Energy Market Updates

On Wednesday, OPEC countries made a surprise agreement to cap production at 32.5-33 million BPD at their meeting in Algiers (if you’re keeping score at home, current production is about 33.24mmb.. insert yawn here, in other words). This marked the first deal since 2008, largely on account of Saudi-Iranian tensions – more on that later. Oil spiked on the news before backing off slightly over the remainder of the week.

Wednesday saw Brent and WTI both surge up over 5% (5.9 and 5.3, respectively). Wednesday ended the day up across the board, with refined products ULSD and RBOB both up over 8 cents on the day (ULSD $1.4910; RBOB $1.4777) and WTI closed out at $47.05/bbl.

Analysts are projecting that the OPEC “deal” could add up to $10/bbl to the price of oil. However it is worth noting that there is a reason we put “deal” in quotes – as we have seen previously OPEC is not shy on talking up oil prices, but when it comes to an across the board agreement and even more importantly, ACTION, on said agreements, the jury is still out. Watch for the ongoing standoff slash game of chicken between the Iranians and the Saudi’s to likely cause this so called deal to amount to little more than a few days of upward trending on the screen versus actual, actionable changes to the fundamental supply glut we still find ourselves in.

Thursday saw prices continue to climb on distillates, although in a much less drastic fashion as bigger picture doubts about the OPEC deal set in – these were somewhat offset by another draw down in U.S. inventory levels, however, and as a result we saw ULSD gain $0.0192 to close out at $1.5102, RBOB dropped $0.0109 to close out at $1.4668, while Crude settled relatively flatly at $47.83.

The EIA report Thursday indicated a 1.9mmb draw down in commercial crude inventories, more than double the API’s projection of a 752K draw, and the fourth draw down in as many weeks. Distillates mirrored crude, also drawing down 1.9mmb, but gasoline saw a build of 2 million barrels to buck the trend.  The timing worked out well on the inventory draws as far as price stability is concerned, given that by the hour the hope for the OPEC agreement amounting to actual supply cuts fades.

Despite the clear incentive for Riyadh and Tehran to bolster their economies and Thursday’s announcement by the Saudis that they are willing to cap production, it’s almost unimaginable that Iran agrees to cuts post sanction lifting, as has been the case for the past several months.

Today we saw October trading expire (doesn’t seem possible!) and November trading kept products range bound with WTI closing out at $48.24, up against yesterday’s number. ULSD closed up as well, settling up $0.0281 for November trading at $1.5383, with gasoline again bucking the trend and settling down 37 points to $1.4631.

We ought to in theory see either movement on OPEC next week, or see the market shed the bump in pricing. Longer term, it will be interesting to see how things settle out over the next few weeks as we start heading towards the winter and heating oil season – hopefully a colder one than last year’s, at least up here in the Northeast.  

Stay Tuned!

In a suprise move today, the oil minister of Iran stated that Iran would support the effort by OPEC and non-OPEC countries to stabilize the oil market and oil prices. The now-confirmed rumor that the Saudis and Russians were amenable to agreeing on a production ceiling has been circulating for a while, and served to briefly prop prices Tuesday - but the lack of a solid agreement, and the assumption that Iran would not cooperate had backed prices off their intraday highs. 

Today however, was another story entirely. After the Iranian minister announced the intent to cooperate, we saw WTI surge nearly 6% to once again close above the $30 dollar mark at $30.66 - quite a reversal in a short time when you consider that just last Thursday we saw WTI's lowest close since 2003 ($26.21/bbl)! 

ULSD and RBOB came along for the ride today as well, with ULSD jumping over 6 cents to $1.0879, and gasoline closed up over $1 again (barely) at $1.0034, a gain of over 3 cents on the day. Gasoline has been dancing around slightly under the $1 mark over the past week or so, with the exception of Friday's rally where it jumped over 10 cents to $1.0432.

It's difficult to determine if the nebulous "agreement to have an agreement" on the table with OPEC and other producers will sustain a longer term rally. Even if there is an agreement, it isn't clear just how much of a rally it will bolster long term, since the production ceiling sets production at January levels (read: unsustainably high for higher prices levels), it doesnt actually drop production.

