Energy Market Updates

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! 

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!

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!

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).

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.   

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. 

(Image Credit: EIA.gov)