000 points, it ended up bouncing around and settling down 588 points on the day. Monday saw the S&P in full correction mode for the first time since 2011, as was the Nasdaq,  and it was the Dow's worst performing day since 2011 as well. 

What happened? Essentially everyone is in full on panic mode in terms of selling off. Panic over Chinese economic data gave us Friday's plummet, and then The Shanghai index was down 8.5% Monday which kept the selling right on going. 

This morning we're seeing some rebounding on stocks as well as commodities, after the Chinese made a surprise interest rate cut in an attempt to stem the bleeding. It's uncertain if this is really inspiring confidence in investors, or we're just seeing the infamous "dead cat bounce" that often accompanies several days of heavy losses. Time will tell. 

As of 3pm, the markets are all positive on the day - a trend unlikely to reverse before the close... but, perhaps not likely to continue through the week either. 

On the commodities side, Crude rebounded this morning somewhat, finally settling out in positive territory from yesterday at $39.31.

ULSD and RBOB have gone back and forth from positive to negative throughout the trading day, but at the close, diesel was essentially flat (+.0023) at $1.3952, and RBOB was down -.0324 to $1.4386.

Don't forget that the EIA Inventories come out in the morning as well, which could impact how the markets shake out tommorow. 

Stay Tuned!

 

 

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Stocks Officially in Correction, Oil Trades Under $40

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WTI crashed below the $40 level this afternoon in trading, and clung right to the $40 line at the close, settling at $40.45. (ULSD was off -.0556 to $1.4624, and RBOB dropped -.0143 to $1.5449)

As discussed yesterday, domestic inventories going up pushed prices down towards $40. Today Baker Hughes announced more rigs going back online, for the fifth week in a row, which seems to be the proverbial straw that broke the camel’s back.

Stocks haven’t taken the news easy, either. US stocks hit their lowest point in a year, on oil price panic and deepening fears about the Chinese economy. The Dow Jones was down over 450 points as of 3:30pm – and over 530 points at the close. The bad news is that makes it in official “correction” territory which could further more panic selling on Monday. The S&P was down over 2% this afternoon - which pales in comparison to the market in China which dropped over 4%. Long story short, everyone’s stock positions got hammered today.

Another factor of a quick price drop on oil like we’ve seen since last June that is rarely discussed is the impact on jobs. This is kind of another anvil hanging over the economy’s head that could drop if oil gets to a critical low price. According to The Guardian's reporting, close to a quarter million people globally have lost their oil and petroleum related jobs, including approximately 35,000 in the US. Shell announced this week that it would lay off 6500 employees worldwide. Then there’s the financial cost. Their article on this portion of the equation is fantastic and thorough, you can read it here: The Guardian

Earlier this month we saw Venezuela and others pushing for an OPEC meeting to discuss changing supply to offset the crushing blow to their economies that the continued low pricing has been having. Yesterday, according to Reuters and the Wall Street Journal, the Algerian Oil Minister sent a letter to OPEC arguing the price has dropped significantly since they agreed on production levels, and is pushing for another meeting to reassess. So far, Saudi Arabia et al have stood firm, but it may be that they are forced to reverse at some price level as-yet-undetermined.  (You can read about that letter and OPEC in depth here: WSJ )

Hopefully we have some better news tomorrow - but it doesn't look good out there, folks. 

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Inventories & Iran Continue to Pummel Crude Prices

Man grasping his head looking at computer screens

Oil prices are continuing their tumble - and it doesn't look likely they'll rebound in any significant way any time soon.

Wednesday's EIA Inventory Report showed a Crude build of 2.6mmb, bringing US Crude stockpiles to 456.2mmb. Analysts had forecast (hoped for?) a decline of 1.2-2.3mmb, depending on which group you looked at. 

Wednesday's trading saw WTI plunge 4% to below $41/bbl  - the lowest it's been in over 6 years. It settled out at $40.80 for September, and $41.27 for October. Brent lost 3.4% as well to settle at $47.16 for October.

$40 is a fairly significant benchmark, both psychologically and because it touches on production cost for some producers, which means it becomes essentially unprofitable to produce if oil goes any cheaper than $40. 

WTI may bounce some today as September trading closes out, but with refineries going offline in the fall for scheduled maintenance and no reason to think Crude stockpiles will suddenly plummet - it's likely that the decline will continue further. The only real question is what the bottom will be. 

Additionally, the pending Iran Nuclear deal if approved (which is essentially guaranteed) would lift sanctions in Iran, which would allow them to export more oil. They currently export around 1 million barrels per day from their 2.7 million barrel production. Reports say they are capable of about 4 million barrels of production, but its unclear how much of that they would be capable of exporting. 

Regardless, the EIA has revised its projection for oil prices throughout 2015. The new numbers put WTI at below $50 dollars ($49) for the remainder of the year, and only project WTI at $54 for 2016. EIA also cautioned that the numbers may be revised again, depending on Iran's ability to put new oil produced up for export. 

OPEC has maintained they will not be reducing supply regardless of the slide - it remains to be seen whether they reverse that stance if oil continues well below the $40, or even $30 dollar benchmarks as some think it may. 

Back to today- US stocks are getting crushed from fears about oil prices and the lack of foreseeable demand increases, the Chinese economy, and employment. The most recent jobs report showed an increase in unemployment claims - the fourth week in a row it both increased and beat estimates of how much it would increase. Unemployment ticking up, and the Fed signaling that the economy may not be strong enough to withstand an interest rate increase yet (according to their recent meeting notes) have for obvious reasons, not inspired confidence. 

Stay Tuned!

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#TBT - Crude Prices This Year vs. Last

Downwards pointing arrow with the words BRENT, WTI and OIL

#TBT - It's hard to believe it but just about exactly a year ago, we were still looking at Crude oil that was dancing around the old $100 "new normal" benchmark.

Front month trading in August of last year  saw WTI for September at $96.07 (August 20th), with a 52 week high of $106.64 and a 52 week low of $89.09.

Yesterday front month Brent closed at $49.66 and WTI settled at $43.30.  The 52 week high for WTI as of today is $92.31, and the 52 week low is $42.07 - however, today's trading looks like it may break that low.

Trading in July for front month August was over $100/bbl. 

From June 2014 to December 2014, Crude dropped over 40% from its highs (and continued to slide in 2015). 

You can view the drop in interactive chart form by clicking here.

Where do you think the bottom is?

 

(Also, if you want a recap of some of the major events affecting pricing since the slide began, you can read up on them here:

Greece Nears Default, sends Commodity Prices Reeling - June 2015

Oil Slides on Economic Data - August 2015  )

 

 

 

 

 

 

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Chinese Currency Devaluation Slams Stocks, Boosts Commodities

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Stocks got hammered on Tuesday when the Chinese yuan was devalued 1.9% by the Central Bank. In a move that clearly shocked the hell out of traders - today the market tanked again when the currency was devalued another percent. Twice in two days - literally no one saw that coming. 

The move is to boost exports - reporting showed Chinese exports dropped 8%, and devaluing the yuan puts Chinese exports at a price advantage which in theory will boost them. Industrial production in China fell 6% as well, and a ramp up of exports could help boost that number as well. 

On the commodities side, high drops in inventory were predicted on the EIA's Inventory Report this morning, which initially bumped up prices. However, while we saw draws, they weren't as deep as projected, causing some of the earlier-in-the-day spikes to be backed off of. Brent reversed earlier gains to essentially trade flat, and WTI backed quickly off intraday highs. 

On the report we saw draws of 1.7 mmb on Crude (forecast was 1.9mmb), Gasoline was down 1.3mmb (1.6 forecast), and ULSD showed a build of 3mmb (600k was forecast).

At the close, WTI settled out to 43.30,  ULSD closed up .0240 to 1.5869, and RBOB closed up .0698 to 1.7635

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Oil Bounces Back Today, But Talking Heads Say "Not for Long"

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Friday saw oil futures tumble again to multi-month lows, with Brent settling at 48.61, and WTI at 43.87 for September. (ULSD closed out at 1.5436, and RBOB at 1.6230 ) on general concerns about the oil glut and dissapointing economic data from China. 

Today however, commodities jumped, presumably on high import data from China and further rumblings from the Fed about an interest hike in September. Brent was up 3% ish to slightly over the $50 benchmark (50.36 for September), and WTI closed up to $44.96. ULSD settled up .0485 to 1.5921 and gas was up .0710 to 1.6940.

However, the analysts and talking heads of the world are cautioning that a sustained rally is unlikely, given that the oil glut concern lingers. Also, part of why prices tumbled so sharply last week (down over 6%) is that more rigs have come back online in the US, which only indicates that high output and growing inventory conditions will continue for the foreseeable future. 

In a nutshell today is being essentially written off as an over optimistic jump off of Chinese import data, just another "dead cat bounce". We should see on Wednesday if they are correct when the inventory reports are released. 

Stay tuned!

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Oil Slides on Economic Data, Dragging Stocks Along for the Ride

Man grasping his head looking at computer screens

This morning Brent Crude dropped under $50 for the first time in 6 months, and WTI fell below $45/bbl to within $2 of a 6 year low. Shortly after noon, the NYMEX showed ULSD down .0452 cents, and gas down almost 9 (-.0882).

What's going on?

Lackluster economic data out of both China and the US seems to indicate that overall oil demand is unlikely to spike to levels able to compensate for the immense glut of oil we're seeing now. As we've discussed, OPEC and others have kept production at record levels to both retain market share, and attempt to slow production (and therefore competition for market share) by higher cost-of-production nations, most notably, the U.S.

Domestically, S&P Energy stocks dragged that index down in response to falling oil prices. US stock indexes trended downward today across the board on other non-thrilling economic data as well as some major single stock tumbles (Apple, Tyson, Lowe's, etc).Overall data showed consumer spending gains were anemic, labor costs increased, and now we all wait with baited breath for the jobs report due out on Friday. 

Across the pond, the Greek stock market re-opened today and promptly tumbled almost 30%, essentially reigniting concerns about the stability of the Eurozone and the odds that the Greek debt deals in their current iterations will solve the ongoing debt crisis. (They ended up rebounding to cap out about a 16% loss on the day)

The data from China this morning was arguably the main catalyst for the drop today, as all eyes were focused on their manufacturing reporting to show a gain, but it instead showed a major slow down. Chinese economic growth had been essentially the last hope for demand ramping up and stemming the price sliding. Traders and Investors have been looking for signs to confirm their hopes of a positive second half of the year in terms of growth, and today's data essentially put those hopes to rest.

