We jump start the day with Initial Jobless Claims and Producer Price Index at 7:30 A.M. Central, EIA Gas Storage at 9:30 A.M, EIA Energy Stocks at 10:00 A.M., Crop Production USDA Supply/Demand at 11:00 A.M. and Dairy Product Sales at 2:00 P.M. The Grain complex is trading a tad higher in the overnight electronic session with Soybeans and Soybean Oil leading the way in today’s report data. In the overnight electronic session the December Corn is currently trading at 346 ¼ which is a ¼ of a cent higher. The trading range has been 347 to 345 ¾. Weather still could rear its ugly face with crazy weather in the lower 48 with fires raging in California and rains developing in parts of the Plains, Midwest and eastern seaboard while the southeast is getting soaked.
On the Ethanol front by 2020 The Chinese government will have all vehicles running solely on Ethanol which should boost exports. In the overnight electronic session the November contract posted a trade at 1.418 which is .007 of a cent lower. 1 contract traded and the market is currently showing 1 bid @ 1.413 and 1 offer @ 1.418 with Open Interest at 1.010 contracts.
On the Crude Oil front last night’s API showed builds across the board with Crude stocks up 3.097 million barrels, Gasoline 1.575 million, Distillates 2.029 million and Cushing 1.216 million. The EIA will be released at 10:00 A.M to confirm these numbers. The real reason for the selloff was due to the International Energy Agency (IEA) reporting demand is going to decrease with sluggish growth that I do not see in the U.S., Europe and Emerging Markets. In the overnight electronic session the November Crude Oil is currently trading at 5060 which is 70 points lower. The trading range has been 5113 to 5045.
On the Natural Gas front were trading higher this morning heading into today’s EIA Gas Storage data and the Thomson Reuters poll of 24 participants expect injection builds ranging from 68 bcf to 91 bcf with a median build of 83 bcf with the whisper number of 82 bcf. Anything below will be bullish. In the overnight electronic session the November contract is currently trading at 2.919 which is 3 cents higher. The trading range has been 2.922 to 2.895.
— Daniel Flynn
The Energy Report: Down the shale hole
While OPEC and The Energy Information Administration raising its outlook for demand and lowers its projection for global Non-OPEC production, The International Energy Agency(IEA) releases a report that shows that tries to talk down demand next year admit they underestimated demand this year. The IEA seems to want to talk down prices once again because they represent the oil consuming countries and they pay the bills. But the story behind the story may be the growing credit crunch in the shale path as lenders are showing reluctance to lend them money as they pile up billions in unmanageable debt. Maybe they think it is time to quit throwing money down the shale hole.
Yesterday French lender BNP Paribas SA said it will no longer finance shale and oil sands projects report because of pressure from investors and top financial institutions. The bank for “a changing world” obviously think the prospects for some shale and gas firms changes of making money is not very bright. Many are in debt and show little prospects of making a profit and have only been able to make enough money to try to pay back loans. Laura Freeman of Freeman Consulting recounted the story of the legendary Texas oil man Clint Murchison was in the middle of the Great Depression with debt ballooning to over $4 million, far more than his net worth. “Aren’t you concerned about owing all this money you can’t pay? Ernest Closuit asked him. “No,” Murchison said with a smile. “If you’re gonna owe money, owe more than you can pay, then the people can’t afford to foreclose.” Well after the BNP Paribas news that may be changing. They say it is for environmental reasons but the mounting debt in the shale sector may be the real reason.
Oil prices dipped after another downbeat assessment by the International Energy Agency about oil for next year. Considering how wrong they were in their mid-year outlook it is kind of funny that the market is taking them seriously especially because OPEC and the EIA have a much more bullish outlook. Yet, in fairness to market weakness, we did see a somewhat bearish American Petroleum Institute (API). They reported Crude up 3.097 million barrels, gasoline down 1.575 million barrels and distillate up 2.029 million barrels In Cushing another 1.216-million-barrel increase.
As far as reporting agencies where do we start? Let us start with OPEC. OPEC raised demand forecast for its oil, points to 2018 deficit. Reuters reported that OPEC said the world would need 33.06 million barrels per day (bpd) of its crude next year, up 230,000 bpd from its previous forecast. That is its third consecutive monthly increase in the projection from its first estimate made in July. Reuters says the report illustrates growing confidence among OPEC officials that its supply cut is working. Still, OPEC is not banking on a surge in prices, saying in the report crude is expected to remain at $50 to $55 a barrel in the next year which is higher than their last forecast.
The Energy Information Administration raised its prices and demand forecast and once again lowered its outlook for U.S. oil production. Market Watch reported that in the EIA monthly energy outlook report, the government agency forecast WTI prices at $49.69 a barrel for this year, up 1.7% from its September forecast. For 2018, it forecast $50.57-up 2% from the previous outlook. The EIA also upped its 2017 forecast on Brent crude by 2.7% to $52.43 and its 2018 outlook by 4.8% to $54.07. It modestly lowered its U.S. crude production view to 9.24 million barrels per day this year, but raised its 2018 output view by 0.8% to 9.92 million barrels a day.
They also increased expectations for winter heating bills. The EIA said that consumers will see a 12% increase in their natural-gas heating bills this winter, compared to last winter. Residential prices for natural gas are expected to average $10.36 per thousand cubic feet, which would be 2% higher than last winter, the EIA said in its Winter Fuels Outlook report. Consumption of the fuel will likely be 9% higher than last winter. Households using heating oil, meanwhile, will likely spend 17% more on their heating bills than last winter.
Then comes the International Energy Agency that according to Reuters that said in its monthly oil market report, the Paris-based IEA said it continues to see global demand for crude growing by 1.6 million barrels per day (bpd) in 2017, before moderating to 1.4 million bpd in 2018. “Looking into 2018, we see that three quarters out of four will be roughly balanced — again using an assumption of unchanged OPEC production, and based on normal weather conditions,” the agency said. Global stock builds, rising non-OPEC production and sluggish growth in demand could weigh on the oil price, the IEA said in contrast to the other agencies and more than likely underestimating demand.
Where are they getting this sluggish growth stuff? That’s what they said earlier in the year and they were wrong. The IMF just raised ther forecast for growth. Oil demand in China, India and Europe remains strong and in Europe stocks of products are at the lowest level in 2 years. The IEA is doubling down on their sluggish growth augment and that does not fit with what the Fed and the stock market telling us.
The head of Libya’s national oil company (NOC) has warned that the country’s recovery in oil output is under threat as it has only received a quarter of its budget from the UN-backed government. Stay tuned! So much for stable Libyan oil output.
— Phil Flynn
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