Markets Rebound After Thursday's Slide

Posted by Kelly Burke on Aug 2, 2019 3:54:34 PM

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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!

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Topics: economic data, US Crude Production, tariff

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

Today's Takeaways from the EIA Short Term Energy Outlook

Posted by Kelly Burke on Jan 15, 2019 3:30:22 PM

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The US Energy Information Association - EIA - is out today with the Short Term Energy Outlook report with projections for 2019 & 2020.

Here are what I think are the major takeaways:

  • 2019 Price forecast for Crude oil - $61/bbl Brent, $53-57/bbl WTI. The Brent average for 2018 was $71/bbl, so we are expecting to continue to downward overall trend in pricing. 
  • 2019 Projected retail gas price - $2.47 (Down from 2018 average of $2.73) 
  • US Crude Production hit a high in 2018 - it is expected to continue to accelerate from the current level through 2019 & 2020. Over the next 2 years, experts expect an increase of over 1.5 million barrels per day. 
  • US Importing of crude & refined products is expected to continue to decline. Although we temporarily saw the US become a net exporter in 2018, the actual average per day imported was around 2 million barrels. That's expected to decline to 1mmb/d for 2019 and a shocking 0.1 mmb/d per day in 2020. (You read that right - .01, amazing)
  • US (Dry) Natural Gas production is expected to jump from 83 bcf per day in 2018 to 90 in 2019. 
  • Global Inventories are expected to continue to increase.  
  • On the clean energy front, coal's role in electrical production continues to decline over the next 2 years. Hydropower's share of generation is projected to remain stable. Wind power electrical generation is expected to outpace hydropower for the first time ever in 2019.
  • Carbon emissions are projected to decline 1.2% in 2019 as well, and a little under 1% for 2020 as it stands now. 

 

Long story short - expect more production, more inventory, lower prices, continued progress and growth on cleaner energy and a decline in carbon emissions - all at the same time. Happy 2019!  

 

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Topics: natural gas, EIA, WTI Crude, US Crude Production, Clean Energy

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

EIA Projections for 2015 & 2016 Released Today

Posted by Kelly Burke on Jun 9, 2015 3:05:31 PM

Line charts depicting the stock market scattered on a table

The EIA released its Short Term Energy Outlook today with its projections for both Crude prices and US Crude Oil production through 2016. It also projects where we will be on retail gasoline, natural gas storage, and electricity for 2015 & 2016.

In a nutshell, the outlook is as follows:

  • Brent is expected to average $61/bbl for 2015 and $67/bbl in 2016. The prior projected price for Brent in 2016 was $70/bbl
  • WTI is also forecast to drop about $3 dollars from the prior projection level for 2016. It forecasts WTI for 2015 to be up about a dollar higher than prior projections (up to $55.35/bbl)
  • Crude production is expected to dwindle slightly through early 2016, but the total projected volumes were revised up slightly - the new projected numbers are 9.4mmbpd in 2015 and 9.3mmbpd in 2016
  • Natural gas injections are expected to continue to climbing over their historic highs through 2016.
  • Retail gasoline is expected to decline slightly through the end of the year, backing off its current yearly high. 
  • Additionally, for consumers, the EIA is projecting an almost 5% increase in electricity bills for this summer season.

Other mentions of note, Brent saw its highest monthly average of 2015 in May, a $5 jump over its April average price. Retail gasoline also hit its high for the year in May. All of this despite inventory builds and OPEC production levels remaining at highs. 

The EIA Inventory Report publishes tommorow morning, we'll have to see how that impacts the NYMEX. Hopefully its an easier day than today, where we saw ULSD jump up .0631 to settle at 1.9179, and RBOB jumped .0696 to 2.0771 at the close. 

Stay tuned!

 

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Topics: natural gas, EIA, Brent Crude, WTI Crude, retail gasoline, US Crude Production

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