At the close, September ULSD dropped -.0584 to 1.5305, RBOB dropped -.0975 to 1.6745. WTI closed out at $45.17. Last prints for Brent are 49.54-50.17 range. 

Stay Tuned!

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Greece Nears Default, Sends Global Stocks & Commodity Prices Reeling

Sillouettes of people infront of charts showing Greek Debt

Stock Markets across the Globe dropped sharply on worries over Greece's potential (and frankly, very likely) default. Greece owes the IMF  a 1.8 billion dollar payment tommorow, but their Prime Minister has pushed voting on whether to accept referendums to July 5th, making it pretty clear Greece is unwilling and unable to make their required payments. 

European stocks dropped on fear that Greece will vote to leave the European Union rather than work with creditors and the European Central Bank to structure repayment obligations. If Greece leaves the union it could impact the Euro currency and that uncertainty will probably continue to impact the market on some level until we see how it all plays out. 

Greek banks and markets are closed this week, after a rush on banks and ATMs nationwide sparked fears of the system collapsing under the weight of citizens pulling all their money out simultaneously. This morning the Greek stock market was down over 15% despite not even being open. 

Closer to home, the Governor of Puerto Rico has announced it is "simply not possible" for the province to pay its required obligations. They owe 94 million by July 15, with another 140 million due by August 1 on bond principal. 

This weekend also saw three seperate terrorist attacks in 3 seperate countries, all of which ISIS claimed responsibility for. 

Needless to say, things are not looking good globally, both in terms of safety and economics. 

In terms of commodities, Greece seems to be the focus, while terrorism attacks are being ignored as evidenced by the across the board drops we are seeing. WTI and Brent Crude were both down over 2% in this mornings trading. ULSD and RBOB front month are both trending down today, with ULSD closing out at 1.8366 (-.0262) and RBOB settling at 2.0303 (-.0182) 

Stay Tuned!

 

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NYMEX reacts to Projected Crude Draws

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Oil was rising this morning ahead of the EIA inventory report's release. Analysts are expecting to see draws in both Crude and Gasoline. Crude is projected to drop between 1.7 and 1.8mmb. Supplies are still at historically high levels, but the drawbacks are a bearish signal for the market. Just prior to the reports release (10:30am) ULSD and RBOB have both jumped up over 5 cents (.0554 and .0526, respectively.)

Overnight trading was mixed on some fears about supply disruptions due to Tropical Storm Bill, as well as a stronger dollar. 

The Fed concludes its two day Open Market Meeting today as well, and Fed Chairman Janet Yellen is slated to have a press conference at 2:30 this afternoon to discuss the meeting and give an indication on where the Fed stands on raising interest rates. Its unlikely they will raise them now, given some weaker economic data out over the past few weeks, but expect to see the stock market jump around, regardless. 

Stay tuned for how the market reacts once the EIA eport is officially released.

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EIA Projections for 2015 & 2016 Released Today

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The EIA released its Short Term Energy Outlook today with its projections for both Crude prices and US Crude Oil production through 2016. It also projects where we will be on retail gasoline, natural gas storage, and electricity for 2015 & 2016.

In a nutshell, the outlook is as follows:

  • Brent is expected to average $61/bbl for 2015 and $67/bbl in 2016. The prior projected price for Brent in 2016 was $70/bbl
  • WTI is also forecast to drop about $3 dollars from the prior projection level for 2016. It forecasts WTI for 2015 to be up about a dollar higher than prior projections (up to $55.35/bbl)
  • Crude production is expected to dwindle slightly through early 2016, but the total projected volumes were revised up slightly - the new projected numbers are 9.4mmbpd in 2015 and 9.3mmbpd in 2016
  • Natural gas injections are expected to continue to climbing over their historic highs through 2016.
  • Retail gasoline is expected to decline slightly through the end of the year, backing off its current yearly high. 
  • Additionally, for consumers, the EIA is projecting an almost 5% increase in electricity bills for this summer season.

Other mentions of note, Brent saw its highest monthly average of 2015 in May, a $5 jump over its April average price. Retail gasoline also hit its high for the year in May. All of this despite inventory builds and OPEC production levels remaining at highs. 

The EIA Inventory Report publishes tommorow morning, we'll have to see how that impacts the NYMEX. Hopefully its an easier day than today, where we saw ULSD jump up .0631 to settle at 1.9179, and RBOB jumped .0696 to 2.0771 at the close. 

Stay tuned!

 

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NYMEX See-Saws on Inventories and Profit Taking

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We enjoyed a little easing on NYMEX pricing for the beginning of this week, with a Goldmann Sachs prediction that oil prices could drop to $45/bbl. Additionally, it was reported that Saudi production for March hit 10.3mmb/day, a new record for them, which kept the market bearish.

That is, until the domestic inventory speculation talk started.

The API report for last weeks inventories predicted a 5.2mmb drop on Crude, and a 1.2mmb drop in gasoline supplies, and that, combined with the actual EIA reported draws pushed up the market. 

Wednesdays EIA report showed actual drops of 2.67mmb on Crude, and a 2.8mmb drop on gasoline. Consequently, as we saw, the market jumped up.

Crude and ULSD backed off Wednesday's intraday highs with ULSD closing up .0168 to 1.946, but RBOB settled out up .0461 to 2.0411. Yesterday the trend continued, with ULSD jumping up .0399 and RBOB closing up .0413 to 2.0824. 

Today the NYMEX has backed off, by noon ULSD was trending down -.0354, with RBOB following suit at -.0396 on profit taking from the weeks earlier gains. 

A bright spot for Memorial Day Weekend - retail gas prices are at their lowest in 6 years. Have a great long weekend, everyone!

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NYMEX, WTI Jump on Shale Slow Down & Inventory Concerns

Barrels of oil overlaid on a line graph

The NYMEX shot up again today, after trending slightly downward the past several sessions. Last week saw Brent over $65/bbl and today WTI settled out +1.50 to 60.75, over the $60/bbl benchmark we've all been watching for.

ULSD closed up +.0535 to 1.9989, while RBOB shot up over the $2 line again with a gain of +.0529 to settle at 2.0393. 

Our friends at OPEC came out earlier this week to announce they saw no increase in oil prices on the horizon, given they see no decrease in production, and denied reports that there was consideration of reinstituting production quotas to boost prices. This pumped the brakes on the rally temporarily, and resulted in a pummeling of energy stocks in the S&P in the process - most notably Exxon and Chevron shares (Both companies saw gains today, however, on the price reversal).

So what happened today?

Most analysts are crediting a weaker dollar in combination with the monthly drilling report that indicates some slow down in shale production domestically. The EIA projected that output from major shale plays will drop by some 86K bpd in June.

Analysts also expect to see draws in crude on tommorows EIA inventories report, which is almost always good for a few cents worth of upward pressure on the market - at least if they are correct, that is.

Outside of drilling and supply concerns, we once again saw resumed airstrikes in Yemen on the same day a cease-fire was to be discussed.

Deja vu, anyone?

Stay tuned!

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NYMEX Spikes on Escalation in Yemen

Soldiers on the back of a pickup truck  

(Photo Credit: Dmitry Chulov / Shutterstock.com)

Brent Crude jumped over a dollar at opening this morning, while on the NYMEX, gas and diesel were both up over 4 before 10am. By noon both products surged up well over 5 cents, and products across the board continued to surge upward throughout the day.

 At the close, ULSD settled out at 1.9239 (+.0531) and RBOB closed at 1.9956 (+.0711). WTI closed up 1.53 to 57.69.

So what's going on? 

The Saudi's resumed airstrikes on target cities in Yemen yesterday, one day after supposed peace talks. Saudi Arabia is again calling on the White House to propose a diplomatic solution to the conflict.

Long story short, the deal in Yemen is that Shiite Houthi rebels have overtaken the Presidential palace, and if they can successfully pull off a coup, there is a very real danger of serious supply disruptions.

About 4% of global oil supply passes through the Bab el-Mandeb strait, which is controlled by the central government in Yemen, according to the EIA.

Traders are closely watching the situation for any indication of a resolution or escalation because of the potential supply implications involved. 

Yemen also relies on exporting it's own oil resources, which have declined in volume significantly since 2001 as a result of internal fighting. Their economy relies on oil exports to the tune of 60% of their revenue give or take.

Essentially, not only would a rebel coup in Yemen spike oil prices on transport concerns, but would collapse the Yemeni economy and likely lead to repurcussions and fighting throughout the region. 

Stay tuned, and don't forget to fill your car up before the increase hits the pumps!

 

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RBOB Heats Up on EIA Inventory Shortfall

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Today's EIA Inventory report for the week ending April 17th showed a build of 5.5mmb on Crude, but a drop of 2.1mmb on gasoline. Interestingly, even though analysts had projected a mere 2.6mmb build in Crude while the actuals were more than double that, Crude ticked upwards along side RBOB and ULSD initially before settling back down.

Stocks were up across the board basically today as well, on positive economic signs - 71.9% of S&P companies who have reported earnings have reported earnings above analyst expectations. Additionally, housing sector reports indicate a jump in existing home sales of over 6% for March versus February, which is also an 18 month high - a good sign for the economy and also a factor in pushing todays stocks up. 

On the negative side, bombing resumed today in Yemen, precisely ONE day after peace talks, which may or may not impact the markets tommorow.

At the close, gas retreated from the intraday high of +.0424 to close out at 1.9245 (+.0364) and ULSD closed up +.0176 to 1.8708, with Crude closing off -0.45 to 56.16.

Stay tuned!

 

 

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NYMEX Slows Acceleration after Yesterday's Spikes

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Today the NYMEX settled out much more reasonably than yesterday, with ULSD finishing off up .0192 to 1.908, and RBOB settled down 6 points to 1.9354. 

Yesterday was another story however, with prices shooting up on the lower than anticipated stock levels in this weeks EIA storage report. Crude was up over 3% shortly after the report, a little before 11am. At the close, ULSD ticked up .0871 to 1.8888 and RBOB shot up a solid dime to 1.936. 

In addition to the EIA report, there's been more grumblings on production cut backs from OPEC, although as usual the Saudi's are holding firm. The Saudi position is starting to seriously impact US production - hence the lower than anticipated numbers on the EIA's report, and the resultant market freak out. 