That said, Iran not ramping up production will likely help matters in terms of at least mitigating some of what has been ever-increasing supply. Another concern though, should prices stabilize at higher levels - what impact does that have on rig counts and U.S. production? Although dropping rig counts have not proven to be the bullish signal they would normally be, a rising rig count could be a bearish symbol should the market stabilize around the $40/bbl mark, in my opinion, as it may signal the U.S. kicking over the first domino and restarting the game of chicken for "market share by means of over production" the major producing nations have been playing for the past year and a half.  

Time will tell. EIA numbers are not out until Friday this week because of the holiday - it will be interesting to see what impacts they have in the face of a possibly changing global supply picture. 

Stay tuned!

Another day, another price drop.

Both Brent and WTI Crude have shed about 10% of their value over the past two weeks, and those losses continued today.

Today, front month (December) WTI dropped from Friday’s $44.60 to $43.98, while front month (November) ULSD dropped from 1.4544 to 1.4259 (-.0285) and RBOB dropped (-.0157) from 1.3036 to 1.2879.

WTI Crude is continuing to show an ever widening contango, with front month discounts at a 5 month high and still going. 

What’s behind it? Supply, supply, and more supply, with an added kick of above average temperatures for the season and a forecasted lighter winter.

Despite the fact that US rig counts have dropped to their lowest level since 2010, supply just simply has not slowed down enough domestically - US Crude is up 5% in just the past 4 weeks, to the highest level we’ve seen this time of year since the 1930s. And as we’ve covered extensively, OPEC output remains at sustained high levels abroad.

As an aside - we talk a lot about the supply glut in reference to Crude, but it’s becoming a serious issue on refined products and Natural Gas as well. There is fear in Europe about refined products, specifically diesel, hitting “tank tops” – in other words the supply hitting or exceeding maximum storage capacity.

Although it’s not likely tank tops will actually be hit, the fact that the concern exists speaks to the level of over supply we are looking at. (According to Reuters, aforementioned stockpiles of refined products are resulting in diesel and jetfuel cargoes taking longer routes and backing up outside of European ports.)

Natural Gas has been plummeting as well, and today NYMEX Nat Gas saw its largest single day drop since February of 2014. It dropped almost 10% on the winter forecast and supply gluts, the same concerns that have been pummeling Crude. Natural Gas, like WTI, is in contango at present, and there is no real indication it will reverse course any time soon.

To add some gasoline to the fire (pun very much intended) – Goldman Sachs today warned that it expected downward pressure on oil and distillates through Spring 2016 based on supply and weather forecasts, while other analysts proclaimed Natural Gas would be facing the same issue, with concern about capacity max outs and no foreseeable reason it should have the price spike we almost always see as we round into the winter months.

Who wants to bet on how those announcements impact trading tomorrow?

Crude prices are on track to be down around 5% on the week. There were some initial jumps this morning on hope that the newly announced Chinese Stimulus Package could ramp up demand. Prices reversed sharply and quickly, however, as the dollar continues to crush other currencies, which almost universally sends commodities in general on a slide. 

On Wednesday prices touched near 3 week lows on the EIA reporting yet another gain in US Inventories, despite our being into the typical "slow down" phase, when refineries go offline for maintainance, and despite continuing drops in rig counts (and therefore a theoretical drop in production).

Also, on Wednesday morning we still had a sliver of hope that the OPEC meeting would come out with supply cuts - nope, wrong again. Now we will have to wait until the December 4th policy meeting of OPEC to know for sure if there will be supply cuts, but it seems extremely unlikely to most-  as the Saudi's have demonstrated, their main goal is market share retention, and they seem to accept that the crumbling economies of other oil producing countries is essentially a cost of doing business (much to the chagrin of those countries).

However, Bloomberg and others are reporting that the low pricing is starting to hurt for Saudi Arabia as well, as reportedly they have deferred payments to government contractors as the country begins to slide into a deficit. (Excellent read on MarketWatch on the subject here: "Will fiscal pain of low prices force Saudi Arabia's hand ). 

Thursday saw a quick reversal, but again, that's history now on the back of the dollar. The European Central Bank stated they are looking at "options" for economic stimulus for the Eurozone, which thus far has only really pushed the euro lower versus the dollar, and weighed on Crude and other commodities. 

