The weak performance from oil yesterday is giving rise to the false notion that oil prices are going to be capped at near $50 forever. The last time we heard that false price cap theory was back in the early 90’s when economist claimed that oil could not trade above $30 a barrel because if it did it the economy would automatically fall into a recession and slow demand.
So, we had a false narrative that oil had a self regulating top that many of the main stream analysts believed in. Even as The Energy Report questioned that wisdom, back then it was not a very popular position. That false narrative led to under investment and eventually laid the ground work for the “super-spike” in oil. That in turn led to another false narrative called “peak oil” which was again disproven even as many analysts and economists embraced that false narrative. Now we have a new one stating that shale oil will create a self-regulating top as a move above $50 will keep prices low as shale producers become smarter and more productive and the need for investing in traditional projects will be less important as we see long term peak demand and shale producers will meet growing global demand.
Once again, I will say that this is a false narrative just like back in the nineties when I spoke out about the false $30.00 a barrel top and about “peak oil” being false. The truth is that the shale oil production narrative will be put to the test in the coming days as the days of forward demand cover that all analysts will start talking about in the coming weeks is starting to shrink.
This comes as global crude oil refinery demand hit 17.57 million barrels per day for the week ending August 4, 2017. It’s the highest level since 1982. Yes, even as the EIA reports that shale oil production is expected to grow to a record for a ninth consecutive month in September to 6.15 million barrels per day. This points to the Permian Basin for the increase even as drilling has slowed in the shales most prolific formation. Yet that growth pales to global demand growth that this winter could surge to record highs. Already global crude oil refinery demand hit 17.57 million barrels per day for the week ending August 4, 2017. It’s the highest level since 1982. Shale oil might not be able to stop the trend in falling US oil supply which will fall again this week. That could fall even further in coming weeks as demand is strong and another storm will impact oil imports.
The National Hurricane Center is warning that an elongated area of low pressure located several hundred miles west-southwest of the Cabo Verde Islands was producing a large area of cloudiness and showers. They say environmental conditions are expected to be generally conducive for development during the next several days while the disturbance moves westward at about 15 mph over the tropical Atlantic. Tropical formation chances were 30 percent over the next 48 hours and 60 percent over the next five days. In addition, a tropical wave over western Africa was forecast to emerge into the far eastern Atlantic Ocean in about two days. Conditions were conducive for some development by mid-week while the wave moves westward at about 15 mph. Formation chance through 5 days was 20 percent.
— Phil Flynn
We kickoff the morning with Business Inventories and Retail Sales at 7:30 A.M., NOPA Crush at 11:00 A.M and API Energy Stocks at 3:30 P.M. The weekly USDA Crop Progress report showed Corn & Soybeans unchanged from a week ago, according to an average of estimates bu 10 analyst polled by Reuters yesterday which Corn held a firm 60% good to excellent rating. The weather forecast for rains and hot humid weather which is ideal growing conditions for Corn which could pressure the market further before we see any short-covering rally ahead of harvest pressure. In the overnight electronic session the September Corn is currently trading at 358 ½ which is 4 ¼ cents lower. The trading range has been 361 to 358.
On the Ethanol front the September contract is currently trading at 1.578 which is .002 of a cent lower. The trading range has been 1.580 to 1.578. The market is showing 1 bid @ 1.566 and 2 offers with 3 contracts traded and declining Open Interest of 690 contracts.
On the Crude Oil we sold off yesterday on light volume and hit stops with no real headlines over the weekend. Today’s API Energy Stocks should show further draws with the many Tropical Disturbances the past couple of weeks in the Atlantic near the Gulf of Mexico region. In the overnight electronic session the September Crude Oil is currently trading at 4729 which is 30 points lower. The trading range has been 4777 to 4720.
On the Natural Gas front Mother Nature continues to toy with this market as she has in all of 2017. Now that Hurricane Gert is headed up the Eastern Seaboard, there are two other Tropical Disturbances lurking in the Atlantic in this active hurricane season. In the overnight electronic session the September Natural Gas is currently trading at 2.944 which is 1 ½ of a cent lower. The trading range has been 2.972 to 2.932.
— Daniel Flynn
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