Yesterday we had very quiet trade in most of the commodity sectors as the Stock Market crept to another record high close. As China celebrated Mid-Autumn Festival we kick start the day with ISM Non-Manufacturing Index at 9:00 A.M. Central, EIA Energy Stocks at 9:30 A.M. and Dairy Product Sales at 2:00 P.M. As most investors slept through yesterday’s activity or more like non-activity we may see weather playing a larger role while farmers are rolling in harvest and rains in the forecast and early winter taunt us with snows in Colorado and Montana pushing across the Plains and may target the Mid-West. In the overnight electronic session the December Corn is currently trading at 348 ½ which is 1 cent lower. The trading range has been 349 ½ to 348 ¼.
On the Ethanol front there were no trades posted in the overnight electronic session. The November contract settled at 1.452 and is currently showing 3 bids @ 1.443 and 1 offer @ 1.454 with Open Interest at 1,155 contracts.
On the Crude Oil front last night’s API Energy Stocks showed Crude Oil stocks down 4.079 million barrels while Cushing, Oklahoma showed builds of 2.084 million barrels, Gasoline Stocks up 4.19 million barrels and Distillates down 584 thousand barrels. This market seems to be treading water as we wait for this morning’s EIA Energy Stocks which could paint a picture of larger draws. In the overnight electronic session the November Crude Oil is currently trading at 5029 which is 13 points lower. The trading range has been 5034 to 4991.
On the Natural Gas front the November contract is currently trading at 2.910 which is 1 ½ of a cent higher. The trading range has been 2.924 to 2.898. While in shoulder season we could experience a weather market shortly that will boost demand while producer’s are producing less at these price levels and could ignite a rally.
— Daniel Flynn
The Energy Report: Full tank
Gasoline versus oil supply is one reason the petroleum markets are struggling. A full gasoline tank as far as supply goes is overshadowing the big crude oil supply draw. Oil prices are under pressure after the American Petroleum Institute (API) showed a surprisingly large 4.19-million-barrel increase in gasoline supply. The build in supply is rising concern that recent strong almost record gasoline demand may be cooling off. Still a large drop in overall crude supply is lending support. The API reported a big 4.079 million barrels drop in crude supply that would normally offset the gas number which should, at this time of year, build in Cushing Oklahoma, the WTI delivery point increased by a whopping 2.084 million barrels. The mixed signals are keeping the traders on guard. Future pressure on oil is being felt as Libya’s Sharara oilfield restarted on Wednesday after being shut Sunday that was producing about 220,000 barrels of light sweet crude.
Yet a drop-in distillate supply of 584,000 barrels still shows that refiners will have to do more to build those supplies before winter. As refiner’s max out diesel, we may see less gasoline produced. Product production numbers will be viewed closely in today’s Energy Information Administration (EIA) report.
Traders will also look to the EIA for oil production numbers that have been coming under great scrutiny by some market players. The EIA reports U.S. production at 9.55 million barrels a day, that was less than they previously forecasted and still too high according to some shale producers. As reported previously, by Bloomberg and Fox Business Network, Harold Hamm the chairman of Continental Resources Inc, says that the EIA forecasts on oil production are wrong and adversely impacting the price of oil. Hamm says the EIA prediction of more than 1 million new barrels a day in U.S. production, is wrong and is distorting global oil prices. He says that U.S. production will only rise half of what they have been projecting. Hamm says that “When we’re lagging the Brent world price by $6 a barrel, that’s not putting America first, that’s putting America last.
We are steadfast in our prediction that the global oil market is rebalancing. Reports of tightening global oil and product inventory should allow this market to stand tall to normal seasonal weakness. Still we may have to use some defensive strategies in the short term to overcome some short term negative bias. Despite reports of rising OPEC put non-Opec compliance to cuts is the highest it’s ever been. OPEC compliance over the length of the agreement is also the best it’s ever been.
Reuters reports that “The leaders of Saudi Arabia and Russia, the world’s biggest oil exporters, are expected to discuss cooperation on oil production and differences over Syria and Iran on Thursday during the first visit to Moscow by a reigning Saudi Monarch. A slew of investment deals, including on a liquefied natural gas project and petrochemical plants, could also be signed during King Salman’s trip and plans for a $1-billion fund to invest in energy projects are likely to be finalized. The visit, including talks in the Kremlin with President Vladimir Putin, reflects a rapid deepening of ties between Russia and Saudi Arabia, driven by a mutual need to stem a drop in global oil prices.”
Andrew Weissman, of EBW AnalyticsGroup, reports that the November 2017 natural gas contract reached a 16-month low as spot market demand plunged 5.3 Bcf/d week-over-week—pulling cash market prices to as low as $2.72/MMBtu on Tuesday. It remains uncertain when sufficient support will materialize to prevent additional declines, but a further slide cannot be ruled out. The next two EIA Weekly Storage Reports, however, are projected to wipe out the existing storage surplus vs. the five-year average, providing support for NYMEX natural gas futures. At Tuesday’s gas closing prices, the storage deficit vs. the five-year average may approach 200 Bcf by the end of the year in WDT’s most-likely weather scenario—despite rampant Lower 48 production growth.
— Phil Flynn
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