At the close today, WTI settled the week at 44.60, and Brent at 48.02. (ULSD closed down -.0106 on the day to 1.4544 and RBOB was down slightly by -.0031 to 1.3036)

WTI dropped 2.8% today to close out at $44.43 a barrel, while Brent closed out down 2.5% . On the refined products side of the NYMEX, ULSD and Gas both took a pummeling as well, with both down over 4 on the day. To be exact, ULSD closed out down (-.0453) to 1.4772 and RBOB closed down (-.0471) to 1.3488.

So whats going on?

For one, the news from China today was that industrial companies there have seen profits plummet at a faster level than they have in four years, resparking speculation that China's economy is really struggling a lot more than everyone has been assuming. As previously discussed, Chinese economic data is such a huge indicator because they are a top commodities consumer, and strong economic data from China is basically what traders and analysts are "hanging their hat on" as a potential for growing demand to stave off the price crushing effects of the oil glut.

The IMF Managing Director also announced today that although the economy was still recovering from the recession, the pace had decelerated, and the 3.3-3.8 GDP goals for 2015 & 2016 were now "unrealistic". This in combo with the bleak Chinese data pushed crude down quickly both overseas and domestically. 

In related news, Shell announced today that they will be pulling out of Arctic drilling exploration in Alaska. This is primarily a result of the sustained drop in oil prices, and follows a growing trend industry-wide. Over half of American rigs have been decomissioned, and investment into new oil sands projects and new gulf drilling projects has dropped substantially.

Simply put, theres just too much oil out there now to invest huge sums of money into procuring even more of it.  

Wall Street took a beating today as well on Chinese data, the IMF remarks, and continued rumor milling over the timing of the Fed Rate hike. The president of the NY Fed suggested it could happen as soon as October, where others have speculated December was the likely target date. So once again, Fed talks and the resultant speculation, combined with some more "surprise" bleak economic data hammered stocks today - which is starting to seem like a standing headline at this point. 

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!

Today we saw some reversals in the abject panic selloffs we saw Friday and especially Monday. (Click here to recap Friday)

First, lets recap Monday's insanity:

Monday saw WTI tumble another 5.5% to close out below $40 to $38.24 for October delivery. Brent fell in tandem, about 6% to settle out at $42.69 for October delivery. 

We saw stocks extend losses as well - shortly after Monday's open, the Dow was down an unprecedented 1,000 points, it ended up bouncing around and settling down 588 points on the day. Monday saw the S&P in full correction mode for the first time since 2011, as was the Nasdaq,  and it was the Dow's worst performing day since 2011 as well. 

What happened? Essentially everyone is in full on panic mode in terms of selling off. Panic over Chinese economic data gave us Friday's plummet, and then The Shanghai index was down 8.5% Monday which kept the selling right on going. 

This morning we're seeing some rebounding on stocks as well as commodities, after the Chinese made a surprise interest rate cut in an attempt to stem the bleeding. It's uncertain if this is really inspiring confidence in investors, or we're just seeing the infamous "dead cat bounce" that often accompanies several days of heavy losses. Time will tell. 

As of 3pm, the markets are all positive on the day - a trend unlikely to reverse before the close... but, perhaps not likely to continue through the week either. 

On the commodities side, Crude rebounded this morning somewhat, finally settling out in positive territory from yesterday at $39.31.

ULSD and RBOB have gone back and forth from positive to negative throughout the trading day, but at the close, diesel was essentially flat (+.0023) at $1.3952, and RBOB was down -.0324 to $1.4386.

Don't forget that the EIA Inventories come out in the morning as well, which could impact how the markets shake out tommorow. 

Stay Tuned!

WTI crashed below the $40 level this afternoon in trading, and clung right to the $40 line at the close, settling at $40.45. (ULSD was off -.0556 to $1.4624, and RBOB dropped -.0143 to $1.5449)

As discussed yesterday, domestic inventories going up pushed prices down towards $40. Today Baker Hughes announced more rigs going back online, for the fifth week in a row, which seems to be the proverbial straw that broke the camel’s back.

Stocks haven’t taken the news easy, either. US stocks hit their lowest point in a year, on oil price panic and deepening fears about the Chinese economy. The Dow Jones was down over 450 points as of 3:30pm – and over 530 points at the close. The bad news is that makes it in official “correction” territory which could further more panic selling on Monday. The S&P was down over 2% this afternoon - which pales in comparison to the market in China which dropped over 4%. Long story short, everyone’s stock positions got hammered today.