As of last week the US Crude inventories were at their 80 year high, so the reaction seems somewhat extreme. However, the actual numbers were about 30% of the projected increase so that obviously caused some concern about how hard the impact from another huge OPEC production month really is. Also, once again these events coincide with rumblings from the Fed on economic policy, specifically the interest rate level as well as continued problems in Yemen.

Deja vu all over again. 

Stay Tuned!

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Job Reports, Inventories & International Issues Keep Volatility Going

Line charts depicting the stock market scattered on a table

It's been a while, so while the markets closed today, lets take a quick look back at whats been happening (some "light reading for your Friday afternoon)

The economy -

After positive reports in February, the March jobless numbers released today were something of a dissapointment. Only 126K jobs were added, which broke a 12 month streak of 200K+ jobs per month being added. This raises some eyebrows on the state of the economic recovery but some analysts are blaming the extended winter, arguing that the normal pick up in seasonal and construction industry jobs is simply delayed because of the cold. 

This lackluster jobs number, however, will once again probably have Wall Street see-sawing over speculations on the Fed interest rates, its probably unlikely to happen soon (I know, deja vu) given the weakness of the report. With the market closed today though we won't see what if any impact this will have until next week.

Commodities and Pricing

This weeks EIA report for the week ending March 27th showed Crude Inventories at record highs for the 12th straight week (+4.8mmb to 471.4mmb). Gasoline dropped 4.3mmb, way over analyst predictions of a less than 1mmb drop. We've seen stronger than expected demand in gasoline, particularly in January and thats sort of underlying its volatility at the moment - if you recall, RBOB jumped .0612 Wednesday on the report, but then pared the gains on Thursday, closing out -.0699 to 1.7613.

The main underlyer on the volatility over the past few weeks is more politically driven - we saw jumps on the NYMEX when it was announced that Saudi Arabia had begun airstrikes on Yemen. Additionally, the Iranian nuclear deal has some traders and speculators on edge, and continuing issues with ISIS and the ongoing strikes against them are keeping Middle East tensions higher than we'd all like to see. Luckily for the most part, days we've seen spikes on international turmoil have usually been reversed with a few days. It's likely this will continue unless there's some real movement or resolution on any of the aforementioned issues. Til then, hold onto your hats and enjoy the ride!

 

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Inventories and Saudi Market Moves Continue to Push Oil Prices Down

Line charts depicting the stock market scattered on a table

Oil continued downward today on the back of the EIA inventory report for last week that indicated Crude stockpiles were up 9mmbl to a record high of about 407mmbbls. At the close, Crude dropped below $45/bbl, -1.78 to 44.45. ULSD and RBOB closed lower as well, ULSD settling down .0310 to 1.6318, and RBOB settled down .0051 to 1.345.

In addition to the inventory report, as we mentioned, the new Saudi leader has indicated the largest OPEC producer will continue on its track to hit production goals set. Both of these factors mean traders are still concerned with longterm over supply, which is continuing to drive down prices.

The Saudi stock market shot up today as well on rumors of relaxing restrictions on foreigners trading that market. This ties back to the oil oversupply, in that most are crediting the Saudi's potential move of opening the market up as a way to raise revenue and stimulate the economy in the non-energy sectors, which indicates further that the current oversupply will be a long term situation.

In other news, the House today passed a bill to expedite the process for permitting LNG exports. With the increase in US Nat Gas production (the US is currently the worlds top producer), the thought is exporting would not only be economically beneficial for the US but exporting to Europe could reduce the essential monopoly Russia has on natural gas supply in those nations. 

At the same time that passed the House, a Keystone bill continued to languish in the Senate when the attempt to pass a procedural motion to push the vote failed Monday. One of the ammendments to the current bill is a proposal to eliminate the ethanol mandate portion of the RFS - this will be an important one to watch, certainly.

Stay tuned!

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Saudi's to Stay the Course Despite New Leadership

Line charts depicting the stock market scattered on a table

Quick note on the news this week - King Abdullah of Saudi Arabia died yesterday, temporarily rattling the markets. 

We discussed before that the Saudi stance on keeping OPEC hitting its production targets was a major factor in the continuing downward trends in the markets. Brent Crude shot up temporarily on the news - up about 2%,  but came off highs as the day progressed. 

The new ruler, King Saldman stated there would be no change to what he called the "correct policies" on oil the country has stood by even in the face of the 60% drop in prices. Additionally, the oil minister under Abdullah will keep his position in the new regime, which further implies that Saudi Arabia will stay the current course, and served to calm traders back down as the trading day wore on. 

On this side of the pond, today we saw ULSD close out +.0088 to 1.6467, and RBOB closed up .0053 to 1.3479. 

 

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The Swiss Rock Stocks, NYMEX Goes Along for the Ride

Man grasping his head looking at computer screens

 

So a quick rundown on what's been happening in the markets this week:

Inventories

The inventory report from the EIA for this past week pegged Crude up 5.4mmb, to its highest level for this time of year in over 80 years. 

Gasoline inventories were up 3.2mmb, staying in the higher levels of the 5 year average for this time of year, and distillates were up 2.9mmb but remain in the lower half of the 5 year average range.

Markets

The stock markets across the globe went crazy today after the Swiss pulled a surprise move and removed the cap on the swiss franc (the cap keeps the franc artificially low versus other currencies), sending the Euro markets into chaos.Back here at home, dissapointing financial sector numbers pulled stocks down as well. The S&P dragged down with energy players and Best Buys' 10.9%  tumble.

The markets closed down across the board in the US,for the fifth day in a row.

The NYMEX closed down in tandem. Weak global financial data, plus the disappointing domestic bank earnings reports pushed oil down right along with stocks on a renewed concern about global demand levels in the face of oversupply.

Yesterday gas closed up over 8 cents, but today's drop erased a little over 5 cents of the gain. ULSD closed down a little over 3 cents to settle out at 1.6233, more than erasing Wednesdays gain of .0222.

Crude closed out at 46.23 (-2.23) a drop of a little over 4%. 

 

Politics

Yet another Keystone Pipeline bill has gone through Congress, and early this week it passed the procedural hurdles required to get it onto the Senate floor. Debate is expected to continue through the week, with a potential vote on Friday. 

The court case in Nebraska disputing the route of the pipeline has been settled, in theory removing the last remaining obstacle to the project moving forward.

President Obama has vowed to veto the bill, and it doesnt appear at the moment that the legislature has the votes to overturn the veto, so we shall see what happens there. 

 

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Commodity Slide Continues Into 2015

Barrel of oil with dollars falling around it

2015 is off to a wild start, with Crude dancing around and then dropping below $50/bbl. Wednesday (the 7th) Crude closed out at $48.65, yet another 5 year record. Gasoline and distillates have closed down every day this week, so it looks like the 2014 slide has no intention of stopping.

The inventories published this week showed:

  • Crude: 3.1 mmbbls draw
  • Distillate: 11.2 mmbbls build
  • Gasoline: 8.2 mmbbls build

Weakened demand pushed up distillate and gasoline inventories, as did a drop in import levels so we saw a build despite a concurrent drop in production. 

Interestingly, Bloomberg is reporting today that the U.S. exported a record amount of Crude oil in November of 2014 - the highest amount exported in fact, since record keeping began in the 1920s. This puts the U.S. into the 17th largest exporter spot. (You can read the full Bloomberg story here: "U.S. Oil Exports Jump to Record as Shale Production Booms )

Continuing builds and a ramp up in exports may be the future for domestic production, and long term this could in theory keep prices stable at a lower level. However, a lot depends on how the economy rebounds (or doesnt) both here and globally. Without a ramp up in demand, continued excessive production will continue to drive prices down but without tangible economic returns. 

Last week the stock market got crushed on dropping oil prices, but it closed up sharply Wednesday, and today all 3 major indexes are in strongly positive territory. 

At writing, FEB ULSD is trending up .0154, and RBOB is essentially flat, up .0005, with Crude trending up .22

Outer months August and beyond are all trading in the red for all products at the moment, though. 

We should see this week if the ups and downs get tighter than they have been (ie swinging a penny versus 6) if we start to settle into a new benchmark low, or if the slide keeps going strong. 

 

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Wild Week on Wall Street & The NYMEX; Everything Keeps on Tumbling!

Stock market numbers on a digital board

Today was another wild day on the market, with ULSD closing down another .0376 to 2.0464, and RBOB closing out down a whopping .0818 to 1.6418. Analysts are crediting this with an "unexpected" increase in Crude stockpiles. WTI fell -2.60/bbl to 60.94, well below the previous 5 year low.

Monday was down as well, closing out -.0529 on ULSD and -.0668 on RBOB gasoline.

We saw a small jump up yesterday (ULSD +.0291 and RBOB +.0170) - likely just a bump-in-the-road overcorrection to stocks tanking on some bad news from Greece and China. This week saw Greek markets tank worse than they did before the crash a few years ago - obviously not good news for the European economy. 

OPEC also became a factor again with Iran railing against falling oil prices as a "conspiracy" and OPEC cutting its output estimate for 2015 to 2.89 million barrels per day, 300K lower than they originally forecast. However, despite the announcement Crude keeps right on plummeting. 

Wall Street Traders have been shouting about the Dow's inevitable march to 18,000, but today saw it close down for the third day in a row. Continuing pressure on stocks given that Fed rate hikes look like they may happen within the 6 month period doesnt bode well for the 18K mark, especially when you factor the weakness in foreign markets into the equation.

The S&P slumped on energy stocks as well, as some companies came out with plans to move on layoffs, restructuring, or selling shale plays. Despite a few plays going up for sale though, production domestically doesnt seem to be slowing down. However, a slow down in production in countries that have a high production cost is probably inevitable if the price hits a certain level - that includes the US and Venezuela. 

So it was a tough week for Wall Street, but the bright spot was for the average consumers as downward pressure keeps pushing down the price of gasoline. The Energy Department dropped its price forecast for retail gasoline to for next year at this time to $2.60/gallon, the second time its been revised down by over 30 cents a gallon since oil began its slide. Another bright spot domestically was an unexpectedly good jobs report on Friday, which is a good signal for the overall economy. 

