Busy morning starting at 7:30 A.M. Central with Exports Sales, Initial Jobless Claims and Producer Price Index (PPI). The weekly EIA Gas Storage will follow at 9:30 A.M. Also the European Central Bank (ECB) kept their Interest Rates in check and the U.S. dollar is continuing to gain ground after being in sell off mode. The Grains are a mixed bag of tricks with the three Wheat market spreads trading lower between Chicago, Kansas City and Minneapolis trading actively lower while Corn and Soybeans are trading higher at the moment. From here on out we will be trading weather, exports and yield predictions. In the overnight electronic session the September Corn is currently trading at 384 ½ which is 2 cents higher. The trading range has been 387 ½ to 380 ½.
On the Ethanol front the August contract is currently trading at 1.544 which is .004 of a cent higher. The trading range has been 1.544 to 1.531 with 11 contracts traded and Open Interest now lagging behind the September contract at 670 contracts. Expect rollovers to the September contract in the coming days.
On the Crude Oil front the August contract expires today so we will switch is focus to the September contract. Even though we had a technical close on the August contract yesterday above $47 a barrel which tends to point the market is on the road to getting back in balance settling at 4712. In the overnight electronic session the September contract is currently trading at 4755 which is 23 points higher. The trading range has been 4762 to 4714.
On the Natural Gas front the market is eyeing an already predicted active hurricane season. The Pacific is churning 5 storms in which has been categorized Tropical Storm Fernanda, Greg and Eight E while the Atlantic is quiet for now and has more impact on Oil Rigs and Shipping to bolster Energy prices. Today we also have the weekly EIA Gas Storage data and the Thomson Reuters poll of 23 analyst estimating builds anywhere from 21 Billion Cubic Feet (BCF) to 47 bcf compared to last week’s injection number of 57 bcf, the one year at 38 bcf and the five-year average of 59 bcf. In the overnight electronic session the August Natural Gas is currently trading at 3.079 which is .013 of a cent higher. The trading range has been 3.083 to 3.064.
— Dan Flynn
Energy Report: Oil supply falling and geo-political worries rising
Major oil draw and a Saudi Arabian coup? The Energy Information Administration (EIA) reported another major 4.727-million-barrel drawdown in crude supply even as US shale production rebounded last week causing US oil production to rise to 9.43 million barrels per day, up from 9.4 million barrels which puts it at a two-year high. We know that EU’s oil inventories are draining at a record rate, but it is not the only place where we see evidence of global rebalancing which helped oil close at a 6- week high.
In Saudi Arabia, a report showed that Saudi domestic oil stocks fell to just 259 million barrels at the end of May 2017, which was the lowest level since January 2012, according to updated figures published on Tuesday from Reuters. That would mark Saudi crude stocks declining 16 out of the last 19 months and a sure sign of global market rebalancing. Saudi crude exports to the US also declined, hitting the lowest level since 2015. If the Saudi’s follow through on their threat to cut their exports by another 1 million barrels, it would cause US oil inventors to plummet even father.
Shale oil production, as impressive as it is, would be no match for that magnitude of a cut and we would see the inventory glut disappear rather quickly. Shale producers, according to Reuters, have increased by almost 12 percent since mid-2016 to 9.4 million barrels per day (bpd) which has not been enough to stop the US crude and Saudi crude inventory drain game that is going to accelerate even as we are nearing so called seasonal peak demand for oil. And while we may see a pullback due do the seasonal drop in demand, a new commitment from OPEC against improving global demand should cause a price rise.
For shale producers, a price spike is desperately need because a lot of shale oil producers may be unhedged after the end of the year. Reuters reported that while most, though not all, shale producers have hedged the price of their output for the remainder of 2017, which gives them some protection in the short-term against the downturn. But very little production has been hedged so far for 2018. The current calendar strip means hedging is only possible for 2018 at a WTI price of around $47 – and many shale producers can’t make money at that level.
Gillian Rich at the IBD wrote that Continental Resources (CLR) CEO Harold Hamm as saying for shale $50 oil isn’t sustainable and that a drop below $40 would idle rigs. Rich points out that Baker Hughes reported the first drop in U.S. rig counts since January, and U.S. drillers only added two rigs last week in early warning signs of a shale pullback. The IBD says that even railroad companies are warning about a pullback on U.S. crude prices and production. During its quarterly conference call Wednesday, railroad operator CSX (CXS) said it has idled 26,000 rail cars as crude oil train shipments fell to zero. That’s right, zero.
Soon declining US oil supply in storage means we will be more sensitive to geo-political events that could impact oil flow. The market is coming to grips with the fact that Venezuela is on the verge of a collapse but could there be more risk of instability in Saudi Arabia that could blindside this market at some point? What some may describe as coup, what may have taken place in the Kingdom as the ascension of Crown Price Mohamed bin Salman may have not been as smooth and easy as thought. Reports by the Wall Street Journal suggest that former Crown Prince Mohammed bin Nayef was held against his will and forced to give up his position in an offer he could not refused. And while publicly he has kissed the ring, things may never be the same between the “House of Saud” and bin Nayef. The WSJ says that with Mohammed bin Salman’s elevation, Mohammed bin Nayef disappeared from public view.
Overnight some House of Saud royal family members were arrested. Arab News reported that Riyadh police have arrested a member of the Saudi royal family who abused citizens verbally and physically in a widely spread video that went viral over the past few days. The arrest came at the orders of Saudi King Salman who issued an immediate warrant for Prince Saud bin Abdulaziz bin Musaed bin Saud bin Abdulaziz Al Saud and the imprisonment of all those involved in abusive behavior towards citizens.
There have been other notable issues in Saudi Arabia. Oilprice reports two Saudi teachers are standing trial in Saudi Arabia on charges that they have allegedly spied for arch-rival Iran in gathering information about a 5-million-bpd oil pipeline for the purposes of planning to blow it up, Reuters reported on Wednesday, quoting two Saudi newspapers. According to the Makkah and Al Weeam newspapers, as carried by Reuters, the two men are charged with collecting information about the East-West Pipeline in Saudi Arabia, known as Petroline, which ships crude oil from the desert Kingdom’s eastern provinces to the Red Sea port of Yanbu, to be exported to North America and Europe. The Petroline can handle up to some 60 percent of Saudi Arabia’s total oil exports.
— Phil Flynn
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