Energy Market Updates

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 

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. 

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! 

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!

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!

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!  

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!

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. 

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

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