This morning with start off the day with 4th Quarter GDP at 7:30 A.M. Central, Chicago PMI at 9:00 A.M., EIA Energy Stocks at 9:30 A.M. and Dairy Product Sales at 2:00 P.M.
Ethan Warrick Editor wit Wealth authority, wrote a story that China the Asian Superpower has emerged as one of the top trading partners in U.S. agricultural sector. According to the U.S. Department of Agriculture, China represents the top Soybean importer and buys more than half of all Soybeans grown by Americans. The figure for 2016 was a whopping 14.2 billion, with American coarse Grain hitting 1 1 billion. Paul Burke with the U.S. Soybean Export Council reportedly mentioned, “If there are increased trade tensions, Soybeans could likely be a potential target in any Chinese retaliation.” Tariffs aside this would be the wrong year to switch their business to South America with the Argentine drought. Today is First Notice Day on March Grains so we rollover to the May contract which is currently trading at 380 which is ¾ of a cent higher. The trading range has been 380 ¼ to 378 ¼. The meeting with President Trump and senators representing both Oil and Corn industries failed to reach an agreement on biofuels policy to refiners. The good news is that both sides are talking. On the Ethanol front the April contract is currently trading at 1.488 which is .002 lower. The trading range has been 1.490 to 1.486. The market is currently showing 1 bid @ 1.486 and 1 offer @ 1.479 with 5 contracts changing hands and Open Interest at 1,042 contracts.
On the Crude Oil front last night’s API Energy Stocks showed builds in Crude Stocks at 933 thousand barrels, Gasoline Stocks up 1.914 million barrels, while Distillates showed draws of 1.437 million barrels and Cushing, Oklahoma showed further draws of 1.277 million barrels. The report was overall bullish but with Jerome Powell the new FED Chief testifying to Congress said the economy is in good shape with Consumer Confidence leading the way scared investors that there will be more Interest Rate hikes which sold the Stock Market off and spilled over into the Energy complex. Europe’s cold winter had a lot to do with sagging Distillate inventories which is not happy news for farmers. The Energy Information Administration (EIA) will release its data this morning which should confirm tight supplies and increasing demand whatever the International Energy Agency (IEA) spews out. In the overnight electronic session the April Crude Oil is currently trading at 6300 which is 1 tic lower. The trading range has been 6310 to 6253.
On the Natural gas front the market is attempting to spark one more push to get above the $3 level but currently does not look to be in the cards with current fundamentals In the overnight electronic session the April contract is currently trading at 2.693 which is 1 cent higher. The trading range has been 2.698 to 2.659.
— Daniel Flynn
The Energy Report: When the obvious is scary
Fed Chair Jerome Powell shook the markets by stating the obvious. Powel said that ”every participant in the FOMC submits a projection of what they feel is going to happen to the economy and also their projection for appropriate monetary policy. And at the December meeting, the median participant called for three rate increases in 2018. Now since then — we will submit another projection, all of us, in three weeks — but since then, what we’ve seen is incoming data that suggests that strengthening in the economy. We’ve seen continuing strength in the labor market. We’ve seen some data that will, in my case, add some confidence to my view that inflation is moving up to target. We’ve also seen continued strength around the globe, and we’ve seen fiscal policy become more simulative. So, I think each of us is going to be taking the developments, since the December meeting, into account and writing down our new rate paths as we go into the March meeting, and I wouldn’t want to prejudge that.” So what he is saying is that while three rate hikes are now priced in the Fed is data dependent! Who knew!
Of course anyone that is looking at the economic data here and around the globe should know that 4 rate hikes would be on the table. I predicted that on the Fox Business Network with Liz Claman months ago. We also, of course, predicted on Fox Business Network that Crude would hit $60 last year, which it did, and that oil would rally on strong demand and that is exactly what has happened. Yet, Powell’s comments and some goofy projections by the International Energy Agency (IEA) and a story that, oh my gosh, OPEC was going to have lunch with some shale producer shook out some longs. Yet after accessing the American Petroleum Institute (API) supply and demand report they may want to get back in.
Who said that petroleum demand would be lackluster? Oh yeah that was the IEA. Well demand is anything but lackluster. Not only did we see consumer confidence surge to the highest level since the year 2000 coming in at an astounding 130.8 reading. We know that there is a very strong correlation to consumer confidence and gasoline demand. That means that we will see record demand for gasoline this summer’s driving season and should help support the entire complex,
The API also reported what could be called a shocking 1.277-million-barrel draw in supply from the NYMEX delivery point in Cushing Oklahoma. That was much higher than anticipated as many analysts were expecting supply to rise at that point. Yet, the price market set up and rip-roaring demand means that even as refiner’s slowdown, supply is still being burned. That also means that when refiners start to come out of maintenance they will have to start paying up for crude.
The API also reported only a 933,000 increase in overall crude supply. That increase is much smaller than the seasonal norm and is another sign that oil demand is exceeding production and the market can handle the record production by U.S. shale oil producers. It also calls into question whether or not they are actually producing what the Energy Information Agency (EIA) and the IEA says they are.
The IEA was gushing that the U.S. would overtake Russia as the words largest oil producer and the ‘colossal’ rise in U.S. oil production stops OPEC’s efforts to rebalance the oil market. Of course, remember the IEA is always talking their book. The Agency that has underestimated demand for years is now over estimating production. While their data on shale as well as the EIA suggests big gains, data from the Texas Railroad commission, where they count barrels, is telling a much different production story but let’s give them the benefit of the doubt and say they are right about the numbers, then we are in big trouble. Because if we are producing that much oil and we can’t build inventory during shoulder season then watch out this spring.
The API also reported that gasoline Inventories were up 1.914 million barrels. Refiners still must draw down winter blends and build summer blend. They have some work ahead of them as demand for gas is rocking.
Distillate dropped by 1.437 million barrels as demand for U.S. exports more than likely picked up. European refiners must meet demand from the late cold blast.
So, three hikes or four, for oil demand it may not matter. It does not natter that OPEC is breaking bread with shale producers that some speculate that OPEC will threaten shale procures with another production war. That is not going to happen. What the market in oil should be focused on is the impact of stonier global growth and what may be the strongest demand growth for oil this year that we have seen in decade. We warned anybody that would listen last year to not focus just on supply but on demand. Demand that was being fed by low oil prices and the more business friendly policies by the Trump administration. We said get hedged and I hope you did, if you are not hedged for this upcoming season use this break in price to do it. Barring any black swan events, you are looking at prices that are going to be very close to the lows for this year.
— Phil Flynn
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