 

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NYMEX Keeps Sliding on Dollar, Iraq, Margin Rates, and The Fed

Line charts depicting the stock market scattered on a table

Oil prices kept sliding this week on positive signs, despite a draw in US Crude supplies. 

Tuesday dropped on news of Iraqis striking an export deal with the Kurds that will resume the flow of oil from Kirkuk that had essentially been stalled out previously. Brent responded to the news by almost completely reversing its 3% gain on Monday and settling down $2 to $70.54. WTI, which was up 4% on Monday also dropped a little over $2 to close out at $66.88.

Besdies the Iraqi deal, factors in play in the selloff were also that the CME Group raised initial margins on crude oil futures by almost 16% which probably spurred sell offs, and the dollar also hit a 4 year high, which continued to push commodities down across the board. 

On the NYMEX Tuesday both products tanked,  ULSD ended up at 2.1544 (-.0580) and gas closed at 1.8116 (-.0694). 

EIA Inventories out Wednesday saw draws on Crude (-3.5MMbbls) with builds in distillates and gasoline. NYMEX still closed down, although far more moderately than Tuesday's drop off, with ULSD settling out at 2.1334 (-.0210) and Gas settling out at 1.807 (-.0046). 

The Fed's "beige book" notes came out Wednesday as well and were generally positive on the economy as a whole  and referenced the growth potential from lower energy prices, especially from consumer spending.

There is also some positivity in the shale situation, despite the falling prices from oversupply, analysts are still predicting a minimum increase in production for 2015 of 500,000bpd, in addition to production from new Gulf projects set to come online in the near future. 

Today the trends continued, with Crude landing at 66.81 (-.57), ULSD settling out at 2.1177 (-.0159) and gas at 1.7948 (-0114), possibly on the belief that we're going to see a positive jobs report tommorow. Will be interesting to see how the market reacts to its release. (When was the last time anyone guessed the jobs report numbers correctly, anyway?)

Stay tuned!

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Commodities Rally after Record Drops, up 3% on Crude

Stock market numbers on a digital board

After the mulityear lows hit last week, oil started to rally today.

We're still lower than prior to the OPEC production announcement, but today saw ULSD up +.0512 to 2.2124 at the close, and Gas rallied up +.0534 to 1.881 at the close. WTI Crude closed up 2.99 to 69.00/bbl

Analysts are hopeful for an equilbrium price level between $70 and $75 so we're at least much more comfortably close to maintainence levels than we were on Friday. However, even at $70, shale production isnt terribly profitable, so on that side it wouldnt be the greatest benchmark. However, on the consumer level $60 sounds better than $70/bbl when you fill up your car. 

(And yes, the analysts are hoping for $70 while panicking about $40. C'est la vie, right?)

So why did we go up? 

The dollar weakened some, which almost always gives commodities a little bump. 

Most likely though, its just a pull back from an overreaction in selling off on Friday. 

Time will tell. The next few market days should be interesting to watch, especially with the inventory numbers out Wednesday. 

Stay Tuned!

 

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Double Black Friday - Commodities & Spending Both Dropped Off

Black Friday overlaid on dollars

A doubly "Black Friday" this year as OPECs decision resulted in a commodities free fall. The second part is that it was hoped that the relief consumers have been getting at the pump since the summer would have helped boost retail sales for the season. As the numbers are coming in though, it's not looking good.

Despite the mayhem in shopping centers we've all seen on YouTube, it looks like Black Friday spending was down 0.5% or so this year over last (bad news, as last year was not a stellar one). 

Today is cyber monday - but dont look to that for relief and an influx of money to retailers either - analysts project that Cyber Monday sales will be off around 3% this year over last. 

The NYMEX was down this morning but has rallied into positive territory again, but who knows for how long. 

Analysts across the board are now pegging the new "floor" price to be around $40/bbl, with Murray Edwards, the Canadian Natural Resources Chairman saying WTI could drop to $30, although he does not expect thats where it would stabilize for very long. (As reported in Business Insider this morning).

Why so low? 

Well, the global picture is still lackluster, to put it as kindly as possible. Japan is back into a recession, and Moody's downgraded their credit rating. Chinese economic growth is still in the toilet, which puts their demand level in the same place.

It appears the move by OPEC to keep prices falling to maintain market share is working, US exports to Asia have essentially screeched to a halt as low Middle East prices become more attractive to the Asian markets. 

It's not all doom and gloom from the analysts though, Goldman Sachs maintains its $75/bbl forecasted price for WTI for 2015, maintaining the assumption that the OPEC move is to slow US production by reducing profitability and "test the bottom" as it were. However, once they get a feeling for the level they may want prices to start going up again, as so many OPEC nations economies rely on oil generated revenue. Its probably likely Russia enters the debate soon as falling oil revenue is tanking the Ruble and their general economy is really feeling the pinch. 

Stay tuned!

 

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OPEC Decision Puts NYMEX into Free Fall - Gas Closes Under $2!

OPEC nation flags in a circle around an oil rig

The market is tanking across the board (and dragging the S&P with it) on the results of the OPEC meeting for November on Wednesday. The meeting officially cemented the long suspected decision by the cartel to keep oil production and output at current levels, despite the crashing prices and global glut of Crude oil. 

Saudi Arabia determined production would remain at current levels - as the largest producer in the group, they essentially set the policy. Several smaller members reportedly wanted to curb supply to raise prices, largely because a huge part of their country's economy runs off of the money generated from oil sales. 

Today we're just watching product prices tank across the board, Crude is below 70 for the first time in almost 5 years. Today's trading alone saw a 9% decline in price. Yowza.

Crude closed out the day at 66.15, -7.54/bbl.

ULSD closed out -.1657 to 2.2308 for December and -.1679 to 2.1612 for January (this was the last day for DEC trading)

Gas closed off -.1312 to 1.9039 for December trading and -.1843 to 1.8276 for January. Under 2 dollars on the screen?! Its been quite some time since thats been the case!

There could be some interesting geopolitical and other ramifications from the record drops on commodities. Countries like Russia who base a lot of their economy on projected oil revenue are really feeling the decline, and we will have to see how long their economies can withstand the steep drop in renevue. 

Domestically, the resultant falling gas prices are a positive for consumers obviously. They can also be a huge relief to construction, manufacturing, and transportation companies, as well as general retailers.

Its said that every ten cent drop in the price of gasoline unlocks 3 billion dollars to be spent elsewhere. (According to Wells Fargo). We may get a quick confirmation or refutation of that theory when the numbers start rolling in on the prime shopping season that kicked off today with the infamous "Black Friday", the Superbowl of shopping. 

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NYMEX Tanking Despite Inventory Draws

Line charts depicting the stock market scattered on a table

 

The EIA inventory report for the week ending November 7 showed draws in Crude & Distillates, with a build in gasoline. Crude drew down 1.7MMb and distillates drew down 2.8MMb, while gas built 1.8MMb.

Watching the screen though, you wouldnt think we showed draws - ULSD and RBOB are both dropping like the proverbial stone - both products had intraday lows well over 6 cents, with gas dropping down 8 for a few. 

UPDATE - ULSD close 2.3621 (-.0848) and Gas -.1054) - Yikes!! January& February gasoline closed under $2 at 1.9827, and 1.9899, respectively

So whats going on? Why even with a draw down on products, and once again heightening tensions in Russia/Ukraine are commodities dropping?

The jobless number report was higher than anticipated by about 10,000, but the numbers are still are hanging near a 14 year low so that ought not be a huge factor in either commodity numbers, or the stock market. The stock market, by the way, is retreating a little from it's record highs and hanging flat on the back of falling energy shares once again, due to falling prices. 

We still are in the same situation with OPEC and American production being sky high, and global demand due to economic growth being anemic at best, so the dismal supply demand situation is still at play.

Going out on a limb I would credit the extra oomph of todays drop off to lots of news regarding Keystone - with a bill being pushed through to the Senate that will actually make it to the floor, things are being shaken up on the energy front. Word is, in an attempt to save the seat of Landreiu, from Louisianna, who faces a runoff election challenge next month, Senate leader Reid has agreed to allow the legislation to the floor. 

Although most talking heads seem to think Obama will veto - still, the implication is that the midterms probably will be forcing some of the top energy agenda items through, and thats good news  - unless of course you fixed high, in which case dropping energy prices might start hitting you in the wallet very soon. 

How low can we go?

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NYMEX Flips on EIA Data, Stocks Continue to Surge

 Line charts depicting the stock market scattered on a table
 
Analysts predicted Crude would build in the neighborhood of 1.2million barrels for the week ending October 31. The market hung flat until the report's release at 10:30 this morning and initially jumped up after.

The EIA data showed builds of only 0.5 MMbbls on Crude and draws in all other products. Distillates were down 0.7MMbbls, and Gasoline was down 1.3MMbbls.

The Market jumped up over 3 cents at 11 after the report came out, but has since backed off significantly with ULSD hanging up relatively flat (.0025 - .0049 range) and gasoline hovering up almost 2 cents (.0187) for most of the early afternoon.

The Dow, Nasdaq, and S&P 500 all surged into positive territory today. Historically, stocks tend to go up post Midterm elections as there generally is a lot of uncertainty leading up to them, and traders may have a clearer picture of what agenda items will be moved on and their results once the dust settles and the votes are cast.

Also, as we mentioned, the ADP report was good for October, which is always a positive.

The commodities price slide we've seen has hit the brakes on the newest EIA Inventory reporting, which is probably why the S&P isnt dropping on energy share prices. Exxon, Chevron and Shell are all trending up this afternoon.

At the close, ULSD settled out -.0040 to 2.4387, and gas settled up +.0087 to 2.0867. The Dow is set for a record close, the S&P is holding strongly positive and the Nasdaq is falling slightly. Crazy, crazy day on the markets!

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Stocks Rebound on Election, Energy Shares Continue to Falter on Cheap Crude

Stock market numbers on a digital board

The Dow & Nasdaq were up in pre-market trading on news of a Republican sweep last night, and stocks are continuing to rebound this morning after Tuesdays drop off. The exception to this rule being energy shares, which are pulling the S&P down on the back of plummeting Crude prices. 

The ADP report on October job creation came in at 230K, 10K above the projected number. Strong payroll numbers for October and September, continually falling initial jobless claims and a surprisingly good Q3 growth number (3.5%) are all good signs for the overall economy.

