The information highway is giving us information again. With Apple earnings and more earnings we have several reports today starting with Personal Income at 7:30 A.M. Central Time, Construction Spending and ISM Manufacturing Index at 9:00 A.M. At 2:00 P.M. we have Cotton System, Fats & Oils and Grain Crushings. At 3:30 P.M. we have the weekly API Energy Stocks. So let’s buckle up our chin strap and get to work. Yesterday’s Crop Progress report showed little indication that our crops are even close to the records we shattered the past few years. Traders are banking on the American Farmer versus Mother Nature. Not a coin flip I would like. In the overnight electronic session the September Corn is currently trading at 369 which is 1 ¾ of a cent lower. The trading range has been 371 ½ to 367 ¾. Much needed rain is forecasted for Mid-West but could be another false alarm.
On the Ethanol front the U.S. government pushed a requirement for more biofuels to be blended with the country’s fuel supply which boosted the Soybean Oil in yesterday’s trading session. This could be more of a witches brew as the Energy markets have woken up from a slumber and we move closer to harvest. In the overnight electronic session the September Ethanol is currently trading at 1.525 which is .024 cents lower. The trading range has been 1.540 to 1.523. We could see more drama in this market with Energies trading hot and heavy and we are so close to harvest.
On the Crude Oil front, “do I dare say we are overbought?” The technicals say yes but the fundamentals paint a completely different picture. In the overnight electronic session the September Crude Oil is currently trading at 4978 which is 39 points lower. The trading range has been 5043 to 4974. Look to buy value at support prices.
On the Natural Gas front weather factors continue to pressure this market. Yesterday’s washout was a testament of how the weather has controlled this market in 2017 and is a major factor to where we go next. In the overnight electronic session the September Natural Gas is currently trading at 2.789 which is a ½ of a cent lower. The trading range has been 2.835 to 2.788.
— Daniel Flynn
The Energy Report: The bloom is coming off the shale patch
Oil prices cap off their best monthly gain since April of 2016 as geo-political risk is rising in Venezuela and a report from the Energy Information Administration(EIA) saying that we are not producing as much oil as we thought we were.
The limitaions of shale oil production are being exposed as it is becoming clear to the market that light shale oil cannot totally replace Venezuelan heavy oil and the EIA reduced US production estimates for May by a substantial 150,000 barrels a day from a previous estimate of 9.32 million barrels a day to just 9.17 million barrels a day. The reduction suggests that on shore oil production since September came in at only 350,000 barrels per day which is just a third of what was expected by the market. This explains in part why we have been seeing these massive draws in the US and now global supply.
This comes as shale producers are pulling back on investment. While oil prices had their best month since 2016, rig operators added only 10 new oil rigs, the lowest since May of 2016. Many shale oil drillers are deep in debt and many can’t even afford to hedge their production going forward. Many also must repay billions in debt payments in 2017 and 2018 on their sub-investment grade bonds making it harder for them to ramp up production this year and raising the possibility of more shale bankruptcies. We wrote about this months ago and now others are picking up on this theme. We wrote an article on the Fox Business Network website about this and it is covered in my “Summer Solstice” webinar where we felt that mid-summer for oil was the low of the year and that we expected that oil would double from those mid-summer prices.
Shale oil cannot replace heavy Venezuelan crude. Venezuela is the third largest supplier of oil imports to the U.S. accounting for 10% of US oil imports. US Gulf Coast refiners rare geared to Venezuela’s unique brand of heavy, tar-like crude. Even as refiners have adapted to less Venezuelan crude, it wll impact US gas prices. So far, the sanctions have only targeted Venezuelan President Nicolás Maduro, after an election that the Trump Administration said was pointing toward dictatorship. Shale oil production can’t replace OPEC and non-OPEC cuts and the falling supply is clear evidence.
We are also have seen a reversal in gasoline demand numbers blasting the myth that low gas prices are always good for the consumer. We should educate the consumer that too low of a price for gasoline at times means that the economy is suffering. Robust demand and slightly higher prices are good as it means more Americans are working and we can have a thriving energy industry that has already revitalized many towns and cities in this country.
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