Today we have the EIA Energy Stocks at 9:30 A.M. Central after a not so bullish API number with the build in Gasoline disappointing for bulls. The API showed draws in Crude of 1.562 million barrels, Gasoline showed builds of 520 thousand barrels, Distillate showed draws of 3.133 million barrels and Cushing Oklahoma builds of 812 thousand barrels. We also have Dairy Product Sales today at 2:00 P.M.
On the Corn front, good news on the horizon for demand in the future. We are also expecting a frost in the Mid-West ahead of tomorrow’s Crop Production USDA Supply/Demand. Dominique Patton with Thomson Reuters reports that China’s State Development & Investment Corporation (SDIC) signed a framework agreement to build a 600,000-tonne Ethanol plant in the northeastern Heilongjiang province, as the company pushes to dominate the country’s growing Ethanol Industry. Their aim is to produce 4 to 5 million tonnes of Ethanol a year in the next 3 to 5 years and the new facility will use 1.85 million tonnes of Corn a year. This is music to Corn Growers ears as carryover has continued to cut profit margins. In the overnight electronic session the December Corn is currently trading at 347 which is ¾ of a cent lower. The trading range has been 347 ¾ to 346 ½.
On the Ethanol front this should not be bad news for exporting to China because they will always have an appetite for product with the direction they are moving. Even with China’s talk of electronic cars, let’s face it folks unless some new technology comes along the infrastructure is just not in place. In the overnight electronic session the December Ethanol is currently trading at 1.460 which is .008 of a cent lower. The trading range has been 1.460 to 1.459 with 4 contracts traded. The market is currently showing 2 bids @ 1.452 and 1 offer @ 1.467 with Open Interest at 1,511 contracts.
On the Crude Oil front we wait for the EIA data that was weak versus the API data last week and we may get a make-up call this week. OPEC Cuts are solid and on the geo-political stage we have bullish fundamentals. In the overnight electronic session the December Crude Oil is currently trading at 5704 which is 16 points lower. The trading range has been 5714 to 5680.
On the Natural Gas front we are anticipating a bullish injection number on tomorrow’s EIA Gas Storage. That coupled with colder than normal temperatures could create a spike in the market. In the overnight electronic session the December contract is currently trading at 3.142 which is 1 cent lower. The trading range has been 3.154 to 3.114.
— Daniel Flynn
The Energy Report: It’s not just about Saudi Arabia
There is a temptation to attribute the recent rise in oil prices to just the uncertainty of the political purge that we have seen in Saudi Arabia, but if you think that you are missing the larger point. There is a reason why we have seen oil prices hit a 2 and a half year high and a reason why they are up from a of 26.05 in in 2016 to a high yesterday 57.69. It is because the crash in oil prices caused one of the biggest oil investment pull backs in history and at a time when low oil prices spurred demand and which now is at one of the fastest growth rates and fastest global growth rate since 2012 leading to the fastest drain in global oil and petroleum supply drains in history. The Energy Information Administration reduced their outlook for U.S. shale and OPEC put to rest the myth of “peak demand” as the oil supply drain is speaking volumes.
The American Petroleum Institute added to that record supply drain by reporting that U.S. crude supply fell for the eighth week in a row by 1.56 million barrels. They also said the supply deficit in reporting that distillates supply fell by 3.13 million barrels. They say gasoline supply did rise by 720,000 barrels but that followed a API 7 million barrel drop a week ago.
Shale Oil producers continue to disappoint and while we did see the prolific Permian Basin add production in the other basin production is flat to declining. Why well capitalized forms can lock in hedge, yet smaller firms would be hedging in losses at this point, but mat do so just to get banks to lend them capital. This caused the Energy Information Adminstrations (EIA) to once again lower its outlook for U.S. shale production in yesterday’s Short Term Energy Outlook.
For the second month in a row the EIA lowered its estimate for production to a growth of just 81,000 barrels a day in November, putting total shale output at just hit 6.12 million barrels a day next month. Many in the industry think the EIA is still overestimating output and based on the big drops, week after week in U.S. inventory, it seems that they probably are. In Fact, in some basins shale production is going in a decline. Estimates are that shale oil producers will have to double their capital spending to regrow output by a million barrels a day, that would be almost impossible unless oil stabilizes in the $60 a barrel handle. Even at that they can’t match OPEC production costs and growing global oil demand growth.
OPEC says forget about peak demand at least until 2030. The FT reported that OPEC raised its forecast for oil demand in the coming decades despite a global push in energy policies that promotes cleaner fuels and a rise in technologies such as electric cars. OPEC say that world consumption will rise from 95.4m barrels a day in 2016 to 102.3m b/d in 2022, which is an upward revision of almost 2.3m b/d, the cartel said on Tuesday. Longer term oil demand has been revised upward by 1.7m b/d to 111.1m b/d by 2040.
Still OPEC believes that Shale can come back. OPEC says that the outlook for non-OPEC liquids growth has “changed quite considerably as the U.S. tight oil sector’s resilience and ability to bounce back.”
Nat Gas could also make history.
Bloomberg News Reports that “Cold snap seen spurring demand for heating fuel across U.S.” An early cold snap may deliver natural gas traders the most bullish inventory report heading into the winter heating season they’ve seen in more than a decade.
On Thursday, the U.S. government will issue its weekly estimate of gas stockpiles. And based on a Bloomberg New Energy Finance analysis, the report may show a gain of only 8 billion cubic feet. That’d be the smallest increase for this time of year since supplies of the heating fuel declined in 2006. (Back then, a combination of nuclear shutdowns and an early chill had power plants plowing through gas.)
A small inventory gain would be a rare win for bulls this time of year, when gas suppliers are typically racing to store the fuel in preparation for the peak demand season. A cold snap to thank for stoking demand sooner. Temperatures are forecast to continue to dip well below normal from the U.S. Pacific Northwest to the Northeast through Nov. 10. As a result, natural gas burn may jump 24 percent in the Midwest alone from a year earlier, according to Bloomberg New Energy Finance.
The early demand surge threatens to exacerbate already-tight supplies and could lead to price spikes during the heating season, should cargoes of liquefied natural gas continue to leave U.S. shores.
“We’re seeing a lot more demand than anticipated, and you’re probably going to see some pullback in production as well on seasonal maintenance,” Phil Flynn, senior market analyst for Price Futures Group, said by phone. “When you compare that to the five-year average, it makes it look a lot more bullish.” Natural gas has continued to flow out of massive shale formations in the eastern U.S. at record-high levels, and that should help prevent major supply constraints, Bloomberg New Energy Finance Analyst Het Shah said. But several pipelines proposed to carry gas out of those reservoirs are facing setbacks.
On Monday alone, TransCanada Corp. delayed the startup of its Leach Xpress gas project, which will ship Appalachian supplies, to January from Nov. 1, and Williams Partners LP was forced to temporarily halt construction on its Atlantic Sunrise project, also planned to deliver shale gas, due to a court order.
— Phil Flynn
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