However, there is still the factor of weakening global growth and demand, which will probably keep the domestic growth pace a lot slower than we'd all prefer. The Q4 growth number is expected to be much less exciting than Q3, thanks to global concerns. 

We saw WTI touch on a 3 year low yesterday on the back of the Saudi price cuts, oversupply, and booming production in the US. This is pulling energy shares down and impacting oil field companies and major industry players, as Crude starts to touch levels that make expensive shale play exploration an increasingly less profitable proposition.

 The Platts pre-report on US inventories is projecting the EIA report will show another build in Crude of about 1.2million barrels. Currently the NYMEX is relatively flat ahead of the EIA report's scheduled release at 10:30 this morning.

We should see then if the analysts got it right, and what, if any, impact the stock data will have on pricing moving forward. 

 

 

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Election Day Free Fall for WTI, Stocks

Line charts depicting the stock market scattered on a table

Everything is dropping across the board today - WTI is maintaining itself under the $80 benchmark (currently -1.76 at 78.78/bbl), Gas and ULSD are both down over 5 this morning on the NYMEX and the Dow and Nasdaq are both following suit into the red. 

So whats going on?

The reason the dropoff has escalated today in particular is likely due to the Saudi announcement that they will discount Crude imported to the US, which has really ramped up the economic pressure on fracking companies.

It appears the Saudi price pressures are starting to take effect on American production, with Chevron and Shell both announcing scale backs in popular shale plays and exploration proposals.

The estimated cost per barrel extraction in the US is around $60, which is about double the production cost for the Saudis. So when WTI is getting toward the mid 70's/bbl the profitability starts to drop off, and quickly. 

Additionally, the trade deficit is at a 4 year high, as global growth remains at a crawl, further dropping demand and therefore prices in the face of ever increasing supply. Slow global growth demand plus a strong dollar put a damper on exports. Additionally, construction spending fell in September, so the economic outlook for Q4 aint looking so good, and seems to be bringing the bears out across the board.

Stay tuned!

 

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Goldman Sachs Cuts Price Forecast for Oil: Projects $75/bbl Benchmark

Line charts depicting the stock market scattered on a table

Goldman Sachs has revised its projected oil prices for 2015 to $75/bbl for WTI and $85/bbl for Brent Crude, in response to ramped up supplies and slow projected global economic growth. 

Production from the US, Brazil, and the Gulf is projected to increase almost 1 million bpd, combined, and OPEC production is assumed to remain more or less stable - with gains in Iraqi production and drops in Libyan output essentially cancelling one another out. 

Like wev'e talked about, OPEC may curb production to offset the decline at some point, and analysts seem to think 75 may be the price point at which US shale production slows and spurs OPEC to drop production. Its unlikely they will make major moves until US production shows signs of slowing against low margins, or thats the prevailing theory, anyway. 

Oil was down today on that and other ho-hum economic news, and stocks fell in tandem. Europe settled 2.2 billion in bond purchases today in a preventative move against deflation, and the re-election of Brazilian President Rouseff reversed the hope some had that the country would move in a more positive, business-friendly direction. 

On the NYMEX, ULSD closed off -.0066 and gas settled out at 2.11702, down -.0115 for the day. 

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OPEC Chatter Drives up BRENT, Friday Trading Reverses CRUDE Rally

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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OPEC Tensions and "Break Even" Testing Pause NYMEX Dropoff

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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Retail & Market Prices Drop on Crude Supply & Pricing

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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IMF News, Germany, and the Dollar Pushing Markets Down

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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Monday Puts the Brakes on Friday's NYMEX drops

It's Monday :( overlaid on asphault

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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Commodities, Stocks and Consumer Confidence Drop

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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Targeting ISIS - Oil Prices & Air Strikes

Line charts depicting the stock market scattered on a table

 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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Inventory Shocker Reverses the RBOB Slide

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

Line charts depicting the stock market scattered on a table

 

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

Line charts depicting the stock market scattered on a table

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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International Issues Increase, but Positive Domestic News Keeps Futures Stable

Line charts depicting the stock market scattered on a table

 

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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NYMEX Continues Losing Streak Despite New Middle East Concerns

Line charts depicting the stock market scattered on a table

By the Numbers:

Monday marked the 7th straight session oil futures dropped, which is the longest we had seen since December of 2009. Tuesday accelerated the drop off, with ULSD closing down -.0409 and RBOB dropping -.0161 to 2.9729. 

This morning it appeared US Crude may erase some of the drop off over Israeli/Hamas fighting that has erupted this week, but the downward trend has continued - albeit less rapidly. ULSD closed off 25 points to 2.8711 and RBOB closed down -.0352 to 2.9377

Whats Going On:

The spikes we saw in June mainly stemmed from concerns about the Iraqi/ISIS conflict and subsequent fears of interrupted supply. So far though, exports from Iraq have remained stable and uninterrupted, which has let prices ease off. Even European Brent Crude has gone back to pre-Iraqi tension levels. 

Also - remember those Libyan ports that were seized by rebels last July and have remained offline since? Well it looks like they will finally be coming back online, which could up Libyan exports by up to 800,000 barrels per day. The caveat here though, is prior discussions on moving Libyan exports back up have fallen through, so theres no guarantee on what production levels they'll actually hit.

What to Watch For:

The potential storm cloud on the horizon is the Israel vs. Hamas situation unfolding. Palestinian officials are reporting over 35 killed and 300+ wounded in Gaza  as a result of Israeli airstrikes. The strikes have reportedly hit over 450 locations in Gaza, while Hamas has launched rockets far deeper into Israel than before - hitting tech centers, Tel Aviv and northern counties. Israel is reporting that since Monday afternoon, over 200 rockets have been fired at the country, in addition to over 50 that were shot down by drones before impact.

Israeli Prime Minister Netanyahu has reached out to the UN & US to condemn the Palestinian action, while some newspapers are reporting that Palestinian President Abbas has reached out to the Egyptian President to moderate discussions for a cease fire. 

The situation arose from three Israeli teens being kidnapped and murdered last week - which Israel blames Hamas for, and the subsequent murder of a Palestinian teen, which Hamas claims was retaliatory action by the Israelis.

As we've seen a thousand times before - violence escalation in the Middle East almost always causes fear based price increases. Luckily, we saw no such movement today, as the market continued decline. Markets aside, hopefully the situation comes to some sort of resolution soon - preferably a long standing agreement that will stop the unecessary violence in the area.  

 

 

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Iraqi Turmoil Rocks the NYMEX

Map of Iraq with factions of the country highlighted

(Image credit: US EIA via Bloomberg Visual Data - Bloomberg Businessweek 6-12-14)

Both Brent and WTI shot up 2% today on last nights news that ISIS insurgents in Iraq captured Tikrit and Baiji, and were continuing their march towards Bahgdad.If you were watching the screen, you also saw ULSD shoot up .085 to 2.9893 and RBOB hit 3.0837, up .0829 on the day in reaction. 

Iraqi production levels have been stable around 3 million barrels per day, making Iraq OPECs second largest producer (behind Saudi Arabia) - so the supply concerns we're seeing push prices up at this intensity level are not unfounded. 

Essentially all of Iraq's oil production comes from the southern, Shia portion of the country by Basra, (see map from Bloomberg above)  where militant influence is essentially non existant (at least in comparison) - so some speculate that even should the Baiji refinery or additional cities fall, actual supply is unlikely to be affected as the area is well guarded and safe. However, it pays to keep in mind that no one saw Mozul or Tikrit being as vulnerable as they apparently were - the invasion of Mozul saw over 500,000 people flee the city in 12 hours, including basically the entire coalition of American-trained Iraqi security forces because of the level of violence and choas that erupted. It's less likely that would happen further south, given the relatively small insurgent force and the steeper odds they would face in terms of fighting back - but its certainly not an entirely unreasonable fear. 

The Obama administration has stated they are "considering all options" - air strikes, drones, etc but have not made a decision at this time. It would seem unlikely that an attempt to garner public support for re-entrance to Iraq would be an easy (or possible) task, all things considered. Ironically, the air strikes on Syria that  the administration faced such backlash for last year were directed at stopping the violence in the area that involved ISIS - the same group now surging in Iraq. Not a good sign for approval for Iraqi strikes. Thus far neither the UN or US has said they will step in to aid the Iraqi government - a fact that it certainly not easing concerns in the market, one would think.

In the grand scheme, considering price volatility and levels as a whole, we're fortunate that some areas (like the US) have seen production booms that have offset some of the drop offs from OPEC nations (mainly Libya) as its helped keep prices overall more stable - the jump in 2012 for example would probably have shot way past a 2% spike. If supply gets disrupted in Iraq though, given its the second largest OPEC producer, that may cease to be the case, which is probably the more far reaching concern pushing prices than isolated fighting would on its own. 

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BREAKING - Iraq Escalates - Militants Seize Tikrit, Target Baiji Oil Refinery

Map of Iraq

(Image credit: Wikimedia Commons 18:57 June 11 2014)

CNN is reporting that ISIS (the Al Qaeda breakoff group that seized Mozul, Iraq yesterday) has gained "nearly complete control of the Northern city of Tikrit" - Parts of the town of Baiji have reportedly been seized as well - this is the site of the largest oil refinery in Iraw. At the moment the Baiji Oil Refinery is reportedly still under Iraqi military control but seizure of the town raises both international relations issues and supply concerns. If militants seize the refinery expect to see chaos in the markets.

You can follow the story in depth  on Reuters here: http://www.reuters.com/article/2014/06/11/us-iraq-security-idUSKBN0EM11U20140611 

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OPEC, Iraq, Inventories & Political Upsets Rattle Wall Street & Commodity Prices

Line charts depicting the stock market scattered on a table

First the usual news - US Crude Supplies once again dropped (to 386.9 million) and more importantly perhaps, Cushing levels dropped again as well. Cushing stocks are down 49% since the Keystone's lower leg started moving its supply to Gulf Coast Refineries. WTI has been climbing steadily the past couple days, and some analysts are predicting WTI hits $105 soon. (Hopefully not!) We also saw gasoline and ULSD up between 0.6-0.9% throughout the day with the intraday high for gasoline hitting 3.0021 and ULSD's intraday high hitting 2.9027.

