After a long weekend we are back in the saddle today starting with Export Inspections at 10:00 A.M. But released late Friday may be the news in the big picture in today’s trading session after Commerce Secretary Wilbur Ross was quoted, “ found that the quantities and circumstances of Steel and Aluminum imports threaten to impair national security”. This new spurred gains in Metal prices and shares of Alcoa Corp., Century Aluminum Co. and U.S. Steel. However, some people counter saying this could threaten U.S. Manufacturing Jobs and cancellation of China’s tenders on Grain. This story was reported by Joe Deaux and Andrew Mayeda of Bloomberg. In the overnight electronic session the March Corn is currently trading at 369 ¼ which is 1 ¾ of a cent higher. The trading range has been 369 ½ to 367 ½.
On the Ethanol front the rollovers to April from the March contract is in full force with April Open Interest exceeding the March. The March contract traded 22 contracts to the volume of 2 contracts in the April. The March contract is currently trading at 1.494 which is 1 cent higher. The trading range has been 1.494 1.484. The market showing 2 bids @ 1.491 to and 1 offer @ 1.493.
On the Crude Oil front the March contract expires today so we will change our focus to the April contract and the complex is rolling this morning. We have the API data delayed until tomorrow with the President’s Day holiday yesterday. In the overnight electronic session the April contact is currently trading at 6190 which is 35 points higher. The trading range has been 6265 to 6149. With now being the U.S. a net exporter, record demand and production and demand is outpacing production and OPEC announced it is still serious about production cuts this market is in a boom not a bust moving into shoulder season.
On the Natural Gas front the oversold market is seeing a short-covering rally this morning. In the overnight electronic session the March contract is currently trading at 2.633 which is 7 ½ cents higher. The trading range has been 2.662 to 2.631 with no real weather scare forecasted this week.
— Daniel Flynn
The Energy Report: Shale swings
WTI oil prices are gaining on Brent as strong U.S. demand and Canadian pipeline issues tighten U.S. oil supply even further. This comes as OPEC comments suggest that they are still fully committed to keeping production cuts in place until the end of 2018, along with their NON-OPEC coconspirators and even suggesting that the deal could go on longer if need be. Even talk that U.S. production could rise further and U.S. oil rig counts rise once again, it is still becoming clear to many that U.S. Shale production will not become the global swing producer the way some predicted it might be. U.S. oil rigs, drilling for oil, increased by 7 rigs to 798, the fourth increase in a row. One of the reasons the oil bears got it wrong was because they failed to grasp the intricacies of shale oil and the companies that produce that oil. They thought that shale would cap prices at much lower levels and that has proven to be false.
Today’s FT lays out the case why shale oil will not be the global swing producer. Simply, they say it is because “U.S. output is too small, too slow, and too competitive to play swing producer”. The thought that somehow shale was going to put a cap on global oil prices is a folly. The reason being is that not only shales steep decline rate per well but also its cost.
The FT says that “U.S. shale production is comprised of many dozens of highly idiosyncratic public and private companies, each competing with each other to maximize reserves and production. Shale’s shorter cycle ebb and flow can stabilize prices, but only coincidentally and depending on prevailing, broader market fundamentals.
The FT writes that “true swing production is a very different animal: swing producers comprise a relatively small number of government-sanctioned entities controlling the bulk of low-cost wells that collude under a policy mandate to stabilize oil prices. They adjust production proactively, at lightning speed by oil industry standards — weeks — and indefinitely to reduce price volatility and anchor long-term price expectations.
We continue to see upside risk for prices. Many of you that I have spoken to were under hedged during the last price spike. As we warned before this is a very tight global market and it would do you well to have some price protection. Even with the market entering shoulder season we are seeing strong demand. U.S. exports will continue to rise as light grades of oil will be filling super tankers headed for China.
Gas prices at the pump are getting a bit of a reprieve ahead of what will be the traditional summer price run-up.
— Phil Flynn
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