With this active hurricane season and the damaged sustained I believe the FED would be hard pressed to raise Interest Rates when some people lost their home and still paying a mortgage. However, investors will be listening to the verbiage to try and understand how Dovish or Hawkish the overtones are today and tomorrow. Kicking off the day we have Housing Starts & Permits at 7:30 A.M., Milk Production at 2:00 P.M. and the weekly API Energy Stocks at 3:30 P.M. The October Crude Oil contract expires tomorrow which could add further drama to this light volume week with yesterday’s Japanese holiday, Thursday is Rosh Hashana and Friday Autumn officially begins. Then we add on the active hurricane season which we our monitoring Hurricane Jose and Maria. Jose is heading up the eastern seaboard while Maria a category 5 still poses a threat to the Gulf of Mexico region with maximum sustained winds at 140 knots moving west-northwest at 8 knots, hopefully she will move out to the Atlantic as well. In the overnight electronic session the November Crude Oil is currently trading at 5068 which is 33 points higher. The trading range has been 5082 to 5018. I anticipate higher prices with finally achieving a break out above resistance at $50 a barrel. Volume and expirations will also be critical to price movement.
On the Natural Gas front we saw a break out yesterday with warmer than normal temperatures that was supportive to prices. We also have weather forecasters predicting a cold and snowy winter and with tighten supplies on the low end of the 5-year average it is a recipe for a long overdue spike in prices. In the overnight electronic session the October contract is currently trading at 3.136 which is 1 cent lower. The trading range has been 3.166 to 3.135. Remember thin markets can be ruthless.
On the Grain front we have a mixed bag of tricks with Corn and Wheat a tad higher and Soybeans a tad lower. We also on this light volume week have October Grain Option Expiration on Friday which could be a game changer in prices. We still look at the fundamentals with the Corn crop bad in some area but flourishing in other areas which will make up for the lost acreage and bushels also coupled with last year Grain Stocks on hand. In the overnight electronic session the December Corn is currently trading at 352 ½ which is 1 cent higher. The trading range has been 353 to 350 ¾.
On the Ethanol front the October contract posted a trade at 1.579 which is .013 of a cent higher. The market traded 2 contracts and is currently showing 1 bid @ 1.566 and 5 offers @ 1.579 with Open Interest at 526 contracts and the November contract Open Interest on the climb and will soon surpass the October Open Interest.
— Daniel Flynn
The Energy Report: Refiners on the run
Oil prices are rising on hopes that Hurricane Jose will not do any damage to East Coast refiners that are running hot and heavy to make up for lost supply from Gulf Coast refiners that were hit hard by Hurricane Harvey. Refiners are already having success with getting gasoline prices to fall but there is more work ahead of them.
My buddies at Gas Buddy says that the average price of gas has fallen in 45 of the nation’s fifty states with the national average declining nearly 5 cents per gallon to $2.60 in the first weekly drop since Hurricane Harvey’s damage that caused refinery shut downs weeks ago. Many refiners have put off seasonal maintenance to take advantage of strong margins which for gasoline are at a two year high, but also because many of the refiners not impacted by Hurricane Harvey have sent workers down to help those refineries get back up and running. With strong demand both domestically and internationally, we should see oil try once again to breakout of the upper band that has held them back for most of the year.
Forget about the so called shoulder season, as I have said before, Hurricane Harvey has put that on hold. At least 13 refineries from Louisiana to Montana, with a combined 3.27 million barrels a day, have delayed maintenance for weeks or months according to Bloomberg News. They say that while, “refiners such as Valero Energy Corp., Citgo Petroleum Corp. and Flint Hills Resources LLC were able to quickly restart plants in the Corpus Christi, Texas, area shortly after Harvey rolled through, Motiva Port Arthur, Total SA Port Arthur and Exxon Beaumont are among those still working to reach normal operations. At one point during the hurricane, at least 17 refineries either shut or operated at reduced rates.” That means the normal slowdown in crude demand will be off until spring which will play havoc with the normal seasonal trade. For October crude, the breakout close would be over 5072 and for the November crude it should be 5515 which is the upper trading band.
This comes as OPEC seems to be doubling down on production cuts. Even Iraq is touting its compliance. Dow Jones reports that Iraq is fully compliant according to the country’s oil minister Jabbar al-Luaibi. He said, “Things are going OK. Compliance is about 80% in some case, maybe 73% in other cases. This is expected. We sense the improvement in the market. It is better than last year”, he says. Iraq is fully compliant, and has in fact exceeded its share of cuts. The country’s current output was around 4.325 million barrels a day, compared to 4.565 million barrels before the output cut became effective in January.
MarketWatch reports that shale crude oil production from seven major U.S. oil plays is expected to see a monthly climb of 79,000 barrels a day in October to 6.083 million barrels a day, according to a monthly report from the Energy Information Administration released Monday. The report has forecast increases in shale-oil output every month so far this year. Oil output from the Permian Basin, which covers parts of western Texas and southeastern New Mexico, is expected to see the largest climb among the big shale plays, with an increase of 55,000 barrels a day. Oil output at the Eagle Ford shale play in South Texas, however, is expected to decline by 9,000 barrels a day. Yet while the EIA talks about increasing shale output it is recently lowered its forecast for total US oil production for this year and next.
DTN spot ethanol prices traded flat to higher in various regional trade hubs, holding firm despite lower corn futures on the Chicago Board of Trade. A trade source said EPA’s decision to relax fuel standards contributed to increased demand for ethanol blending in the short term. The EPA waived certain federal requirements under the Clean Air Act for the sale, production and blending of gasoline to avoid supply shortfalls in the aftermath of hurricanes Harvey and Irma in Texas and Florida. Prompt supply ethanol at the Argo terminal in the Chicago cash market was valued flat at $1.59 per gallon. In the rail shipment market, ethanol traded under Rule 11 terms changed hands at $1.57 per gallon, up 1.0 cent, while September barged ethanol at the New York Harbor was pegged unchanged at $1.655 per gallon. In Houston, prompt delivered ethanol was seen at $1.64 per gallon, 1.0 cent higher.
The heat is on with natural gas. Even as lower 48 production surged to an all-time high, the tight cushion of supply going into winter is starting to awake the bulls. With above normal temperatures using supply, it could set the stage for a breakout rally.
— Phil Flynn
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