Rains yesterday and more forecasted for today really pummeled the market in yesterday’s trading session. The sell-off looked to be overdone as markets tend to overreact on any given situation and Tuesday’s action was no different with the entire Grain complex taking it on the chin. There may be some bottom feeders looking to scoop up some value at these price levels. In the overnight electronic session the September Corn is currently trading at 366 ½ which is 4 cents higher. The trading range has been 366 ¾ to 363 ¾. Mother Nature will dominate price levels if the 5 day weather forecast is correct.
On the Ethanol front the September contract posted a trade at 1.550 which is .011 of a cent higher. The current market is showing 1 bid @ 1.544 and 6 offers @ 1.555. 1 contract traded in the overnight electronic session and Open Interest is at 965 contracts. The September is now the lead month with the August contract closing in on expiration with 42 Open Contracts left.
On the Crude Oil front the API data showed an unexpected build which left investors scratching their head over the data. Crude Oil Stocks were reported a rise of 1.779 million barrels. Cushing, Oklahoma rose 2.562 million barrels while we had draws in product with Gasoline stocks down 4.827 barrels and Distillates down 1.225 million barrels. Maybe this morning’s EIA Energy Stocks will whistle a different tune. In the overnight electronic session the September Crude Oil is currently trading at 4906 which is 10 tics lower. The trading range has been 4927 to 5855.
On the Natural Gas front the market is trading the news of cooler temperature forecasted for the weekend and the September contract is currently trading at 2.796 which is .023 cents lower. The trading range has been 2.823 to 2.785.
— Daniel Flynn
The Energy Report: Nifty Thirfty 50
Oil prices pulled back from the big psychological resistance of $50.00 as the overbought market was met with reports of rising OPEC oil production and a surprise increase in US crude oil supply as reported by the American Petroleum Institute. (API).
Yet despite an increase to its highest level of the year, OPEC compliance to its targets improved according to Reuters, as the bulk of the increase came as Libya, with no OPEC quota, raised production as Saudi Arabia and Angola lowered production. Reuters reported that OPEC oil increased by 90,000 barrels per day (bpd) to a 2017 high. That put compliance at 84 percent according to Reuters which is up from a revised 77 percent in June, but below the 90 percent Reuters saw earlier in the year. Reuters has been the toughest grader of OPEC cuts but others also are showing a similar increase in OPEC output. This comes as OPEC is going to meet to improve compliance August 7 and 8, in Abu Dhabi which according to some was, at one point, 105%. Regardless, the fact of the matter is, even with the cheating, this is the best compliance the cartel has ever had. Is it good enough? Well a historic decline in US crude stocks suggests it is going in the right direction.
The API shocked the market even more by reporting a 1.779-million-barrel crude oil build and a surprising Cushing, Oklahoma build of 2.562 million barrels. This was way out of whack with market expectations and raised questions because of an almost impossible drop in crude oil processing rates. Did we shut down a bunch of refineries last week? The API also reported a whopping 4.827 million barrels drop in gasoline supply suggesting strong demand or a crash in production and a drop-in distillate of 1.225 million barrels. The numbers don’t seem to jive but if we see a build in today’s Energy Information Administration data, we could see some further correction.
RBOB gasoline futures is the strongest. Gas demand figures have been blowing away expectations in recent weeks putting to rest the false narrative that the US has hit peak gas demand. Still weak car sales figures sometimes is a for-runner of weakening gasoline deamd so we will have to continue to watch. US miles driven must be back on the rise so I expect that the gasoline demand numbers will be making up for lost time.
Distillate demand has also been strong. Great refining margins and an active export market is giving the market a boost. That demand is probably indicative of a thriving US manufacturing sector, a positive for people who like to see an expansion in US high paying jobs.
These demand numbers are the reason that the International Energy Agency and OPEC has had to raise their demand forecast once again. Reuters reported that forecasters, including the International Energy Agency, have been raising their estimates. Oil company BP was upbeat, seeing demand growing by 1.4 to 1.5 million barrels per day (bpd).
Let’s hope the uptick in demand and oil price can help bail out stressed US shale producers that are still laden with debt and finding it harder to complete wells and get funding. Just last month Reuters reported that eight prominent hedge funds have reduced the size of their positions in ten of the top shale firms by over $400 million due to concern that producers are pumping oil so fast they will undo the nascent recovery in the industry after OPEC and some non-OPEC producers agreed to cut supply in November.
The funds, with assets of $286 billion and substantial energy holdings, cut exposure to firms that are either pure-play Permian companies or that derive significant revenues from the region, according to an analysis of their investments based on Reuters data. The Permian, which stretches across West Texas and eastern New Mexico, produces about 2.5 million barrels of oil per day (bpd), accounting for more than a quarter of overall U.S. crude production.
Those kinds of reports confirm what I am hearing from many producers and to be honest, it might be a good thing for many of them to slow down and focus on well head profitability. We are seeing a slowdown in the US oil rig count that should continue to recover and allow demand and falling supply to boost profitability. The US shale player should play it smart. If we are seeing a pullback in the Permian basin as far as capital goes, the rest of the shale formations that are costlier will see that as well. So in this case a higher price of oil driven by better demand is actually good for America.
— Phil Flynn
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