Brent was up as well on production announcements from OPEC, and an Al Qaeda affiliated group's seizure of the city of Mozul in Iraq. OPEC kept their production target the same, despite the growing fighting. The obvious concern with Iraq is that increased fighting will further disrupt supply. Currently, all exports from the country (a little over 3 million barrels per day) have to go by tanker through the Persian Gulf - the main pipeline that runs from Kirkuk to Turkey has been closed since March. The capture of Mozul and the uptick in violence in the area has caused repairs to the pipeline to be suspended completely at this point. Further supply disruptions are basically a 50-50 proposition at this point, which is making the European markets understandably nervous, and pushing Brent prices up. 

In Virginia, House Majority Leader Eric Cantor got blindsided by his Tea Party primary challenger in an upset that literally no one saw coming. Bloomberg News noted today that there is some serious concern among Wall Streeters, as Cantor was generally seen as an ally for them in the Republican party - supporting TARP and the Export-Import Bank, etc. Wall Street appears to be concerned about potential gridlock in Washington going forward if this primary is an indication of how November may shape up, especially given the debt ceiling issue looms large again in March. (Incidentally, gridlock in Washington is probably good news for the rest of us!) At any rate, between the political upset, and the World Bank revising growth expectations down (specifically for the US) stocks drew back, with utility, industrial and financial stocks the most impacted. 

 

 

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

 

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

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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Commodities and Stocks See-Saw on Sanctions, EIA Numbers, Unemployment, and Tech Dissapointments


Line charts depicting the stock market scattered on a table

Wednesday's EIA report showed that the API projected Crude drops come to fruition, falling 1.78 million barrels. As we all saw this pushed up Crude & ULSD prices on the day, with ULSD closing up .0398 to 2.9275, and Crude up to 100.81, once again hanging by the new (unfortunately) benchmark of $100 we've all been hoping to drop from for quite some time now. 

Brent ticked upwards this week as well on EU discussion of stricter sanctions on Russia. Putin had announced earlier this week that Russian troops had withdrawn from the border, but no such withdrawal happened according to everyone else in the area, so more sanctions are back on the table it appears. Economic sanctions on the world's second largest energy exporter are, unsurprisingly, not great for downward price pressure. 

In contrast to Crude - US Natural Gas inventory was up 94 bcf and prices dipped slightly. That sounds like good news after the supply crunch (not to mention spiking prices) of this past winter, and it is, but bear in mind prices are likely to remain relatively high for nat gas in the foreseeable future. Why? Because even with a build of 94 bcf, supplies are close to 45% lower than they were just a year ago today and the only demand control as supply limps back up is the price level, unfortunately. 

In the broader stock market, the S&P is poised for a weekly loss, largely due to drops in energy & utility shares. The DIJA dropped 4.1 percent in 5 days over tech stock dissapointments (ahem, Twitter & Groupon), and the Nasdaq dropped almost 2% as well. Last week stocks were up for the week minus a Friday drop off, which was a little unforseen because the weekly jobs report was strong (at least on the headline level).

April's Job numbers showed unemployment dropped to 6.3%, the lowest in 5 years. However, the margin of error for revision is pretty large on these reports of late, so there may be some hesitancy in the market until the "real" numbers materialize. Additionally, the work force participation rate dropped to 62.8%, tying the all time worst record from 1978 (also October and December of 2013).

There's been a lot of contradictory indicators as of late from different segments -  real estate, manufacturing, labor participation, and Jobless claim numbers, for example, that make it difficult to get a good overall picture of the economy. As they say, the truth likely lies somewhere in the middle, but who knows where that is.   

 

 

 

 

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WTI Drops Big (Again) on Expected Builds

Barrel of oil with a line chart aiming up

Last week as we discussed, the EIA reports for the prior week (ending April 11) saw inventory builds in US Crude supplies while gasoline inventories drew down. Crude Inventories actually hit their highest level since June 2013 and production hit its highest level since 1988. 

Platt's is estimating that this Wednesdays EIA report (on the week ending April 18th) will show inventory builds of  up to10 million gallons. As a result of the anticipated build, WTI has dropped more than we've seen in the previous 3 months. Brent Crude, the European benchmark, wasn't quite so lucky.

Compared to WTI's over 2% drop, Brent was down less than one percent on continued Ukrainian tensions (stop me if you've heard this one before...) and on the heels of Vice President Biden's speech this morning in Kiev, in which he expressed US support for Ukraine. The sentiment, though true, wasn't very helpful for the already fragile (read: falling apart) agreements with Russia to reduce friction in the area, especially coming one day after Secretary Kerry demanded that Russian Foreign Minister Lavrov control seperatist activity in Ukraine, with the Russians firing back that the US should intercede in to control "Ukrainian militia activity" in the region and today insisting that any agreements reached in Geneva "have nothing to do with us".  

The global headache that is Ukrainian/Russian/US relations at the moment would likely have resulted in a lot of market volatility and price spikes, but consistently increasing inventory levels have seemingly kept it at bay, particularly domestically. Hopefully that trend continues, and we start to see some progress towards resolution in Eastern Europe.

 

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Markets Up on Ukraine Tensions, Inventory Projections, and Chinese Economic Data

World map with Ukraine and Russia highlighted

(Image Credit - Russavia [CC-BY-SA-2.5 (http://creativecommons.org/licenses/by-sa/2.5)], via Wikimedia Commons)

Deja Vu - global oil prices are again creeping higher on increasing friction on the Ukraine-Russia standoff, projected inventory numbers, and Chinese economic numbers suggesting slower growth than anticipated. Didn't we just go through this two weeks ago??

Brent CRUDE hit over $110 Tuesday for the first time since March 4th on increasing concern over long term energy supply impacts of the mounting Ukrainian situation, and concerns of potential Western (US) interventions. Tuesday saw Ukranian troops clash with Russians at an occupied airport in Kramatorsk, about 100 miles from the Russian border - the first armed clash thus far in the ongoing power struggle. Tuesday also saw Ukranian troops headed toward the Russian border, counter to the tens of thousands of Russian troops reportedly stationed there. Concerns over potential Western response pushed stock markets lower, including the German DAX and Russian MICEX and pushed Brent and WTI prices up, with Brent hitting $110 as we mentioned, and WTI gaining to as much as 104.99 ahead of Inventory numbers due out later today. 

The primary cited reason for the jumps is the escalations in the Ukraine, but Chinese Economic data is also looking weaker than projected, with economic expansion numbers clocking in at the lowest we've seen in 6 quarters and falling short of the governments stated target of 7.5% growth. On the bright side, the Hariga port in Libya loaded for the first time in July when it was seized and shut down by rebels. 

Domestically, US inventories on gas are projected to show draws of up to 1.75 mb in Bloomberg estimates, while CRUDE is expected to show builds, and distillates are projected to be largely stable. It will be interesting to see how pricing plays out if the EIA report pulls the rug out from under the analysts like it did the last week of March.

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Surprise CRUDE Inventory Drops Catch Analysts Off Guard - but NYMEX Holds on to Week's Losses

Line charts depicting the stock market scattered on a table

The EIA Inventory data out today showed that US Crude stocks unexpectedly fell 2.38 million barrels last week - if you remember, earlier this week, analysts were expecting roughly that amount of BUILD to be reported. Gulf Coast inventories had been expected to show a huge build but instead dropped by over a million barrels. On the other side, gasoline inventories dropped essentially in line with expectations, falling by a little over 1.5 million barrels. 

So what happened on Crude?

Consensus seems to be the main factor was the Houston shipping lane closure we discussed last week - the interruption likely caused higher draws than anticipated, primarily because it impacted imports to the Gulf during the shutdown, forcing refineries to pull off existing stock. This makes sense, as we saw a much larger reversal in inventory actuals versus expectations in the Gulf Coast region than generally.   

Despite the surprise inventory numbers, NYMEX futures are still trending down today. 

Interestingly, RBOB prices continue to trend downwards (although it pulled in mostly by the close) despite sustained and growing issues with ethanol supply, and a dramatic increase in its cost. Bloomberg reports that ethanol climbed 81% over the quarter, so even though RBOB is dropping on the screen, it's very unlikely consumers will see any real relief at the pump any time soon - at least until the supply and logistics issues spiking the price of ethanol subside.  

At the Close - ULSD settled -0.0212 to 2.8666, RBOB settled -0.0029 to 2.8668, and CRUDE settled out -0.12 to 99.62 

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Crude Continues to Drop on Supply Estimates & Manufacturing Speculations

Crude - both Brent and WTI - continued to drop today on speculations of another inventory build on tommorows EIA report. According to a Bloomberg survey, tommorows report may show increases of 1.8mbl up to 2.5mbbl. The prior weeks report (the tenth increase in a row) indicated US Crude inventories climbed to 385 million barrels, the highest on hand since November, with PADD 3 numbers (Gulf Coast) hit over 200 million barrels, the highest since 1990. 

Additional domestic factors in the market drop is an anticipated failure of US Manufacturing increases to meet projected gains. Internationally, China is showing a drop in manufacturing index to below 50, signaling a contraction in the sector. Euro zone manufacturing is expected to show stagnant to weak numbers as well. Overall, global economic indicators are not very confidence inspiring, and in combination with increasing supply, and the impending end of the heating season in the US, we should see the market continue a downward trend, assuming EIA reports back speculative numbers. 

Last week's jobless numbers saw an unanticipated drop of 10,000 initial jobless claims. It will be interesting to see what this Friday's numbers look like - a continuing downward trend would be a positive economic sign, but time will tell what the overall impact will be. 

 

U.S. crude oil stocks graph

(Image Credit: EIA.gov)

 

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Houston & Ukraine Concerns Drive Early Week's Market Swings

 

Sinking barge

(USCG Photo/Reuters)

The first half of the week saw futures up and down on reactions to international tensions, and on the news of the 22nd’s collision between a bulk carrier and a barge resulting in the temporary closure of the Houston shipping channel connecting the Gulf of Mexico with Gulf Coast refineries. The collision resulted in a spill of up to 170,000 gallons of bunker fuel into Galveston Bay and caused immediate closure for cleanup operation, according to the AP in Houston. Tuesday saw the channel partially reopen, but the Coast Guard reported it would be an additional several days before it reopened to full capacity. About 10% of US refining capacity is based in the Gulf area. The positive news is that the channel will reopen relatively quickly and isn’t anticipated to have any long term price implications.

