Corn continues to go nowhere fast as the market continues to flirt with 350 and does not seem to budge too far away from that number one way or another. In the overnight electronic session the March Corn is currently trading at 350 ¾ which is 1 ¼ of a cent lower. The trading range has been 352 to 350 ¾. If we could move carryover to emerging markets and get a weather market with the drought monitors gauging remnants of La Nina which could mean fewer rains.
On the Ethanol front the February contracts is currently trading at 1.319 which is 1 ½ of a cent lower. The trading range has been 1.331 to 1.319 with 4 contracts traded and Open Interest declining to 729 contracts as the March rollovers are in the driver’s seat. The February contract is currently showing 1 bid @ 1.302 and 1 offer @ 1.318.
On the Crude Oil front we have the weekly API number at 3:30 P.M. which should be an interesting number. I expect draws on Crude and pressure on Products with refineries in the South shut down due to cold weather that the refineries were not built to withstand. In the overnight electronic session the March Crude Oil is currently trading at 6380 which is 23 points higher. The trading range has been 6406 to 6370.
On the Natural Gas front the market is playing on cooler weather once again and the February contract is currently trading at 3.299 which is 7 ½ cents higher. The trading range has been 3.334 to 3.249. Look for producers to lock in prices at these levels.
— Daniel Flynn
The Energy Report: Don’t forget about demand
Oil prices are consolidating as the global economic forecasts are driving demand expectations higher as U.S. oil inventories continue to plunge. After a record one week drop in supply last week, at Cushing Oklahoma, the market is getting ready for yet another steep drop at that point. This comes as the International Monetary Fund (IMF), in its World Economic Outlook released yesterday, is saying that U.S. tax cuts will ramp up investment not only in the U.S. but among its trading partners.
The IMF upped its global forecast upward, to 3.9 percent for both 2018 and 2019, a 0.2 percent improvement from its October prediction. That Increase should put global demand growth for oil close to 1.8 million barrels of oil a day with a possibility of adding 2 million barrels of oil a day of new deamd in 2019. While the IMF warns there could be some headwinds, the truth is that the forecast is very bullish for oil.
It also means that the commitment by Saudi Arabia and Russia to keep cuts in play to the end of the year and perhaps into 2019 will succeed in draining global oil supply and driving prices higher. As I told Barron’s earlier this month, If OPEC and Non-OPEC keep the cuts in place that oil has a chance to go back to $80, assuming no ‘black swan” events.
Speaking of black swan events, a major 7.9 earthquake, depending on what report you read, struck off the cost of Alaska causing Tsunami warnings. The New York Times reports that the tsunami center said the first place likely to be hit would be Kodiak, Alaska at 1:45 a.m. local time, followed by several coastal towns over the following two hours. A tsunami could hit Tofino, British Columbia, on Vancouver. The Globe reports America’s West Coast faces an “extraordinary threat to life” from 32ft tsunami waves following what they say is a massive 8.2-magnitude earthquake. Oil traders will await to see what the impact may be either on production or demand. Keep folks in harms way in your prayers. It is too early to tell how bad it will be.
Oil is in a consolidation phase and that is a good sign for oil bulls. Bears that have been counting on hedge funds to dump positions at any minute are being disappointed. It’s about demand at tightening supply. The seeming indifference to historic cutbacks in energy projects and an over reliance on shale to fill the void is leaving the market structurally undersupplied in the coming years. As we wrote when oil was at $26 a barrel that oil was at the end of a bust cycle and that we would look back in a few years and realize just how cheap that oil was.
Natural gas is showing some life as it gets prepared for a supply drawdown that is going to be much larger than the five year average somewhere with a draw around – 277 bcf. With supply 12% below the five-year average we need to keep production near these record highs. The market is fearful that the cold slowed output,
We know the cold down south slowed production of heating oil and gasoline as refiners went into circulation mode to ride out the cold. We will see if it impacted product supply in tonight’s American Petroleum Institute report.
— Phil Flynn
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