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

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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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Topics: OPEC, WTI Crude, EIA Inventories, Coronavirus

US-China Trade Deal Keeps Markets Range Bound

Posted by Kelly Burke on Jan 16, 2020 3:05:48 PM

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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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Topics: EIA Inventories, china, US-China Trade Deal, Trump Administration

Inventories & Rumored OPEC+ Cuts Boost Oil Prices

Posted by Kelly Burke on Dec 4, 2019 3:50:58 PM

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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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Topics: OPEC, EIA Inventories

Mixed Market Week on Same Old Concerns

Posted by Kelly Burke on Nov 22, 2019 3:27:27 PM

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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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Topics: OPEC, NYMEX, EIA Inventories, china, tariff

Supply vs. Demand Concerns Temper Early Gains

Posted by Kelly Burke on Nov 14, 2019 3:27:29 PM

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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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Topics: OPEC, EIA Inventories, shale, US Crude Production

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

Posted by Kelly Burke on Nov 6, 2019 3:27:17 PM

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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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Topics: OPEC, EIA Inventories

Talk of Easing Iran Sanctions Trumps Crude Draws

Posted by Kelly Burke on Sep 11, 2019 3:36:58 PM

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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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Topics: Iran Sanctions, OPEC, EIA Inventories

NYMEX Drops Again on EIA Data

Posted by Kelly Burke on Aug 7, 2019 3:27:57 PM

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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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Topics: weekly inventory numbers, Chinese Currency, EIA Inventories

Inventories & Gulf Storm threat push NYMEX higher

Posted by Kelly Burke on Jul 10, 2019 2:54:12 PM

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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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Topics: OPEC, Crude draws, EIA Inventories

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