Nate made landfall in Mississippi as a Category 1 when it hit Biloxi and quickly lost strength as it moved very fast. We also have Tropical Depression Seventeen lurking in the Atlantic and looks to be a threat to the eastern seaboard with Maximum Sustained Winds at 30 knots moving north at 3 knots. On the Grain front the complex could not hold in the green. In the overnight electronic session the December Corn is currently trading at 350 which is unchanged. The trading range has been 351 ¾ to 349 ½. Trade estimates for Thursday Crop Production USDA Supply/Demand average Corn 2.289 billion bushels and estimates on the high side at 2.450 billion bushels and 2.168 billion bushels on the low side versus Septembers 2.335 billion bushels.
On the Ethanol front the November contract is currently trading at 1.405 which is 1 ½ of a cent lower. The trading range has been 1.412 to 1.405. The market is currently showing 1 bid @ 1.411 and 2 offers @ 1.429 with Open Interest at 1,048 contracts.
On the Crude Oil front the November contract is currently trading at 4930 which is 1 tic higher. The trading range has been 4957 to 4913. The market has priced in no real damage to refineries from Nate and API Energy Stocks will be postponed until Wednesday at 3:30 P.M and the EIA Stocks until Thursday at 10:00 A.M. due to the Columbus Day holiday.
On the natural Gas front the November contract is currently trading at 2.873 which is 1 cent higher. The trading range has been 2.886 to 2.835.
— Daniel Flynn
Seasonal Bottom Pick
Oil and product prices pulled back Friday as it became clear that Hurricane Nate would only cause a short-term impact on U.S. oil production and that there was no damage to off shore oil rigs. The fast storm means that production will come back on line quickly as the U.S. energy industry will rise to the occasion and continue to do the amazing work they have done storm after storm. Just think that over 90% of oil production in the Gulf was down as personnel was evacuated from a total of 301 production platforms, 40.84 percent of the 737 manned platforms last week and already most of that is already back to normal. Let’s hope they get a break from the storms for a while.
The oil market sell-off was exasperated by an apparent flip flop by Russia about the prospect of another oil production cut. Oil price soared after our buddy President Vladimir Putin suggested that he was in favor of an extension of production cuts which more than likely would have sealed the deal. Yet now it looks like he and Saudi Arabia backtracked on the statement. Not because they won’t extend cuts but It is because they do not want to have the market price it in a cut too early so it looks like a disappointment when they announce the extension at the November 30th OPEC meeting.
OPEC Secretary-General Mohammad Barkindo did say that that consultations were under way for an extension of the agreement beyond March 2018 and that more oil-producing nations may join the supply pact and said that producers may have to take some “extraordinary measures” to ensure the market is in balance in the long term. That may mean an even larger cut or perhaps forcing Libya and Nigeria into agreeing to a production cap. I think that OPEC wants to give the market strong support as they kick off the strong demand period.
That is why we feel that this recent sell-off is setting the stage for a seasonal low. We are looking to lock in positions ahead of the traditional seasonal rally. As the global oil market gets in balance and the lack on investment in oil means that spare oil production capacity next year could be the tightest it has been in almost a decade. That means oil price will become more sensitive to geopolitical events in the future. We felt that we are close to making a seasonal bottom pick that may get us close to the low for the rest of the season. Global demand is rising and supply is falling and spare production capacity is going to tighten.
U.S. oil exports have surged to a record of close to 2 million barrels a day as the U.S. rig count fell by 2 to 748 last week as the overall count fell by 4. That is another sign that producers are pulling back. It’s not just the storm because the pullback in rig counts is global.
Not only the U.S. rig count but the International rig count fell as well. The international offshore rig count for September 2017 was 190, down 11 from the 201 counted in August 2017, and down 31 from the 221 counted in September 2016. The average US rig count for September 2017 was 940, down 7 from the 947 counted in August 2017, and up 431 from the 509 counted in September 2016. The average Canadian rig count for September 2017 was 210, down 7 from the 217 counted in August 2017, and up 69 from the 141 counted in September 2016.
The worldwide rig count for September 2017 was 2,081, down 35 from the 2,116 counted in August 2017, and up 497 from the 1,584 counted in September 2016.
Less of your paycheck is going to gasoline the Energy Information Administration (EIA) reports that the average U.S. household expenditure on gasoline in 2017 is expected to total $1,977, or approximately 2.4% of many incomes of households, according to projections in EIA’s most recent Short-Term Energy Outlook (STEO). The most recent peak for household gasoline expenditures was $2,715, or 4.0% of household income, in 2008. More recently, average household gasoline expenditures in 2015 and 2016 were near or below $2,000, or 2.5% of total household income.
Household gasoline expenditures have fluctuated over the past 10 years as a result of changes in gasoline prices and consumption. When gasoline prices are relatively high, more of a household’s income is devoted to gasoline expenditures, leading to lower gasoline consumption and efforts to improve vehicle fuel economy.
Declines in gasoline prices since 2012, however, have led to increases in vehicle travel and increases in gasoline consumption. Based on EIA’s latest STEO projections, continued low gasoline prices are expected to lead to record-high gasoline consumption of 9.3 million barrels per day for 2017.
Lower gasoline prices have contributed to decreasing household gasoline expenditures since 2012, as gasoline consumption has generally increased. STEO estimates that gasoline prices will average $2.48 per gallon in 2017, which is 33% lower than the price in 2012.
— Phil Flynn
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