This morning we kick off the day with Export Sales and Initial Jobs at 7:30 A.M. Central followed by EIA Gas Storage at 9:30 A.M. After yesterday’s FED decision, S&P Global Ratings cut China’s sovereign credit rating for the first time since 1999, citing the risk of from soaring debt, and revised its outlook to stable from negative. S&P was quoted, “China’s prolonged period of strong credit growth has increased its economic and financial risks.” Reported from Bloomberg News. Time will tell what affect this will have in the U.S. marketplace, if any, as investors do see credit agencies ratings as gospel since the financial crisis.
On the Corn front harvest pressure is about to rear its ugly head. With crop rating news and with a large carry-in, producers are sitting on their hands at these price levels. We could see further lows but we could see some investors bottom feeding trying to buy value at low prices. In the overnight electronic session the December Corn is currently trading at 349 ½ which is a ½ of a cent lower. The trading range has been 351 to 349.
On the Ethanol front there were no trades posted in the overnight electronic session. The October contract settled at 1.538 and is currently showing 1 bid @ 1.527 and 2 offers @ 1.539 and further declines in Open Interest at 312 contracts.
On the Crude Oil front after a bullish EIA inventory number and the FED holding pat on Interest Rates, Janet Yellen had the market selloff after her verbiage. In the overnight electronic session the November Crude Oil is currently trading at 5027 which is 42 points lower. The trading range has been 5079 to 5007.
On the Natural Gas front we have the weekly EIA Gas Storage data today. The Thomson Reuters poll with 25 analyst participation expect injection builds anywhere from 84 bcf to 100 bcf with 91 bcf the median. This compares to last week’s build of 91 bcf, the 1 year at 54 bcf and the five-year average at 73 bcf. In the overnight electronic the October contract is currently trading at 3.074 which is 2 cents lower. The trading range has been 3.091 to 3.069
— Daniel Flynn
The Energy Report: Diesel dilemma
Oil prices hit a 4 month high on bullish data from the Energy Information Administration (EIA) strong global and US demand and the fact that oil products are at a multi-year low. That situation is not going to improve after Hurricane Maria dealt a devastating blow to Puerto Rico and St Croix, wiping out small refineries and oil product storage tanks. But the threat to the rally is the Fed pronouncement that they want to raise interest rates in December, giving strength to the dollar and a downgrade to the Chinese credit rating which will potentially raise future demand conerns. Yet talk that OPEC and non-OPEC may cut back on more production is still give oil bulls a slight edge even though the market fails to officially break out, staying below that upper Bollinger band resistance.
Oil product declines were the big story from yesterday. The EIA report reported supplies of product overall fell to the lowest level since 2011. A big 5.69 million barrel drop in distillate supplies, the biggest drop since 2011, was a major concern as fall grain harvest and winter is just around the corner. This came as even as oil refiners ran the most barrels of oil through the refineries since 2008. The October future rose to the highest closing level since July 2015.
Gasoline supply also took a hit, falling by 2.13 million barrels as gas demand held up better than expected. This contrast though with distillate stocks means that the long ultra low sulfur diesel versus short RBOB gasoline should continue to work.
Even the lager than expected 5.42 million barrel increase build in oil supply was enough to break oil because the number included a big release from the Strategic Petroleum Reserve that will be needed to rebuild supply of products that overall are at what could be considered dangerously low levels. This offset the fact that US oil production increased again this week by an impressive 157,000 barrels a day. This comes on a news report that oil traders are emptying one of the world’s largest crude storage facilities, located near the southernmost tip of Africa, as the physical market tightens amid booming demand and OPEC production cuts.
Is OPEC and non-OPEC on the cutting edge. Oil ministers from Iraq and Nigeria are suggesting that OPEC and non-OPEC may further cut their output quotas by another 1% to their 1.8-million-barrel cut. While Russian Energy Minister Alexander Novak has said there is no official proposal to cut, he is interested in working with OPEC and other oil producers to stabilize crude prices. The meeting is in Vienna on Friday.
Peak oil Demand? Not So Fast! The Financial Times reports that not only is demand rising for oil, the OECD countries are also driving the world demand for good, old fashioned gas guzzling cars. The FT writes that, “A decade’s worth of efforts to cut oil consumption in industrialized countries is at risk of being reversed, as low fuel prices boost demand and send motorists flocking back to larger gas-guzzling cars.”
Poor Little Dictator. Venezuelan President Nicolas Maduros wants to sell oil but not in dollars after President Trump hurt his feelings. Dow Jones reports that PDVSA, the state owned oil company, is asking partners in at least two oil ventures to consider selling crude oil in euros after the U.S. imposed financial sanctions, according to people with knowledge of situation. U.S. refineries have shown they are amenable to idea.
Figures from the International Energy Agency and other forecasters show OECD oil demand, which declined between 2005 and 2014, has been growing rapidly for the last three years after oil prices crashed from above $100 a barrel to about $55 today. If the trend continues roughly 62 per cent of the reduction in OECD oil consumption since 2008 will have been reversed by the end of next year, despite governments targeting fuel efficiency, alleviating air pollution and cutting reliance on foreign crude.
Robust oil use in the developed world, which for years had been expected to decline, just as emerging markets consume more, has cast uncertainty around when global demand will peak. Some energy companies, including Royal Dutch Shell, had warned this could happen as soon as next decade.
Dow Jones report that S&P Global Ratings said it downgraded China’s rating to A-plus from AA-minus, while changing its outlook to stable from negative. The action brings all the three major credit-rating firms in line in terms of their views of the creditworthiness of the world’s second-largest economy. Fitch Ratings lowered China’s rating in 2013, and Moody’s Investors Service did so in May. Oil Demand Worry?
— Phil Flynn
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