Double Hurricane Threat Spikes Markets

Posted by Kelly Burke on Aug 24, 2020 3:07:47 PM

Hurricane Laura & Marcos

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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Topics: EIA Inventories, Coronavirus, hurricane Laura, hurricane marcos

Oil & Stock Markets Plummeting on Trump Travel Ban

Posted by Kelly Burke on Mar 12, 2020 10:44:16 AM

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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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Topics: WTI Crude, stock market, Trump Administration, Coronavirus

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

Posted by Kelly Burke on Mar 9, 2020 4:13:04 PM

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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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Topics: OPEC, russia, stock market, saudi arabia, Coronavirus

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

Posted by Kelly Burke on Mar 6, 2020 5:00:46 PM

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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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Topics: OPEC, WTI Crude, stock market, Coronavirus

Markets Up on OPEC+ Hope and Coronavirus Slowdown

Posted by Kelly Burke on Feb 12, 2020 3:18:21 PM

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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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Topics: OPEC, WTI Crude, EIA Inventories, china, Coronavirus

Crude drops 15% in January

Posted by Kelly Burke on Jan 31, 2020 3:32:02 PM

oil chalkboard

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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Topics: OPEC, WTI Crude, EIA Inventories, Coronavirus

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