NYMEX Plunges on Fed Rates, Supply, Tariff Tweets

Posted by Kelly Burke on Aug 1, 2019 2:58:38 PM

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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. 

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Topics: OPEC, FED rates, tariff

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

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

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

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

OPEC+ Production Agreement Spikes NYMEX

Posted by Kelly Burke on Dec 7, 2018 12:22:50 PM

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OPEC, as well as the so called "OPEC+" partners have reached a tentative agreement on production cuts, causing the oil market to spike Friday. The cuts reportedly amount to 800,000 bpd on OPEC's part, and an additional 400,000 bpd (combined) from allied nations, including Russia. No specific cuts by country were committed to, or at least they were not confirmed in statements. 

The agreement reached purportedly contains "special considerations" for Venezuela, Libya and Iran. These 3 nations have been up and down in terms of supply levels as a result of domestic turmoil, and their revenue concerns obviously differ from those of nations like Saudi Arabia, so concessions for their agreement presumably needed to be made to get the deal done. No word yet on precisely what those concessions are.  

This morning the market was up 5% on Brent Crude, and 4% on WTI shortly after the open. At time of writing,(noon) both RBOB and Diesel are up almost 7 cents. 

What's interesting about the spike today is that the tentatively agreed to cuts are right in line with what analysts expected to see (estimates were 1-1.5mmb, and the agreement came in at 1.2), which should have meant it was already "priced in" but Wednesday & Thursdays' markets don't bear out that assumption. 

Time will tell if this particular OPEC related jump is temporary & speculative, as they often are, or if the production cut agreement will have its intended goal of propping crude at desired benchmarks and holding up the increases going forward. 

Stay Tuned! 

 

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Topics: OPEC

OPEC Concerns Trump EIA Numbers to Drop Crude Prices

Posted by Kelly Burke on Nov 29, 2017 3:32:04 PM

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Oil was down today as the market weighed out OPEC speculation on one hand, and a drop in US Crude inventories on the other.

OPEC concerns seem to have won the day, given the drop in the face of an EIA report indicating a 3.4mmb drop (projections were 2.3mmb drop), some of which is presumably attributable to the Keystone pipeline leak & subsequent supply diversions.

Refined products showed builds of 2.7mmb on distillates, 3.6 mmb on gas. (projections were 230K and 1.3mmb, respectively).

OPEC is set to meet tommorow (Thursday) in Vienna to discuss extending production cuts through the end of 2018. 

The current deal keeps 1.8mmb/day off the global markets via production cuts, and is set to expire in March but a new agreement would extend it through December. The running assumption was that it would be a no brainer to extend, but surprise, surprise, a few days out from the meeting and Russia had not yet agreed on anything. Thoughts are they may argue for a shorter agreement or push for renegotiation closer to the March expiration.

What does this all mean?

The assumption in the market currently has been that the OPEC deal extension is essentially "priced in" already. What that means is that failing a 9 month extension, we could see the recent gains evaporate rather quickly and see crude prices dip, with WTI falling back at or below the $50 benchmark, or even lower than that if there is no deal at all. 

From OPEC/Russia's side of the aisle, an agreement on production cut extension to bolster pricing may be met with continued increase in US domestic production, which could both offset gains and damage their market share in the long view. That position is somewhat supported by rebounding US production levels & refinery utilization rates. 

Last week we saw WTI close out at a high of $58.02, but it has receeded over the past few sessions, closing today out at $57.30. ULSD & RBOB tumbled today as well, with ULSD dropping .0286 to 1.9221 and RBOB dropping .0411 to 1.7309. 

Stay tuned!

 

 

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Topics: CRUDE, OPEC, NYMEX, EIA Inventories

2017s Largest Rally Hits on OPEC & US Production Projections

Posted by Kelly Burke on Jul 25, 2017 3:45:14 PM

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Today saw oil prices have the biggest one day rally of 2017 thus far, with WTI Crude surging up 3.3% ($1.55) to settle out at $47.89/bbl. Likewise, refined products surged, with ULSD jumping over 5 cents (+.0516) to 1.5685, and gasoline jumped +.0394 to settle at 1.5962.

So whats going on?

On the global news front, at an OPEC gathering in Russia on Monday, Saudi Arabia pledged to cut Crude exports beginning in August, and Nigeria stated it will cap its production at 1.8 million barrels per day. (WTI closed out up 1.3% at $46.34 on the day Monday immediately following the news. ULSD settled up as well but by a mere 17 points to $1.5169, while gasoline dropped 65 points to close out at $1.5568.)

