G20 Summit Answers Looming Market Questions

Posted by Kelly Burke on Jul 1, 2019 3:23:56 PM

G20

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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Topics: Saudi Oil Minister, russia, china, G20 Summit, tariff

EIA Data, Refinery Closures & International Tensions Spike NYMEX

Posted by Kelly Burke on Jun 26, 2019 3:07:45 PM

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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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Topics: Iran, East Coast Refineries, Refinery Closures, EIA Inventories, china

Refinery Explosion & Iran/US Escalations Push Prices Up

Posted by Kelly Burke on Jun 21, 2019 11:40:37 AM

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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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Topics: Iran, Iran Sanctions, Straits of Hormuz

Markets Spike on Vessel Attacks near Strait of Hormuz

Posted by Kelly Burke on Jun 13, 2019 10:51:26 AM

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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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Topics: Straits of Hormuz, NYMEX

WTI Hits Lows on Inventory & Projection Data

Posted by Kelly Burke on Jun 12, 2019 3:45:37 PM

WTI Brent Crude Decline

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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Topics: EIA, WTI Crude, EIA Inventories, china

OPEC vs "NOPEC" Drama Pushes NYMEX Up

Posted by Kelly Burke on Apr 5, 2019 4:57:46 PM

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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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Topics: OPEC, NYMEX, saudi arabia, US Crude Production

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

Posted by Kelly Burke on Mar 27, 2019 3:28:14 PM

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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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Topics: US Distillate Demand, Gasoline demand drop, EIA Inventories, IMO 2020

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

Posted by Kelly Burke on Feb 13, 2019 3:44:43 PM

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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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Topics: OPEC, US Crude Production, Venezuela, PDVSA

Today's Takeaways from the EIA Short Term Energy Outlook

Posted by Kelly Burke on Jan 15, 2019 3:30:22 PM

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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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Topics: natural gas, EIA, WTI Crude, US Crude Production, Clean Energy

Crude Poised to End 2018 Down 20%

Posted by Kelly Burke on Dec 28, 2018 1:37:29 PM

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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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Topics: Market analysis, OPEC, US Crude Production

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