Another factor of a quick price drop on oil like we’ve seen since last June that is rarely discussed is the impact on jobs. This is kind of another anvil hanging over the economy’s head that could drop if oil gets to a critical low price. According to The Guardian's reporting, close to a quarter million people globally have lost their oil and petroleum related jobs, including approximately 35,000 in the US. Shell announced this week that it would lay off 6500 employees worldwide. Then there’s the financial cost. Their article on this portion of the equation is fantastic and thorough, you can read it here: The Guardian

Earlier this month we saw Venezuela and others pushing for an OPEC meeting to discuss changing supply to offset the crushing blow to their economies that the continued low pricing has been having. Yesterday, according to Reuters and the Wall Street Journal, the Algerian Oil Minister sent a letter to OPEC arguing the price has dropped significantly since they agreed on production levels, and is pushing for another meeting to reassess. So far, Saudi Arabia et al have stood firm, but it may be that they are forced to reverse at some price level as-yet-undetermined.  (You can read about that letter and OPEC in depth here: WSJ )

Hopefully we have some better news tomorrow - but it doesn't look good out there, folks. 

Oil prices are continuing their tumble - and it doesn't look likely they'll rebound in any significant way any time soon.

Wednesday's EIA Inventory Report showed a Crude build of 2.6mmb, bringing US Crude stockpiles to 456.2mmb. Analysts had forecast (hoped for?) a decline of 1.2-2.3mmb, depending on which group you looked at. 

Wednesday's trading saw WTI plunge 4% to below $41/bbl  - the lowest it's been in over 6 years. It settled out at $40.80 for September, and $41.27 for October. Brent lost 3.4% as well to settle at $47.16 for October.

$40 is a fairly significant benchmark, both psychologically and because it touches on production cost for some producers, which means it becomes essentially unprofitable to produce if oil goes any cheaper than $40. 

WTI may bounce some today as September trading closes out, but with refineries going offline in the fall for scheduled maintenance and no reason to think Crude stockpiles will suddenly plummet - it's likely that the decline will continue further. The only real question is what the bottom will be. 

Additionally, the pending Iran Nuclear deal if approved (which is essentially guaranteed) would lift sanctions in Iran, which would allow them to export more oil. They currently export around 1 million barrels per day from their 2.7 million barrel production. Reports say they are capable of about 4 million barrels of production, but its unclear how much of that they would be capable of exporting. 

Regardless, the EIA has revised its projection for oil prices throughout 2015. The new numbers put WTI at below $50 dollars ($49) for the remainder of the year, and only project WTI at $54 for 2016. EIA also cautioned that the numbers may be revised again, depending on Iran's ability to put new oil produced up for export. 

OPEC has maintained they will not be reducing supply regardless of the slide - it remains to be seen whether they reverse that stance if oil continues well below the $40, or even $30 dollar benchmarks as some think it may. 

Back to today- US stocks are getting crushed from fears about oil prices and the lack of foreseeable demand increases, the Chinese economy, and employment. The most recent jobs report showed an increase in unemployment claims - the fourth week in a row it both increased and beat estimates of how much it would increase. Unemployment ticking up, and the Fed signaling that the economy may not be strong enough to withstand an interest rate increase yet (according to their recent meeting notes) have for obvious reasons, not inspired confidence. 

Stay Tuned!

#TBT - It's hard to believe it but just about exactly a year ago, we were still looking at Crude oil that was dancing around the old $100 "new normal" benchmark.

Front month trading in August of last year  saw WTI for September at $96.07 (August 20th), with a 52 week high of $106.64 and a 52 week low of $89.09.

Yesterday front month Brent closed at $49.66 and WTI settled at $43.30.  The 52 week high for WTI as of today is $92.31, and the 52 week low is $42.07 - however, today's trading looks like it may break that low.

Trading in July for front month August was over $100/bbl. 

From June 2014 to December 2014, Crude dropped over 40% from its highs (and continued to slide in 2015). 

You can view the drop in interactive chart form by clicking here.

Where do you think the bottom is?

(Also, if you want a recap of some of the major events affecting pricing since the slide began, you can read up on them here:

Greece Nears Default, sends Commodity Prices Reeling - June 2015

Oil Slides on Economic Data - August 2015  )