New contract lows and with yield reports from different Corn growing regions that tell a different story cannot spark any type of a cohesive rally. Now edging closer to Labor Day and Harvest Season weather will be a premium to this market. The market has digested a lot of selling pressure and talk of an early frost could send this market in a bullish frenzy and the smart shorts in this market are not pressing the accelerator further at this time of the season and at these price levels. In the overnight electronic session the September Corn is currently trading at 347 ½ which is 1 ½ of a cent higher. The trading range has been 347 ¾ to 345 ¾.
On the Ethanol front the October contract is currently trading at 1.494 which is .001 of a cent lower. The trading range has been 1.506 to 1.494 with 5 contracts traded and Open Interest at 810 contracts.
On the Crude Oil front yesterday’s weekly API Energy Stocks data was bullish for Crude Oil but a little bearish to Products. This morning we will have the EIA Energy Stocks which we are hearing whisper numbers are talking more bullish picture. Light volume and algorithms can’t keep this market below $50 a barrel for ever. When the bottle top pops, look out for the rally. In the overnight electronic session the October Crude Oil is currently trading at 4769 which is 14 points lower. The trading range has been 4778 to 4753.
On the Natural Gas front the market is still trading on oversupply and weather that has not pressured the power grid this year. In the overnight electronic session the September contract is currently trading at 2.919 which is 2 cents lower. The trading range has been 2.957 to 2.901.
— Daniel Flynn
The Energy Report: Moody
The oil market is moody as the market is trying to balance a -3.595milliom barrel drop in crude supply against a 1.402-million-barrel increase in gasoline supply and a larger 2.048-million-barrel jump in distillates. The American Petroleum Institute did report a drop of 462,000 barrels in Cushing, Oklahoma which is a sign that we are seeing supply drop in the key delivery point. So, while the oil market floats during seasonal weakness, the signs are becoming clearer that the global oil market is getting in balance as US oil production is headed towards a short-term peak.
Peak shale oil production is a concept that we saw coming and when we started to warn about this, most people could not conceive that it was possible. Yet now we are hearing warnings about a top in US production by people inside and outside of the industry. As big oil companies look to cut back and reduce debt, change CEO’s like Chevron and Exxon, the top in production is closer and the continuation of the generational bottom in oil that we talked about last year is being solidified.
We covered it in our “Summer Solstice” turning point report and in an article and on air on the Fox Business Network. Yet what seemed like a crazy idea now is coming true and remember you heard about it first from me on the Fox Business Network. In fact, in a report by Senior Economist Erik Norland at the CME Group he is asking whether US oil production is about to peak. He brings up many of the same points that I have been making about what we see is an overconfidence in oil production to expand in the current price environment. As oil supplies fall for the first time in three years, it is becoming apparent that US shale is no match for OPEC production cuts. Norland says that output could still rise over next few months before falling but should peak at about 9.75 million barrels per day.
The number of operating oil rigs plateaued at just over 750 in July, according to data from oil services provider Baker Hughes. This by itself may point to a decline in U.S. oil production. However, it takes, on average, about four months or so for an oil rig to begin producing significant amounts of oil, although time lags can be vary considerably depending upon the equipment and the field. And, there are about 100 more rigs operating today than there were four months ago. This suggests the possibility of some further upside for oil production over the next few months.
“What is more concerning [says Norland] is the collapse in marginal rig productivity. When the oil market began to rise last May, the energy industry deployed its best equipment to its most promising fields. Initially, each additional rig contributed 6,000 barrels of oil per day within four months to U.S. total production in excess of the depletion rate. As time went on, the number of rigs soared and U.S. production continued to rise. But by February of this year, the marginal productivity of each new rig fell by about 75%; each new rig was adding only about 1,400 barrels per day in excess of the depletion rate. This reflects both the short-term nature of many of the shale plays, with fast rises and quick declines in oil production as well as the fact that the energy industry had been deploying less advanced equipment to less promising fields as much of the low hanging fruit had already been picked.
EIA report today! Look for a post report rally. Libya is up, down and up again with production stay tuned. Market Watch says, “confusion surrounding the status of Libya’s largest oil field, Sharara, also contributed to price uncertainty, according to analysts at Commerzbank. Sharara was shut down this past weekend after a local tribe closed a pipeline in a dispute over jobs. The market has subsequently responded to conflicting reports about whether the oil field is set to reopen.”
Some talk of a cold September is giving natural gas support. We are seeing the smallest cushion of supply over the five year average in years.
— Phil Flynn
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