An important note pointed out by Market Watch regarding the OPEC news, however - its not unusual for the Saudis to drop exports this time of year, and the "cuts" promised by Nigeria are actually at levels higher than they are producing at the moment (they will cap at 1.8mmb and they are currently producing 1.6mmb) so its likely that this news was another somewhat nothing-to-it story out of OPEC that caused a (presumably temporary) jump on the NYMEX, as most OPEC meetings seem to do. 

Today was likely impacted more from domestic news and forecasts than the OPEC news of yesterday. Cuts are looming in the Oil & Gas sector in the U.S., which signals an oncoming slow down in domestic output. Anadarko, one the nations leading oil & gas exploration companies cut investment guidance by $300 million for 2017 after posting losses for the second quarter of over $415 million, or roughly twice estimates. Add this to Halliburton's forecasts for flat to declining rig counts, and projected crude draws on this weeks EIA reporting and you had the perfect storm in place for todays rally. 

 

 

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Topics: CRUDE, OPEC, anadarko

U.S. Inventory Projections Slow Today's NYMEX Losses

Posted by Kelly Burke on May 31, 2017 3:17:20 PM

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The oil markets were down sharply this morning on increasing cynicism that, essentially, global supply will not be driven down sufficiently by either OPEC or "non-cartel" producer production caps, or the summer driving season in the U.S. being upon us (despite the weather here in Boston, technically yes, its summer driving season). 

It would seem that the prior rally was a knee jerk reaction to what basically amounted to a baseless hope that somehow OPEC and other producers would be setting limits that actually addressed the ongoing supply glut, and therefore the lackluster pricing. It was unlikely that would be the case, given that the prior meetings we have seen, despite the hoopla, have also failed to address supply in a meaningful way. 

Despite promising to address the fundamentals involved, we've actually seen some ramp up in production on the part of Libya, Nigeria and Iran - none of which had any sort of ceiling placed on them at the recent gathering. 

We often talk about other countries production as being an unpredictable factor in global pricing & supply, however, it's worth noting that U.S. production has ramped back up substantially as well. Current production is around 9.3 million barrels a day (up over 6% from this time last year) and on the rise.Given this, it's not likely we will see OPEC seriously curb their levels, particularly the Saudi's, as the concern over U.S. encroachment on their market share has been inarguably a major driving factor in the current glut and its failure to resolve. Saudi Arabia has been beyond clear that they are prepared to hunker down and withstand whatever price declines are necessary for market share retention, particularly as concerns the U.S. At this point, it's pretty clear they are not bluffing about that. 

Anyhow - Today, unlike last Thursday's wild plunge,has pared losses as the day goes on, while investors factor in the near term projections on U.S. supply reports (due out tommorow, thanks to the holiday) versus the overall global supply picture.

Platts is projecting a draw down of 3.2 million barrels of crude on tommorow's reports, which would be the 8th week in a row, and definitely helped to stem the bleeding today on the NYMEX by close.

At the close we ended out with Crude at $48.32/bbl, July ULSD at 1.5179 (-.0356) and July Gas at 1.5965 (-0278). 

Stay tuned! 

 

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Topics: OPEC, NYMEX, EIA Inventories

Benchmarks & OPEC & Hurricanes, Oh My

Posted by Kelly Burke on Oct 6, 2016 4:33:46 PM

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Crude closed out today at over $50 ($50.44 to be exact) which is the highest close we've seen since June. ULSD closed up .0135 to $1.5958 and RBOB ended up .0050 at $1.4978.

This week the NYMEX has ticked up steadily on all products, holding firm since OPEC announced they had a tentative agreement in Algiers, despite said agreement not being formalized in any way.

Additionally, this weeks EIA inventory report indicated more product draws as well, which pumped prices almost 2% Wednesday. Analysts had projected builds, but the governments official reporting showed US Crude stockpiles dropped 3 million barrels versus the expected a 2.5 million barrel build forecast by industry projections. 

Despite OPEC chatter and EIA draws, its entirely possible we have already seen an outsized pricing build up on commodities, given that the global demand picture is not an overly rosy one, and supply is not in any way guaranteed to either stabilize or drop anytime in the near future - with or without an OPEC agreement. 

Today (and probably tommorow) whats trending in the news is Hurricane Matthew, which is roaring up the East Coast of Florida currently as a category 4 storm, and would be the strongest hurricane to make landfall in the US in about a decade if it should touch down at its current intensity.

We're hearing reports of local gas outages in the Southeast, as residents flee the coastal areas on the advice of Florida governmer Rick Scott and President Obama. However, given that as its currently tracking, Hurricane Matthew is East Coast centered, versus hitting the Gulf, national or regional supply outages are not anticipated. Obviously all of that could change essentially instantaneously however, and we will let you know what we do, as soon as we do, if there are new relevant developments.

 Stay tuned!

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Topics: OPEC, $50 benchmark, hurricane MAtthew

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