We kickoff this morning with Export Sales and Initial Jobless Claims at 7:30 A.M. followed with Capacity Utilization, Industrial Production at 8:15 A.M. and EIA Gas Storage at 9:30 A.M. The Grains are trading higher in the overnight electronic session. The complex is getting a bounce after being heavily sold in prior trading sessions. Another factor is a forecasted cool front that could further support this dead cat bounce. There will be more crop surveys predicting lower yields; however, most investors are banking that the carryover will have the upper hand in any possible explosion of buyers in the marketplace. Another supporting factor is lack of Brazilian and U.S. farmer selling at these price levels. In the overnight electronic session the September Corn is currently trading at 353 ½ which is 1 cent higher. The trading range has been 353 ¾ to 352 ½.
On the Ethanol front there were no trades posted in the overnight electronic session. The September contract settled at 1.5331 and is currently showing 3 bids @ 1.523 and 2 offers at 1.547 with declining Open Interest at 497 contracts. The October contract Open Interest has surged ahead in rollover time to 764 contracts.
On the Crude Oil front the market is down again even after consecutive weeks with huge draws in Stocks. It is just a matter of time when the sleeping giant wakes up and we will near immediately feel the pinch at the pump as we will have a mass exodus of shorts in the market. In the overnight electronic session the September Crude Oil is currently trading at 4656 which is 22 points lower. The trading range has been 4695 to 4652.
On the Natural Gas front we have the weekly EIA Gas Storage where we are expecting an injection build of 50 billion cubic feet (bcf). The real story investors are keeping a keen eye on is the tracking of 3 Tropical Storms in the Atlantic which 2 of the 3 have been upgraded by the National Hurricane Center and those 2 show a current path directly headed into the Gulf of Mexico. This will create disruptions and the fate of these storms could make a direct hit in the Henry Hun neighborhood. This could spark a rally as we head into the weekend. In the overnight electronic session the September Natural Gas is currently trading at 2.880 which is 1 cent lower. The trading range has been 2.899 to 2.868.
— Daniel Flynn
Dog Days
Oil prices were a dog yesterday as the summer doldrums and rising US oil production failed to inspire the market despite another near record crude oil draw. The market also fell on a report that the US will sell more oil out of the Strategic Petroleum Reserve. Shale hopes may run high as we get into shoulder season yet the drop in oil inventory will start to become a concern as soon as the normal players start paying attention to massive crude drawdowns and near record global demand. The mood for oil is weak as we approach shoulder season and it’s still a week until we have news that will awake us out of our summer slumber.
US production rising was really the only bearish indicator in the whole report. The Energy Information Administration (EIA) reported the US oil production increase of 79,000 barrels a day is near record highs to 9.502 million barrels a day with a big jump in Alaskan production and the lower 48 states as well. That overshadowed the massive and historic 8.9-million-barrel crude drop because supplies are still in in the upper half of the average range for this time of year even as demand is blowing away the five-year average. Some pointed to the 678,000-barrel increase in Cushing, Oklahoma stocks as they rose to a hefty 57 million barrels.
US refiners are on fire running at a much higher than expected 96.1% of capacity, that’s 17.6 million barrels of crude oil a day. The demand for oil products supplied over the last four week period averaged a whopping 21.2 million barrels per day, up by 2.0% over a year ago. While gasoline demand fell to an average of 9.7 million barrels per day, which was down by 0.3%, it was made up by explosive distillate demand that is averaging 4.3 million barrels a day up by 15.9% over a year ago as the US manufacturing industry starts to sizzle.
With these strong demand numbers, oil will be well supported on breaks even as we may experience some seasonal weakness. Look to use breaks to buy calls going into next year. Also, the bull spreads on oil should start to work as the refiner demand for heavy crude will keep the front end strong with the realization that a lot of the shale condensate that is being counted in storage cannot be used by US refiners.
Oil also saw weakness on the SPR news. The UPI reported that the U.S. Department of Energy said it plans to sell some of the oil from the Strategic Petroleum Reserve, the world’s largest emergency supply of oil. The department’s Office of Fossil Energy said the sale from the federally owned stockpile was scheduled for late August. The office aims to draw down and sell 14 million barrels of oil in order to meet the requirements of bipartisan legislation, most recently enshrined in the 21 Century Cures Act. Under the measure, signed in January, the government aims to sell off 25 million barrels of oil over the next three years, with 9 million on tap for sales next year. “Revenues from the sale will go to the general fund of the United States Department of the Treasury, to carry out the National Institutes of Health’s innovation projects,” the department reported.This would be the second release from the SPR this year and would come at a time when analysts and investors are watching for data indicating the degree to which the market is balanced between supply and demand.
A report from S&P Global Platts that followed the first SPR release indicated the volume of crude oil injected into the market from the SPR would be relatively negligible and the long-term impact on the price for oil should be relatively minor. To put it in perspective, total U.S. crude oil production per day is around 9 million barrels. Phil Flynn, senior market analyst for the PRICE Futures Group in Chicago, told UPI that, “based on what we have seen lately, it will only replace two weeks’ worth of draws” from U.S. crude oil stockpiles.”
Worries, do we have worries. Not only must worry about replacing Venezuelan heavy crude to feed US refiners, but a big drop in Saudi imports to the US may leave some refiners stressed. The risk to supply also includes Mother Nature as the National Hurricane Center storm map looks like Pacman with one storm chasing another and then another storm after that! There are three tropical waves that will impact oil shipments and have the potential to disrupt oil and gas production next week.
The NHC says that, “1. Showers and thunderstorms are showing signs of organization in association with a low pressure system located about 550 miles east of the Lesser Antilles. Environmental conditions appear generally conducive for development, and this system has the potential to become a tropical depression while it moves westward across the tropical Atlantic Ocean and into the Caribbean Sea on Friday. Regardless of development, locally heavy rainfall and gusty winds are expected to spread across portions of the Lesser Antillestonight and Friday, and interests there and elsewhere in the eastern Caribbean should monitor the progress of this system. An Air Force Reserve reconnaissance aircraft is scheduled to investigate the disturbance this afternoon, if necessary. * Formation chance through 48 hours…medium…60 percent. Formation chance through 5 days…high…70 percent.
2. A second area of low pressure located about midway between the coast of Africa and the Lesser Antilles continues to produce disorganized showers and thunderstorms. Gradual development of this system is possible during the next few days while it moves west-northwestward at 15 to 20 mph, but upper-level winds are expected to become less conducive for tropical cyclone formation when the disturbance moves north of the Leeward Islands this weekend.* Formation chance through 48 hours…medium…40 percent. * Formation chance through 5 days…medium…50 percent. 3. A tropical wave located over the far eastern Atlantic Ocean near the Cabo Verde Islands is producing disorganized showers and thunderstorms. Gradual development of this system is possible during the next several days while it moves westward to west-northwestward at about 15 mph. * Formation chance through 48 hours…low…near 0 percent. * Formation chance through 5 days…medium…40 percent.”
Well it has been almost a decade since I was a featured Speaker at the Money Show. We filled some big rooms and met some awesome people! Well I thought I was retired from my travel and speaking days but my oil friends in Texas convinced me to come out of retirement! So, to all my good oil friends down in Texas, sign up for the Money Show in October before it sells out! It will be great to meet all of you in person finally. I’m excited to talk oil in the heart of oil in the Big D! It is about time someone gives you credit for all the good you do for the US economy and the great state of Texas. Look for The Money Show, Dallas, TX October 4-6, 2017. Hope yo see you there!
— Phil Flynn
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