We kicked off the day with a lot of economic reports starting with Jobless Claims and Personal Income at 7:30 A.M. Central, Chicago Purchasing Manufacturing Index (PMI) at 9:00 A.M., EIA Gas Storage at 9:30 A.M., EIA Energy Stocks at 10:00 A.M. and Dairy Product Sales at 2:00 P.M. with earnings coming out as well. We also have the European – U.S. talks on tariffs on metal products today. Plenty of news is in the air today. Tropical Storm Alberto flooded parts of the Mid-West but certain regions did get the perfect measure of rain and we will see temperatures reach 90 degrees today which is perfect growing weather for Corn. We are still surveying the possible flood damage in some fields with heavy rains. In the overnight electronic session the July Corn is currently trading at 395 ½ which is 2 cents higher. The trading range has been 397 ½ to 393 ¼.
On the Ethanol front the July contract is trading at 1.485 which is .004 higher. The trading range has been 1.485 to 1.484. The market is currently showing 1 bid @ 1.483 and 2 offers @ 1.486. 4 trades past hands and Open Interest is at 1,199 contracts.
On the Crude Oil front we should get more of a pullback with tariff talk and drama with Italy elections that could Segway into them leaving the Euro. I still believe in the long run they will know that would be a bad move. With all the headlines as the market sells off it could be an awesome buying opportunity with a possible revision from last week’s huge build on Crude Stocks that just did not add up. The report is scheduled to be released at 10:00 A.M. In the overnight electronic session the July Crude Oil is currently trading at 6761 which is 60 points lower. The trading range has been 6830 to 6752.
On the Natural Gas front the July contract is currently trading at 2930 which is 4 ½ cents higher. The trading range has been 2.940 to 2.887. Today we have the EIA Gas Storage at 9:30 A.M. The Thomson Reuters weekly poll with 19 analyst participating expect builds anywhere from 88 bcf to 107 bcf with the median build of 102 bcf. This compares to the one-year build of 80 bcf and the five-year average build of 97 bcf.
— Daniel Flynn
The Energy Report: Russia calks and the Italians talk
Oil prices roared back after the Russia central bank sent signals that they were not very happy about the rapid drop in crude prices, and European markets bounced back as Italian political factions have decided to talk. This comes as there is more evidence that OPEC and Non-OPEC have achieved their goal of getting rid of the global petroleum glut. The Energy Information Administration (EIA) reports that the global glut of oil and liquids is gone, as global supplies are back at the five-year average.
This is not comforting as more companies are bailing on doing business with Iran as U.S. sanctions loom while global demand is soaring. As we predicted years ago when everyone was telling you that cheap energy prices were here for the foreseeable future, we said that we were laying the groundwork for a new super bull cycle. While we may see another test of the lows in oil, that may be the next best buying opportunity this year.
When Saudi Arabia and Russia signaled that they were laying the groundwork for a potential oil production increase at the June 22nd meeting to offset the plunge in Venezuelan output and the potential loss of Iranian supply, they had no idea that it would quickly take almost 8% off the price in a few days. They probably had no idea because the increase, rumored on the high side to be an increase of 1 million barrels a day, is only a drop in the bucket compared to what the market was losing from the OPEC bad boys, Iran and Venezuela.
So, when Reuters reported that the Russian central bank said falling oil prices would pose a risk to the country’s financial sector, the market took that as a sign that Russia may not want to agree to raise output unless prices stabilize. And if Russia is worried about the sharp drop in oil prices in such a short period of time, you can bet your bottom barrel that the rest of the OPEC members are concerned as well. So traders, you must play close attention to the OPEC pre-meeting on June 2 in Kuwait City as they meet to discuss “OPEC matters” ahead of next month’s OPEC/non-OPEC meeting in Vienna.
Italy Cries, that is so two days ago. Not to make light of the financial and political issues in Italy and Spain but the market’s reaction to the turmoil was overdone and ahead of itself. The Guardian reports that the leader of the Italian far-right party “the League”, Matteo Salvini, cancelled political rallies to return to Rome early on Thursday, in what was a sign that what has left the country without a fully-functioning government for months might soon be coming to an end. Salvini was heading back to the capital to meet with his coalition partner, Luigi Di Maio, the 31-year-old head of the anti-establishment “Five Star Movement”, to form a government.
The Guardian says that Italian press reports indicated that any agreement to form a new populist government involving the League, formerly known as the Lega Nord, and M5S would include the nomination – again – of Giuseppe Conte, a formerly obscure law professor, to serve as prime minister. But the two populists, Di Maio and Salvini, were expected to back down on their earlier insistence that the 81-year-old Eurosceptic Paolo Savona, who had called Italy’s adoption of the euro a “historic mistake”, serve as finance minister. So, in other words the fears of a full-blown crisis in the EU is unlikely and even if it does happen the global economy is in a much better position to handle it.
The real crisis may be another price spike in oil as companies run away from Iran, greatly increasing the odds that Iran’s oil exports will be greatly reduced shortly. Reuters has reported on a few. French gas and power group Engie (ENGIE.PA) said on May 18 it would end its engineering contracts in Iran by November. Poland’s dominant gas firm PGNiG (PGN.WA) has suspended a gas project in Iran because of the risk from U.S. sanctions, its deputy chief executive said on May 18. French oil major Total (TOTF.PA) said on May 16 it would pull out of the South Pars project and unwind all related operations by Nov. 4 “unless Total is granted a specific project waiver by U.S. authorities with the support of the French and European authorities.” There are surely more that will be added.
This comes as the glut is gone. Do you remember the oil supply glut that they said would never go away because of shale oil and OPEC not being able to comply with cuts? They told us that that we would have a glut for maybe decades to come. Well they forgot to factor in demand growth and the impact of a trillion dollars in capital spending cuts, and they did not pay attention to the changing political and economic dynamics in the OPEC Cartel.
The Energy Information Administration reported that total liquid fuels in the United States and OECD countries have returned to the five-year average. The EIA says that global petroleum inventories declined through 2017 and the first quarter of 2018, marking the end of an extended period of oversupply in global petroleum markets that began before the Organization of the Petroleum Exporting Countries (OPEC) November 2016 agreement to cut production. OPEC plans to reconvene on June 22, and markets now appear more in balance, but uncertainty remains going forward.
Because of the November 2016 OPEC supply agreement, which took effect in January 2017, OPEC member countries agreed to reduce crude oil production by 1.2 million barrels per day (b/d) compared with October 2016 levels and to limit total OPEC production to 32.5 million b/d. In addition, Russia agreed to reduce its crude oil production. OPEC extended the agreement in November 2017, with the production cuts remaining in place until the end of 2018.
The American Petroleum Institute reported that crude Inventories were up +1.001 million barrels Gasoline down 1.682 million barrels and distillates up 1.466 million barrels and Cushing saw a drop of 132,000 barrels, The Trade is going to await the EIA version before getting too excited. Because of the holiday we also get the Natural gas number today and we should see an injection of 101 bcf.
— Phil Flynn
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