Today we have the weekly API Energy Stocks which could change the balance of the table. In the commodities I write in this market letter we could see the weather as a major game changer and key fundamental factors in Corn, Crude Oil, Ethanol and Natural Gas and investors will be watching the weather factors unfold. The two Tropical Disturbances in the Atlantic has had one disturbance now categorized as Tropical Storm Don. With an active hurricane season forecasted and we are seeing activity this early with warm water temperatures in the Atlantic and crazy 2017 weather temperatures overall we may see investors wondering what sort of a bumper crop we should expect with crop ratings not as great than expected. The Corn market is indicating that temperature and precipitation during this month will be critical to future downgrades expected in crop and yield reports. The next couple of weeks should show market volatility as investors jockey their positions for the big move. In the overnight electronic session the September Corn is currently trading at 386 which is 11 cents higher. The trading range has been 388 ¾ to 378 ¾. Weather is the key in these markets from here and now.
On the Ethanol front the September contract is currently trading at 1.547 which .017 cents higher. The trading range has been 1.547 to 1.545. The Estimated Volume showed 31 contracts traded and the September rollover is outpacing the August contract as the lead month. Open Interest is growing in September at 571 contracts with declines in the August contract at 731 contracts.
On the Crude Oil we have the weekly API Energy Stocks data released at 3:30 P.M. We had August Option Expiration yesterday which moved the market to $46 a barrel handle. This market needs to get in balance and a close above $47 a barrel will get technicians rethinking the bearish news and we could see a lights out rally well an above $50 a barrel. In the overnight electronic session the August Crude Oil is currently trading at 4671 which is 69 points higher. The trading range is 4675 to 4581 and looking stout with a weaker U.S. dollar.
On the Natural Gas front we are monitoring the movement of Tropical Storm Don which if he changes the current course could move into the Gulf of Mexico and disrupt Oil Rigs and shipping from the Houston Shipping Channel. Again weather in the lower 48’s and down below may create market volatility traders have been waiting for. And this could be a weather driven market and bring movement across the board. In the overnight electronic session the August Natural Gas is currently trading at 3.066 which is .046 cents higher. The trading range has been 3.075 to 3.020.
— Daniel Flynn
Energy Report: Oil cracks
Oil prices are trying to recover on a weak dollar after selling off yesterday on the August oil future contract expiration. Also on a prediction by the Energy Information Administration (EIA) that US oil production would rise by 113,000 barrels a day to 5.585 million barrels a day in August from July, even as they overestimated Junes production by a wide margin. There is also a report that tiny OPEC producer Ecuador is going to raise oil output as it desperately needs some money. This comes as the market should be preparing for another big drop in US crude supply and we’ll keep an eye on the Atlantic where Tropical Storm Don has formed that will impact crude shipments going into and out of the Gulf of Mexico.
Let’s talk shale output first. The EIA says that it will increase by 64,000 barrels in August but they are probably overestimating that number again as it is not considering the rising amount of non-completed wells. Also, we are seeing the increase in oil rigs already start to slow as many independent operators have started putting on the breaks as capital dries up. Previous wells that were drilled in the beginning of the shale resurgence are already facing steep production decline rates so more rigs and more rig completions are going to be needed to keep shale production on this upward trajectory.
The challenges in the sector also caused a major failure of a private equity fund. The Wall Street Journal Reported yesterday that, “EnerVest Ltd., a Houston private-equity firm that focuses on energy investments, manages the fund. The firm raised and started investing money in 2013, when oil was trading at more than double the current price of about $45 a barrel. But the fund added $1.3 billion of borrowed money to boost its buying power. That later caused it trouble when oil prices tumbled. Now the fund’s lenders, led by Wells Fargo are negotiating to take control of the fund’s assets to satisfy its debt, according to people familiar with the matter. The outcome will leave investors in the 2013 fund with, at most, pennies for every dollar they invested, the people said. At least one investor, the Orange County Employees Retirement System, already has marked its investment down to zero, according to a pension document.”
The point is that capital for energy projects is going to be harder to find until we see oil break back up into the $50’s. Even at that point the process of adding rigs and adding production is going to take time. Therefore, I predict that the EIA is overestimating production increases once again.
Of course that begs the question whether OPEC can keep their production cut agreement together. While the cartel looks to put a production celling quota on Libya and Nigeria, word comes that Ecuador wants to raise production. They have complied to their 26,000 barrel a day cut and said they had a deal with OPEC to be allowed to raise output if things got desperate. Looks like things are desperate but this should not really matter or upset the larger OPEC deal.
The healthcare bill is going nowhere and the dollar index took that as a negative! For commodities that is bullish and we are seeing the most increase from precious metals to grains and even oil. Probably overdue and our gold report is looking golden.
The API is out tonight. Last week U.S. crude inventories fell 7.6 million barrels last week, its biggest weekly fall in 10 months, according to the U.S. Energy Information Administration (EIA).
Tropical storm Don has formed in the Atlantic. Weather Underground reports that Don will continue to move west to west-northwest at 15 – 20 mph through Wednesday, which will bring the core of the storm over the southern Lesser Antilles Islands on Tuesday evening through Wednesday morning. Dry air will continue to interfere with development, and the 18Z Monday run of the SHIPS model predicted that relative humidity at mid-levels of the atmosphere would drop to 55 – 60% by Wednesday. With wind shear expected to remain low to moderate through Wednesday, there is the potential that Don could strengthen to have top winds in the 55 – 60 mph range as it moves through the Lesser Antilles. On Thursday, when Don will be in the Eastern Caribbean, wind shear will rise to a high 25 knots, and the 70 members of the 12Z Monday European and GFS model forecasts predict that Don will weaken and meet its demise by Friday. However, Don could potentially affect the ABC Islands and make landfall in northwestern Venezuela late in the week before dying.
The Price Futures Group’s mission is to provide traders and investors with industry-leading trading solutions, informative market analysis, and cutting-edge technologies which enable efficient decision-making. The Group is available answer marketing questions and meet your investment needs. Find the company online at www.pricegroup.com or call the Chicago office at (888) 264-5665.