In today’s trading session we have a lot to decipher with EIA Energy Stocks at 9:30 A.M., Crop Production USDA Supply Demand at 11:00 A.M., and Dairy Product Sales at 2:00 P.M., Beige Book, Janet Yellen testifying before Congress today, and, of course, weather will play a role even after the release of the Grain statistics. In the overnight electronic session the rains gave way to traders thinking rains make grain. However, more substantial inches fell much quicker and the 5 inches forecasted happened rather quickly and started flash flooding in certain growing areas which could have investors thinking more damage control especially most investors are convinced the Crop Progress will show less favorable conditions to the good to excellent rating. The September Corn is currently trading at 395 ¾ which is 6 cents lower. The trading range has been 400 ¾ to 395 ½ so far and is looking heavy in the early going.
On the Ethanol front the August contract is currently trading at 1.563 which is .002 of a cent higher. The trading range has been 1.568 to 1.563. The market is currently showing 4 bids @ 1.551 and 1 offer @ 1.562 with Estimated Volume of 12 contracts traded and Open Interest at 1,084 contracts. This market is still reeling on the news of the EPA 2018 proposal on volume of biofuels, Corn, Crude Oil, and Gasoline prices in the future.
On the Crude Oil front we had another massive draw on the weekly API Energy Stocks of 8.1 million barrels and Cushing, Oklahoma with another large draw of 2 million barrels. Yes U.S. production is up but so is are Exports and if we do not see prices rise there will be more deficits in Shale production and those wells will be capped. Even with Barclays and Goldman Sachs prediction of no $50 a barrel of Oil before summers end I would have to say expect lower rig counts and Shale production with the capping of many wells that once re capped will not produce like they were before the shutdown. Also the rise in rig counts were up in the northern regions and not in the Permian Basin. The International Energy Agency (IEA) expects global Energy investment to drop 12% which means the market is still out of balance and banks will not let producers write checks they cannot cash. In the overnight electronic session the August Crude Oil is currently trading at 4573 which is 69 points higher. The trading range has been 4602 to 4565.
On the Natural Gas front the market is giving a little bit back from yesterday’s rally. With the heat dome moving east and causing heat advisories I believe we will see this shallow selloff short lived. In the overnight electronic session the August contract is currently trading at 3.022 which is 2 ½ cents lower. The trading range has been 3.043 to 3.009.
— Daniel Flynn
Energy: Peaking oil production
Oil prices are getting a wakeup call after a lowering of the US oil production outlook, a report of a major drop in US oil supply and a warning by S&P to oil majors cut to back more and reduce debt levels or face downgrades.
The Energy Information Administration (EIA) is lowering the outlook for US crude oil production because of a revised oil price forecast that is $2 to $4 per barrel lower for late 2017 and during 2018 than the prior forecast that will make it less profitable for some U.S. producers to drill for oil. The EIA said that US crude production will average 9.9 million barrels a day, down from a previous forecast of 10.1 million barrels a day in what I predict will be the first of more production downgrades in the future.
As I have written before, the rush to add oil rigs by oil companies at a frantic pace seemed not to consider the well head profitability as well as the logistics for producing this shale oil. While the oil market has been so fixated on rising oil rig counts, the increase in uncompleted oil wells should have been raising some concern. What we are now seeing is a pullback in shale oil production that will hold back US oil output of shale until the economics start to make more sense. That may take a while as the logistical issues of bringing drilled but uncompleted wells back on line will not give us the amount of oil production that the market has been expecting.
The EIA does forecast production to average 9.9 million b/d in 2018, which would mark the highest annual average production in U.S. history, surpassing the previous record of 9.6 million b/d set in 1970. Even though US oil production may break a record in a few years, the fact that the EIA is counting on the US to account for 90% of the globes production growth in the coming years, this reduction in production should be worrisome. OPEC cuts are expected to be extended and reports that both Libya and Nigeria will agree to a production quota puts the fate of global oil prices in the hands of US producers. A fate that looks shaky as US shale producers are already pulling back and reports of investment capital for shale is drying up.
Natural Gas: “U.S. natural gas production is expected increase through the rest of this year and during 2018 in response to higher natural gas prices and growing liquefied natural gas exports.” “The United States will become a net exporter of natural gas this year, and U.S. liquefied natural gas exports in 2018 are expected are expected to increase 45% from this year’s levels.” “U.S. natural gas inventories at the start of the upcoming heating season this November are expected to be lower than last year, but still 2% above the five-year average.”
Renewables: “U.S. electricity generation from renewables is expected to increase 12% this year and then remain steady in 2018 due mainly to a drop in hydropower next year.” “U.S. ethanol production is on track to reach a record high this year of just over 1 million barrels per day, and then decline slightly in 2018.”
— Phil Flynn
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