With the European markets back in action today there will be more volume of trades and the fear factor of tariffs and high tech espionage rattled the markets yesterday after a long Easter weekend. At the moment the market is showing me that it cannot justify the overreaction of yesterday’s selloff. However, the market is always right. President Trump and his administration is moving on fair trade and foreign policy and the changes look to benefit the American worker and consumer. Let’s see how this chapter works out. On the Corn front the market is treading water and in the overnight electronic session the May Corn is currently trading at 387 ¼ which is unchanged. The trading range has been 388 ½ to 386 ¾. We also need a break in the weather to bring spring temperatures so the farmers can begin to cultivate the fields.
On the Ethanol front China said it would slap on an extra 15% tariff on U.S. Ethanol with duties already at 30%. If they are serious about their ambitions to have the percentage of Ethanol in their fuel by 2020 and expect Grains for feed and human consumption with the agriculture markets the way they are globally this year across the globe you can expect China to not be a Barney Fife and shoot themselves in the foot. The long and short, they will come back to the table and break bread. No pun intended. In the overnight electronic session the May Ethanol is currently trading at 1.419 which is .008 lower. The trading range has been 1.427 to 1.400.
On the Crude Oil front Genscape found more supply than previously expected in Cushing, Oklahoma and with light volume and the Stock Market taking a beating the Crude Oil and Products eventually followed suit. The fundamentals are still there to have the market trade higher and get back into balance regardless of tariff or trade war talk, cooler heads will prevail. At 3:30 P.M. we have the weekly API Energy Stocks that could bring a dose of realty back in the marketplace. In the overnight electronic session the May Crude Oil is currently trading at 6331 which is 30 points higher. The trading range has been 6357 to 6286.
On the Natural Gas front it is the same old song. In the overnight electronic session the May contract is currently trading at 2.683 which is unchanged. The trading range has been 2.691 to 2.667. If the weather finally breaks so will this market to reach the Cash market.
— Daniel Flynn
The Energy Report: Crazy for You
The oil sell-off was just downright crazy. Oil got caught up in trade war fears, tech wreck fears, OPEC/Non-OPEC compliance fears, and a build in Cushing Oklahoma oil stocks as reported by Genscape. Stocks had the worst start to April since 1929 but really the magnitude of this sell off was a big April’s Fools Day joke, just one day late.
The trade war fears are really overblown as there were no tariffs put on oil and tech wreck fears really has little to do with oil demand and just because Russia had a seasonally expected increase in oil production does not mean the OPEC /Non-OPEC deal is falling apart. Skeptics of this unholy OPEC/NON-OPEC alliance have been waiting for it to fall apart for over a year and a half, before it even started. Yet, the crowd has misread OPEC and Russia’s intentions and to suggest that the OPEC/NON-OPEC alliance is falling apart is just ridiculous.
Oil freaked out when it was reported that Russia’s oil output edged up in March to an 11-month high of 10.97 million barrels per day (bpd), slightly above a limit agreed under a global supply pact, energy ministry data showed on Monday according to Reuters. Yet, Russia had to raise production to meet weather related demand. Reuters reported that “Russia reached the production cuts compliance (with the OPEC deal) of 93.4 percent. The fluctuations of the liquid hydrocarbons in March were due to a high demand for gas and seasonality on the domestic market,” Energy Minister Alexander Novak said in a statement. “Russia is fully committed to reaching the balance on the oil market,” he added.
Besides, OPEC and its allies are at a compliance rate of 138 percent of pledged output reductions last month. Anyone who suggests that a one month increase by Russia is a deal breaker has got to be telling you a bad April Fool’s joke. The reality should soon set in and we should be primed up for another turnaround Tuesday.
Genscape, the private forecaster, did add to the bearish mood by reporting a sizable 2,646,345-million-barrel increase in Cushing Oklahoma. Yet even with the increase that storage still has supply well below year ago levels. Oil demand is on the rise with expansion in the U.S. and Chinese manufacturing sectors.
Trade war mania did increase after China increased tariffs by up to 25 percent on 128 U.S. products from frozen pork and wine to certain fruits and nuts, but I stress not on oil. The response is very muted by the Chinese and it looks like this was a saving face gesture before the Chinese start to negotiate with the Trump Administration.
Not Funny Elon. Elon Musk’s joke about Tesla added to the tech wrecks woes. Musk tweeted that “Despite intense efforts to raise money, including a last-ditch mass sale of Easter Eggs, we are sad to report that Tesla has gone completely and totally bankrupt.” Of course, if Tesla goes bankrupt that may be bullish for oil. If the company that advanced the ball on electric cars is having trouble, perhaps the talk of the death of the internal combustion engine is greatly exaggerated. The Peak demand theorists will have to push back their so called peak demand dates.
Marketwatch is reporting that President Donald Trump reportedly is “obsessed” with Amazon.com Inc. Chief Executive Jeff Bezos and is seeking ways to damage the company, according to a report late Monday by Vanity Fair. Amazon has been the target of harsh tweets by Trump in recent days, according to Marketwatch, and its stock slid more than 5% Monday. The president has especially railed against the tech giant for skirting state sales taxes and its deal with the U.S. Post Office, which Trump claims loses money for the USPS, although independent analysts say the Post Office makes a profit on the deal. Amazon also pays sales taxes in 45 states.
Yet, this should not impact oil. Amazon is not going away anytime soon and the so-called potential for a trade war is being overblown. It is obvious that the theft of intellectual property by China as well as their tariffs on U.S. cars and wheat to name a few are out of line. China knows they have been getting away with it and now they know it will be time to negotiate.
— Phil Flynn
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