We kick off this day with Spooks and Super Natural with Employment Cost Index at 7:30 A.M. Central, Chicago PMI and Consumer Confidence at 9:00 A.M. and finally at 3:30 P.M. API Energy Stocks with the FOMC Meeting getting underway. Effective Tuesday October 31st the CME Group will reset price limits for Grains and Oil Seed futures which will start in the overnight electronic session and reflect the November 1st trading session. On the Corn front the December contract had a tight trading range with light Estimated Volume of 602 contracts so far in the overnight. We are currently trading at 348 ¼ which is a ½ of a cent lower. The trading range has been 348 ¾ to 348.
On the Ethanol front the November contract is set to expire Friday and has 23 Open positions to date. There were no trades posted in the overnight electronic session with the December settling at 1.418 and currently showing 1 bid @ 1.406 and 1 offer @ 1.418 with Open Interest at 1,250 contracts.
On the Crude Oil front it was quiet night here as well. In the overnight electronic session the December contract is currently trading at 5411 which is 4 points lower. The trading range has been 5428 to 5393. Tonight’s API inventories could start another rally.
On the Natural Gas front the changing weather forecasts to warmer temperatures about mid-week seems to squash any rally investors are looking to the future. In the overnight electronic session the December Natural Gas is currently trading at 2.936 which is 3 cents lower. The trading range has been3.005 to 2.931.
— Daniel Flynn
The Energy Report: Bear-y Scary
It’s close to midnight and something’s buying oil in the dark. Under the moonlight, you see a pop that almost Stops Your Stop. You Try to Scream, but the computer takes the trade before you change It. You Start to scream, as oil rallies hard right before your eyes, You’re Paralyzed!
Cause this is thriller. Thriller night. And shale oil is not gonna save you. Oil is going to spike because it’s a Thriller night. Bears will be fighting for their life. Inside a kill thriller rally tonight. They’re Out to Get You, Oil supplies are tightening on every side. They will possess you, unless you Change Your bearish trading style. Now Is the Time for you and me to start to buy my dear. All Thru the Night, It’ll Save You from the Terror on the Screen, I’ll Make You See.
Markets rally across the Land; the trading hour Is close at hand. The Foulest Stench Is In The Air, The Funk of those oil spending cut back years and Grizzly Ghouls from cartel are Closing In To Seal Your Doom And Though You Fight To Stay Alive Your oil Starts To Shiver For No Mere Mortal Can Resist trading this oil Thriller.
Welcome to the bullish side. Oil prices maintain their bull market as a rash on analysts are starting to raise their oil price forecast and traders are getting afraid to go short as global inventories start to get sucked down faster that Dracula can empty a victim. Oil demands is on the rise and shale oil output is underperforming and the path to a shortage is looking ghoulishly real.
Jon Kemp of Reuters has a creepy if not horrifying assessment that says that “The oil market is now well into a cyclical upswing and within the next year the narrative about “rebalancing” is likely to be replaced by one about “tightening”. He says that rebalancing started well before the production pact between the Organization of the Petroleum Exporting Countries (OPEC) and its allies went into effect in January. OPEC has been open about the fact that the rebalancing process pre-dated its agreement, with officials repeatedly noting the accord was intended to “accelerate” a process that was already underway.
Depending on which turning point is used, the rebalancing process has already been underway for 21 months (spot prices) or 32 months (spreads). Like any rebalancing process, adjustment is barely perceptible at first, which is why the turning point is often missed, but tends to accelerate over time. The current rebalancing started with an acceleration in global oil consumption, which was already evident in the first half of 2015 in response to lower prices.
Oil production did not decelerate until 2016, because of the lags in the system, and OPEC’s own output restraint did not start until 2017. But with consumption now running faster than production the market is steadily whittling away the excess inventories accumulated in 2015/2016.
During the last two rebalancing processes, after oil slumps in 1998/99 and 2008/09, front-month Brent prices took roughly 21 months and 26 months respectively to reach their first major peak. Meanwhile, the calendar spread took 21 months and 34 months respectively to reach its first cyclical peak after each episode. He points out that “The recent slump was in some ways deeper, and the recovery has certainly been more prolonged, but it can no longer be described as being in its early stages. The current rebalancing process is already therefore fairly mature and at some point in the next six to nine months will be more accurately described as tightening.
According to estimates from the OPEC/non-OPEC Joint Ministerial Monitoring Committee, OPEC is more than halfway to its declared target of reducing OECD oil inventories to their five-year average. Excess stocks have been drawn down by 180 million barrels since the start of 2017, although they are still 160 million barrels above the 2012-2016 average. In practice, stocks at the five-year average would probably prove uncomfortably low given the big increase in oil demand since 2012.
This oil market tightening is something we have been talking about for some time. The oil shortage creeps up on you before you know it and grabs you by the neck and then squeezes you. It then forces you to pay any pr ice for oil until it becomes too much and slows down this crazy demand. Then it’s a thriller!
— Phil Flynn
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