Of more concern for long term energy pricing is the growing and continued tension over Russia’s annexation of Crimea, and the potential impacts on the European energy situation that could hike prices significantly. We will likely see impact of US and/or G7 proposed sanctions begin to hit the markets this week or next, especially if significant action is taken on the proposed intervention on Russian oil nat & gas dependency, and on Emergency Funding measures for Ukraine. In the US, the Senate voted down the IMF/Ukraine Emergency fund Legislation presented on Tuesday, but another vote on the bill without the more controversial IMF reforms included is scheduled for Thursday, and according to both Speaker Boehner and Senate Majority Leader Reid, it is expected to pass both houses.


 

 
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"Polar Vortex" saw Nat Gas hit Record Highs

Natural gas hit $5/mmBTU on the NYMEX for the first time in over 3 years last week, over concern about supply and a increase in demand due to to continuing frigid temperatures throughout the country. As of Jan 30, prices have backed off some but the underlying supply issues behind the spike may still play a relevant role in Nat Gas volatility going forward. 

The spike involved inventory reports showing Nat Gas storage 13% below the 5 year average which raised some supply concerns. Additionally, production can be affected by extreme cold by what are referred to as "freeze offs" - pipes become constricted from frozen liquid, diminishing their output capacity. Analysts speculated that if the cold extends well into February, we may not see the anticipated price corrections as continually high demand will push prices up further. Again, prices have backed off a little bit, but with another cold snap we could be having deja vu on the issue.

Natural Gas has been touted as a cheaper, more efficient way to heat than using heating oil (the EIA estimates 50% of Americans use Nat Gas as their primary heating source, compared to roughly 6% on heating oil, the majority of which are in the North East). A major selling point when heat prices skyrocketed was that Natural Gas prices were less volatile - but as Natural Gas conversions to homes and buildings happen left and right, and Nat Gas spikes on the NYMEX is that really true anymore?

Looking at prices for Nat Gas versus Heat isn't apples to apples given the way each is measured, but if you convert the cost for Natural Gas versus Heating Oil per therm you can get an idea of the comparison.  

You get about 35% more BTUs out of oil, so basically if Nat Gas ends up landing at a spot where its not at least 40% cheaper than oil, the price advantage breaks down. Additionally, thats product cost alone, not factoring utility fees and the like. 

Currently Natural Gas still strongly holds the price advantage, but without serious pipeline and transport fixes, supply crunches will likely continue - particularly in the Northeast where spot prices are incredibly higher than the national average. It will be interesting to see how prices settle out (or not) over the coming months.

 

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Futures Firm After Almost 2 Week Correction

NYMEX values appeared to find support just above the 2.90 level on front month HO after a long cold stretch.  The Polar Vortex that gripped a large portion of the Country, and plagued us in the Northeast with long terminal lines, appears to be subsiding.  Many of us are getting a well deserved breather as we return to somewhat normalcy.  

The recent correction has shaved off roughly 18 cents on Heat and close to .20 on RBOB.  Bulls returned as new unemployment figures were released showing that while the actual rate was down to 6.7%, the economy failed to add the expected 200k jobs in the last month.  Many point to the loss of December seasonal workers and the fact that more and more Americans have simply stopped looking for a job.  This caused the greenback to fall, thus pushing Commodities higher.  The new talk will ultimately put immediate pressure on new FED Chief Yellen and her stance on any new rate changes.  Strong foreign import data also put supported markets as China was said to have a nearly 14% increase in Crude over the last 30 days.  Look for next week to be a choppy session with HO testing and ultimately bouncing off the 2.90 mark.  

 

At the Close, Crude added  1.06 to close at 92.72, RBOB closed up .0265 at 2.6691, and heat settled out +.0193 at 2.9407

RBOB Close
                      CLOSE     CHANGE            
FEB   2.6691         +.0265
MAR   2.6797         +.0245
APR    2.8547         +.0217
MAY    2.8511         +.0207
JUN    2.8272         +.0202
             JUL    2.7949         +.0190     
HEAT Close
      CLOSE            CHANGE
FEB   2.9407        +.0193
MAR   2.9234        +.0180
     APR    2.9100        +.0167     
 MAY   2.9019        +.0159 
JUN   2.8968        +.0157
 JUL   2.8948        +.0153

 

 

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Distillate Inventories Carry Futures Higher

Last night API's set the early tone for todays rice action as preliminary numbers showed large draws in distillates.  Those numbers were confirmed this morning with the EIA releasing a staggering 4.8mbl draw in distillates vs expectations of a mere 700k.  Gasoline was down slightly at 345k and Crude showed a slight build at 375k bls.  On the surface it appears distillate demand is on the rise, not only in the US, but also from an export position.  Soon after the data released, pits jumped almost .04, and stayed in that range for most of the afternoon.  Supporting the bullish price action was FED meeting minutes which appear to confirm last weeks chatter that we will start to see some significant unwinding of the Bond buying program in the months to come, as well as a positive retail report for October.  The hope is that a positive October doesn't turn into a lackluster November and December which is often the case in the retail world.  News hit mid afternoon of US-Iranian talks ended almost as quickly as it started, one report said the talks lasted less than 10 minutes with few words spoken.  Even with the draw in distillates, the market appears to be well supplied as Crude actual lost .01 to close out at $93.33, RBOB added .0235 to $2.6630 and HO led the gainers settling up .0487 to $2.9545.  Again, well within its comfort zone.

RBOB Close
                      CLOSE     CHANGE            
DEC   2.6630         +.0235
JAN   2.6458         +.0259
FEB    2.6483        +.0257
MAR    2.6609         +.0253
APR    2.8241         +.0239
           MAY   2.8209         +.0227         
HEAT Close
      CLOSE            CHANGE
DEC   2.9545    +.0487
JAN   2.9528     +.0464
     FEB    2.9503     +.0431   
 MAR   2.9449     +.0397
APR   2.9355    +.0361
 MAY   2.9267    +.0327
 

 

 

Line graph

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Renewed Global Concerns Reverse Tuesday's Futures Sell Off

We have all been in this far too long to get overly excited when the pits fall a few cents - like New England weather, wait and it will change.  

The recent sell off was primarily pinned to the expectation of growing Crude supplies (released this week on Thursday due to the Holiday), a better than expected Jobs report, and the talk of unwinding the government bond buying program.  That all came to a halt this morning as renewed concerns of global strife, specifically Libya, filled the newswires.  

Brent Crude surged early and brought the US markets along for the ride. Still, I have to give weight to some of the technical aspects, as HO has bounced higher again after touching the 2.85 level.  Recall, this has been the much talked about seasonal support level that has yet to be broken for more than a session.   

Heat still remains comfortable trading in the wide range of 2.85 to 3.05, with small breakouts to either side.  One would expect RBOB to get more volatile as global demand expectations have recently been revised higher and the current values appear to be relatively inexpensive.   

At the close, Crude gained .84 to $93.88, RBOB closed up +.0416, and HEAT settled out +.0445

 

RBOB Close
                      CLOSE     CHANGE            
DEC   2.6280         +.0416
JAN   2.6131         +.0387
FEB    2.6180         +.0359
MAR    2.6304         +.0337
APR    2.8004         +.0323
      MAY   2.7990         +.0344      
HEAT Close
      CLOSE            CHANGE
DEC   2.8977        +.0445
JAN   2.9014        +.0434
     FEB    2.9041        +.0419     
 MAR   2.9024        +.0405 
APR   2.8988        +.0393
 MAY   2.8955        +.0386 

heat chart 2013 november

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Futures Continue to Rebound After Early Week Sell Off

Front month Heat continues to find comfort above the 2.95 level as traders weigh the recent barrage of news.  Earlier in the week, many feared an almost inevitable Government shutdown, but those fears were erased late Wednesday as a House Bill passed that would fund activities for the next several weeks.  While Inventories were in my opinion somewhat Bearish, the news didn't take so well yesterday and pushed futures up slightly ahead of today's report that showed the US economic growth rate fell in line with expectations with an increase of 2.5%.  Additionally, new applications for unemployment benefits fell by roughly 5000 to 305,000.  The Bullish overtures of a growing economy almost always will spur a rise in Commodity futures.  The Syrian problem continues to drag on in a political stalemate as Russia successfully blocked a UN resolution which would have authorized military strikes.    While news may be what most are pointing to as the driver, one must give the technical analyst his due.  The Failure of front month HO to settle below the 2.95 mark has spurred buying over  the last two sessions.  This level continues to be a huge support area.  At the Close, Crude gained .37 to $103.03, RBOB added .0321 to $2.7050 and HO settles up .0306 to $3.0037

RBOB Close
                      CLOSE     CHANGE            
OCT   2.7050        +.0321
NOV   2.6887        +.0318
DEC   2.6647        +.0286
JAN    2.6557       +.0276
FEB     2.6583      + .0272
              MAR    2.6675      +.0269                 
HEAT Close
      CLOSE            CHANGE
OCT  3.0037        +.0306
NOV   2.9993      +.0280
    DEC     2.9930    +.0272     
JAN     2.9885     +.0265
FEB    2.9824    +.0251
MAR  2.9689     +.0234


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Markets React to Syrian Conflict and Implications of US Intervention

As news continually breaks on developments on the Syrian conflict and the potential implications of US or other world power intervention in the region, stocks are dropping and commodities are going through the roof.

US Secretary of State John Kerry announced this week that there was “undeniable” evidence that the recent chemical weapons attacks in Syria were perpetrated by the Assad regime. The announcement in tandem with the presence of UN Weapons inspectors being fired upon in the country prompted speculation that the US may intervene with military action. Additionally, the
recent attacks cross the “red line” declaration issued by the Obama administration several months ago regarding chemical weapons.

The threat of US intervention has prompted Global Markets to react heavily to the news. In the US, the Dow fell Tuesday by over 170 to hit a two month low of 14,776.13 and the Nasdaq fell 78.13 points to 3579.44. Stocks took a hit while commodities shot up, notably gold in both the US & Canada. Brent Crude hit a six month high on Tuesday in the wake of the rumors of
military action, and US Crude rose over 3 dollars as well. Oil Prices have risen 15% over the past 3 months on concern over violent civil war in Egypt, and now conflict in Syria is pushing them even higher.

The issue with Syria is complex – Syria itself is not a major exporter. The issue is essentially concern that US intervention in Syria will spark regional unrest as well as create increased tensions with other major world powers, specifically Russia and China. Consensus seems to be that the major issue with intervention in the conflict could interrupt export and production schedules, particularly those in Iraq and Libya, according to cbc.ca.

