Happy All Souls Day and congratulations to the city of Houston and showing America what a Champion is made of and it is not hurricane Harvey. We also celebrate All Souls Day and start off the morning with Export Sales and Initial Jobless Claims at 7:30 A.M. Central, EIA Gas Storage at 9:30 A.M. and Dairy Product Sales at 2:00 P.M. The FED did not raise rates yesterday as we may have an announcement of a new FED Chief today. I still want an investigation of useful idiots and my verdict is “Lock her Up!”
On the Corn front we have more damning news to this oversold market that will be the front runner in Grains in the long-term. Julie Ingwersen of Thomson Reuters reported that INTL FC Stone raised their Corn yield to 1.737 bushels per acre from the previous monthly report of 1.692 bushels per acre. I believe these numbers will keep the raging bulls soft until reality of global stockpiles diminish when China’s Ethanol mandate takes hold. In the overnight electronic session the December Corn is currently trading at 349 ½ which is 1 ¼ of a cent higher. The trading range has been 350 to 347 ½.
On the Ethanol front there were no trades posted in the overnight electronic session. The November contract expires tomorrow and is currently showing 16 Open Positions left. The December contract settled at 1.451 and is showing 1 bid @ 1.435 and 6 offers @ 1.451 with growing Open Interest at 1,405 contracts.
On the Crude Oil front, is the EIA holding back on draws or miss reporting like CBS or CNN? We could see a makeup call from the umpire in next week’s data. OPEC and non-OPEC countries have been surprisingly compliant to production cuts and proving their margin for error cannot excuse cheating until the market gets back into balance. Especially with demand skyrocketing this would be foolish when most of the Cartel and non-Cartel’s GDP is focused on this export. In the overnight electronic session the December Crude Oil is currently trading at 5435 which is 5 points higher. The trading range has been 5447 to 5399.
On the Natural Gas front we are starting another rally which bottom feeders are wondering is this the last break to the downside as we have had several rallies fail with the reality of weather and weather forecasts. However, like the Corn market we are close to a major bottom and this market is ready to burst out of the seams and producers are hoping to see some heavy profits to cut their losses. Today we have the EIA Gas Storage data and Scott DISavino’s weekly poll from Thomson Reuters with 26 analyst’s participation showing injection builds from 45 billion cubic feet (BCF) to 71 bcf with the median 62 bcf. This compares to last week injection of 64 bcf, the one-year 56 bcf and the five-year average of 60 bcf. If the weather outside is frightful, if indeed LOOK OUT! In the overnight electronic session the December Natural Gas is currently trading at 2.913 which is 2 cents higher. The trading range has been 2.936 to 2.881.
— Daniel Flynn
The Energy Report: Less is more
Famed architect Mies van der Rohe was famous for his belief that sometimes you can do away with all the ornamentation on building because sometimes less is more. They are now finding that out in the energy space these days, that is also true and if you do less you will be rewarded. OPEC and Non-OPEC found that out when they cut production to shore up prices and reduce over supply. Now some shale producers are getting the message as well. Dow Jones reported that shares of Devon Energy, one of the largest U.S. shale companies, are up 4.2% after the company disclosed plans to spend less next year than some analyst estimates. Devon will invest between $2B and $2.5B on exploration and production, less than the $2.6B or more that had been anticipated, according to Tudor Pickering Holt. The stock surge according to Dow Jones stems in part from interest that has intensified among some investors for shale companies to live within their means, reduce spending and temper their ambitions in the name of improving profitability.
This of course is a good thing for these companies and something we have been harping for a while. You can’t lose money on every barrel and expect to make up for it in volume. I applaud Devon for this wise move yet in some ways it was a decision that was forced upon them. Other shale companies will be forced to cut back as well especially the smaller outfits and while that is good for their balance sheets it does not bode well for future us oil production estimates.
What you are going to see is lower production growth of oil in the U.S. for an extended period. To reverse that slowdown, you may have to see an oil market sustained well above $60 or maybe even $65 a barrel.
Many shale oil companies are already over extended from a return on spending and banks will be more reluctant to lend them money. In the meantime the U.S. shale output, per well, will continue to decline. There are some estimates that the U.S. shale industry would need to double their current CapX spending to increase production by another million barrels a day. There is no way that is possible in this low oil price environment.
Yet will this low-price environment remain? No. In fact we are in the process of an extended oil bull market. With global growth smoking and production constraints and logistical issues rising we are more than likely in a generational bull market. The problem is that by the time the bankers believe it the shale guys will be playing catch up. Forget about the argument of the record amounts of drilled but uncompleted wells. To get them on line you will need men and equipment both of which are in short supply. That means to get enough men and equipment you will need even higher prices.
Yesterday’s Energy Information Admintation (EIA) report is backing up the bullish back drop even though the report was not as bullish as the wildly and scary bullish American Petroleum Institute (API) version. The EIA reported that total commercial petroleum stocks feel stocks fell 5.8 Million Barrels at a time of year when they normally increase. Last year, for example, petroleum stocks increased by 9 million barrels. So, from last year total supply is down a whopping 75 million barrels from a year ago, an incredible year over year drop.
Crude oil supply fell by 2.435 million barrels as U.S. crude exports surged to another record at 2.13 million barrels of oil per day. U.S. crude production up week over week by 46.000 barrels to 9.553 million barrels a day, still short of the 10 million plus that we were supposed to be producing. Oil imports to the U.S. hit 5.4 million barrels a day just 20,000 barrels above a 5-year low. Gasoline stocks fell 3.5 million barrels, not as large as the 7 million plus drop by API but still incredible for this time of year. Gas Demand increased by 8,00 barrels a day keeping it near seasonal all-time records.
Distillates stocks fell only 320.00 barrels easing concerns of a desperate tightening of supply, but the drop reminds us that refiners are still behind the eight-ball trying to keep up with surging global demand.
This comes as Reuters reports that OPEC is going to extend production cuts and wants a floor of $60 in 2018 according to Reuters!! Then you have the ongoing collapse of Venezuela. While they did make their bond payment to avoid a default their oil production is not being helped. Talk that tankers of Venezulean crude is being turned back due to quality issues means their oil industry could be ready for a total collasps. Data shows that Venezuela’s September crude production fell again to just 1.8 million barrels of oil a day, Sad.
— Phil Flynn
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