It’s estimated that about 1% of global oil supply runs through the bay of Iskenderun in Turkey, only a few miles off the Syrian border, and tensions in Syria could threaten this export route, according to Olivier Jakob of Petromatrix in Reuters on Tuesday. Disruption of this supply
route would have a deep impact on European and Asian markets, particularly if tension spreads throughout the Middle East, which produces over 1/3 of Global Oil supply.

 

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NYMEX Futures End Positive for Fifth Straight Session

All news today was nothing but feed for the Bulls that have been in control of the pits over the last week.  After HO dipped below 2.95 late last week, buying has come back with force.  Today was strong out of the gate and while RBOB was tamed slightly, HO kept right on rolling.  NOAA models now show Tropical Storm Erin churning in the mid Atlantic with an expected path set on Puerto Rico for sometime late next week.  First storm of the season always brings the buyers out.  Data on the economic front showed the US had the lowest unemployment claims in just over six years.  While this is good for the economy, not so good for Future pricing.  Along side that, most now expect the FED to significantly slow down their Bond buying program over the next sixty days as the economy shows signs of improvement.  Finally, the continued and recently heightened unrest in Egypt, has many concerned over the regions safety.  Egypt largely controls the Suez canal which is a vital shipping lane for Crude barges, anything that can remotely affect Crude shipments will push futures higher.  Still optimism remains as RBOB shrugged off the news and was only able to muster a 15 point gain to close at $2.9845, while HO jumped another .0250 to $3.0728 ( the high end of the wide range  we have been in) .  Crude added .48 to $107.33.  I stay optimistic for lower prices coming as the semi mixed close is always a key point to momentum swings.

 Daily Heat Chart
Daily heat chart
RBOB Close
                      CLOSE     CHANGE            
SEP   2.9845         +.0015
OCT  2.8562        +.0068
NOV   2.8118        +.0101
DEC    2.7813      +.0116
JAN     2.7646     + .0117
                  FEB    2.7599     +.0119               
  
HEAT Close
      CLOSE            CHANGE
SEP  3.0728        +.0250
OCT  3.0795      +.0255
 NOV  3.0823      +.0250   
DEC  3.0808     +.0246
JAN   3.0791    +.0240
FEB  3.0692     +.0243

 

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Don't Forget! MA Gas & Diesel Tax Rate Change Effective Today!

The State of Massachusetts, as part of the Transportation bill, has voted to increase the state excise tax on gas & diesel. This increase will be tied to inflation and increase annually. The increase this year, effective today, July 31 2013, is $0.03, which raises the excise tax to $0.24 per gallon.

 

 

The current breakdown of taxes on over the road fuel products in MA is as follows:

 

Diesel

Federal Excise Tax: .243

Federal Lust: .001

Federal Oil Spill: .0019

MA State Excise Diesel: .240

MA URP: .0119

MA UST : .025

 

Gas:

Federal Excise Tax: .183

Federal Lust: .001

Federal Oil Spill: .00171

MA State Excise: .24

MA URP: .00119

MA UST: .025

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Springfield MA to Lose 100+ Jobs Over Service Interruptions

An Ounce of Prevention is Better than a Pound of Cure!!

According to WGGB.com, a Springfield MA based call center is closing due to the potential service interruptions the company has incurred and  forsees based on the extreme weather Western Mass has been hit with in the past few years. This closure will cost over 100 people their jobs in the Springfield area. According to their CFO, the assurance of 24/7/365 service they provide to their customers prompted the companies decision to move to a less disruptive area. (In this case, Chicago).

Service interruption is a primary concern, especially with the ever increasing data storage requirements and 24-7 nature of many industries today. Whether you run a  hospital emergency room, a  research and development lab or simply run servers to back up your financial data -  the fact is, you can NOT afford to lose your power and lose your data.

So what can you do about it?

An Emergency Generator. But how do you ensure your generator is ready to handle whatever nature throws your way?  You contract with a reputable fuel supplier who will guarantee that you are fueled and ready at all times. That’s where we come in.

Dennis K Burke’s Emergency Generator Program is the best way to guarantee that you’re ready. We guarantee delivery time windows along with a quarterly maintenance check-up that provides your fuel quality additives to keep your tank ready to go.

For more information on our Generator Program – you can click here: http://www.burkeoil.com/fuel-and-gasoline/generator-fuel-program, or speak to one of our experts at 617-884-7800 or by email at insidesales@burkeoil.com  

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Bulls Remain in Control of Markets

July 16th - Energy Bulls showed their muscle today by posting solid gains after an ever so slight dip yesterday.  On the back of an early weak dollar, RBOB and HO were up almost .03 cents in the early morning.  After what appeared to be some resistance touching, futures slid to even shortly after Open outcry, even posting some negative numbers.  The slide was short-lived as traders began to focus on this weeks inventory levels that are projected to show a draw of roughly 3mbls of Crude, signaling a rising demand.  Small refinery news and traders rolling positions into AUG also contributed to today's rise.   Personally, I have said for months that HO is stuck in this large new normal range of 2.75 to 3.05, being at the top of that range now, one has to speculate at how much higher we can go.  At the close, Crude was able to shed some pounds finishing down .32 to $106.00, HO added .0208 to $3.0469 and RBOB gained .0314 to $3.1343.  RBOB appears to be driving the market so Wednesdays price action will be intresting.

Energy market heat chart

RBOB Close
               CLOSE         CHANGE        
 AUG   3.1343         +.0314
SEP   3.0530         +.0227
OCT   2.8702       +.0186
NOV    2.8074        +.0137
DEC    2.7655       +.0094
JAN    2.7437       +.0057
HEAT Close
      CLOSE            CHANGE
AUG    3.0469       +.0208
SEP    3.0464       +.0186
OCT    3.0449       +.0167
NOV    3.0426      +.0138
DEC    3.0401       +.0113
JAN    3.0382       +.0091

 

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Bullish DOE Report Causes Futures Slide

A few days away from the "official" start of the driving season saw gas prices tumble.... Or at least that what the news outlets will be saying.  Futures corrected today as the DOE report showed a strong 3mbl build while the Trade expected 1m gallon draw.  Distillates and Crude were somewhat bearish showing draws of 1.1mbl and 338k respectively.    Losses could have been much steeper, but selling appeared to be tempered by the fact that most believe the FED will continue stimulus measures until a clear sign of economic improvements.  The assumption is that should the FED start to pull back their measures, it could cause a significant sell off as people get rid of long positions.  HEAT still seems content be range bound between 3.10 and 2.75, with a tighter range of 2.85 to 2.95.  At the close, Crude fell $1.90 to $94.28, RBOB lost .0264 to $2.8194 and HEAT took the brunt of the hit dropping .0554 to $2.8736, which is surprising since the builds were seen in Gas.

 

 

RBOB Close
      CLOSE            CHANGE
JUN    2.8194       -.0264
JUL    2.8122       -.0257
AUG    2.7950       -.0252
SEP    2.7705       -.0260
OCT    2.6332       -.0273
NOV    2.6060       -.0283
HEAT Close
      CLOSE            CHANGE
JUN    2.8736       -.0554
JUL    2.8687       -.0506
AUG    2.8753       -.0472
SEP    2.8844       -.0447
OCT    2.8925       -.0426
NOV    2.8976       -.0408
5-22 heat chart
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Futures Turn on Stimulus Talk

Much of what we view every day in this business is based primarily on expectations and ultimately, reality.  Today was precisely one of those days.  While most expected slightly bearish inventory numbers, the news at 10:30 that showed Gasoline's up 2.6mbl and Distillates up 2.3mbl well beat expectations of builds of 700k and 800k respectively.  Pits reacted by selling off over four cents in each HO and RBOB.  With Crude showing a draw of 600k barrels while many expected a build of the same amount, you had to think how long the fall would last.  At the same time, the European Zone released figures that showed its GDP fell for the sixth straight quarter.  Soon talk of more FED stimulus took over the trade and the buy back gained momentum.  From what started out as a solid down day, turned on the expectation of what we think might happen, thus pushing the NYMEX higher by the closing bell.  At the close, Crude gain .09 to $94.30, HEAT added .0071 to $2.8801 and RBOB led the charge jumping .0294 to $2.8670, almost .10 higher than the intraday low.... Looks like some expect a busy driving season.

 

RBOB Close
      Close            Change
JUN    2.8670       +.0294
JUL    2.8480       +.0276
AUG    2.8192       +.0260
SEP    2.7853       +.0247
OCT    2.6407       +.0190
NOV    2.6130       +.0166
HEAT Close
       Close            Change
JUN    2.8801       +.0071
JUL    2.8742       +.0080
AUG    2.8797       +.0095
SEP    2.8892       +.0107
OCT    2.8977       +.0111
NOV    2.9031       +.0107
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NYMEX Makes an About-Face on Jobs Report

After starting the early morning in the red, Markets made an about face mid morning as new economic news hit the wires. The Jobs report showed an additional 165,000 jobs were added last month, above the 148k expected. That pushed unemployment down to roughly 7.5%, additionally the magic pencil revised March and February numbers up by a combined 60k jobs. While these are encouraging numbers for the US workforce, most agree that the World market may not be as optimistic. A well supplied market and growing concern over an already fragile European Zone, which today cut forward growth rates, has limited the upside to the NYMEX over the last several sessions. Additionally, China is expected to report sluggish manufacturing rates next week. As the day went on, distillate markets cooled off while gasoline still stayed strong. Look for next week to be much of the same as positions look to be solidified as we move towards the summer driving hype. At the close, Crude added $1.62 to $95.61, HEAT gained .0289 $2.8844, and RBOB jumped .0448 to $2.8254

 

DAILY HEAT CHART

Daily heat chart

RBOB Close
CLOSE CHANGE
JUN 2.8254 +.0448
JUL 2.8072 +.0418
AUG 2.7817 +.0399
SEP 2.7515 +.0394
OCT 2.6101 +.0392
NOV 2.5867 +.0376
HEAT Close
CLOSE CHANGE
JUN 2.8844 +.0289
JUL 2.8824 +.0291
AUG 2.8884 +.0312
SEP 2.8964 +.0321
OCT 2.9032 +.0324
NOV 2.9072 +.0321
 
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NYMEX Tumbles as Markets eye Italian Election

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