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Friday, Nov 30 2018

Energy Futures Back On The Slide

Energy futures are back on the slide this morning as hopes for a new production cut seem to be fading fast. Rumors that Russia was planning to change its stance and support more oil output cuts to prop up prices took credit for Thursday’s recovery rally, and new doubts about those rumors are taking early blame for today’s selloff.

It was a bit strange to see gasoline leading the move higher after being the weakest link in the energy chain for the past 2 months as RBOB futures plunged by more than 75 cents/gallon. As the charts below show, RBOB calendar spreads have strengthened over the past couple of weeks even while crack spreads have remained soft. That strength in time spreads would suggest tight supply, but the DOE reports are showing the opposite – particularly in PADD 1 – so the recent strength may have to do with short liquidation rather than anything fundamentally driven.

Reuters reported that the EPA’s final renewable volume obligations for 2019 (due out today) would match the preliminary volumes proposed in June. If that proves true, it would increase the requirement for “advanced” biofuels by 15 percent while holding conventional ethanol requirements steady. RIN values have not moved much in reaction to that news, but reports that the EPA would review how it grants hardship waivers to small refineries does seem to have put a floor under values for now.

CLICK HERE for a PDF of today's charts

Market Talk
Thursday, Nov 29 2018

Energy Futures In Recovery Rally Mode

Energy futures are in recovery rally mode this morning after reaching fresh lows for 2018 overnight. It’s easy to blame yesterday’s DOE report on the sell-off that saw WTI drop below the $50 mark for the first time in almost 14 months, but there’s not (yet) a clear reason for the bounce this morning.

One key non-oil story to watch: US Stocks had a huge rally Wednesday after the FED Chair suggested that interest rate increases may end sooner than previously indicated. While Energy and Equity prices have gone their own way most of the past month, a bit of optimism may be exactly what is needed to end the selling in petroleum products.

US crude oil inventories increased for a 10th consecutive week, and will surpass year-ago levels for the first time in 2018 if that streak reaches 11. US oil production held steady at its all-time high of 11.7 million barrels/day for a 3rd week, a casual 2 million barrels/day higher than this time last year. For perspective, that 2 million barrels/day alone would make the US one of the world’s top 15 oil producing countries.

Diesel prices took a relatively unfamiliar role of leading the complex lower after outperforming for most of the past year. Look no further than a sharp increase in US Diesel output combined with a collapse in the weekly demand estimate from the DOE to understand why.

Refinery runs surged nearly 700,000 barrels/day last week as plants made the turn from fall maintenance and have resumed their record-setting pace of production.

CLICK HERE for a PDF of today's charts

Market Talk
Wednesday, Nov 28 2018

Energy Futures Under Pressure

Energy futures are coming under pressure again this morning, after managing to pull themselves back from the brink of another collapse in Tuesday’s session. Inventory builds are taking the blame for the early selling, and we’ll just have to wait and see if this move lower will be sustained. If the black Friday lows get taken out this week, charts favor another 5-10% slide in short order, but if we continue to see early selling turn into late-day buying, that may be enough to spark a long overdue recovery rally.

The API was reported to show a build in crude oil stocks of more than 3.4 million barrels last week, along with an increase of more than 1.1 million barrels of distillates. Gasoline stocks were estimated to have dropped by 2.6 million barrels last week, consistent with the annual spike in demand ahead of the Thanksgiving holiday. The EIA’s report is due out at its regular time this morning. Refinery runs will be an important number to watch to see how quickly plants are coming back online after a busy fall maintenance season.

The G20 meeting this weekend is being watched closely as Oil’s new power brokers will be in attendance, and could possibly come up with a more meaningful agreement than whatever OPEC may decide in its meeting next weekend.

The EPA is expected to publish the final 2019 Renewable Volume Obligation figures by the end of this week. There have been plenty of last-minute statements from both the Oil & Ag lobbies, and both sides of the political aisle leading up to the announcement, but it appears that the EPA will not reallocate waived biofuel volumes as some had hoped, which should keep a lid on RIN values for now.

CLICK HERE for a PDF of today's charts

Market Talk
Tuesday, Nov 27 2018

Modest Round Of Selling Picked Back Up

After a healthy recovery rally fizzled at the close of Monday’s trading, a modest round of selling has picked back up to start Tuesday’s session. It’s common to see a period of sideways price action as traders reassess, balance positions and/or lick their wounds following a heavy sell-off like we saw last week, so it’s possible that November will end with some choppy back and forth action.

The big drop in futures Friday when spot markets were closed created plenty of confusion across the downstream sectors of the industry, with many wondering why wholesale prices fell sharply on Monday even though futures were up on the day. The product price estimates in the daily market overview attachment show the net result from when spot prices closed Wednesday, until they reopened Monday.

As the 2 month melt-down drags on, concerns are growing for the health of US Oil producers, while US Oil refiners are spending billions to take advantage of that new production.

Speaking of US Refiners, there was finally some good news for Citgo in the past week: Venezuela reached a settlement agreement to maintain control of its US-based refining arm. There still are some hurdles to clear however. A similar deal failed previously when Venezuela couldn’t make its agreed-upon payments, and a visit by the head of Rosneft over the weekend was a reminder that not all of the country’s creditors will allow being moved to the back of the payment line.

Large speculators cut their net-long holdings in all of the “big 4” petroleum futures contracts (Brent, WTI, RBOB, ULSD) for a 6th consecutive week last week. Given the size of the drop we saw on black Friday, it seems likely that we could see this reduction in bets on higher prices continue for a 7th week, but the pace of liquidation is slowing, which suggests the big money betters may already have left the energy building. If true, this could be a contrary indicator suggesting that prices may be near a bottom, at least in the short term.

CLICK HERE for a PDF of today's charts

Market Talk
Monday, Nov 26 2018

Electronic Trading Seeing Bounce In Oil And Gasoline

After a huge Black Friday sell-off took 5-7% off almost every energy contract on the planet, electronic trading on Cyber Monday is seeing a bounce in oil and gasoline of nearly 2%.

After breaking below the $60 mark for the first time in 6 months just two weeks ago, WTI came within 10 cents of dropping below the $50 mark in overnight trading, and RBOB gasoline futures reached their lowest levels of the past 2 years. Brent crude joined in the “lowest in more than a year club” falling below $60 for the first time since October 2017 before bouncing back this morning.

There seem to be plenty of arguments on both the supply and demand sides of the equation for why prices have fallen so far so fast, with the big question to end 2018 whether or not they’ll continue to slide, or if Friday’s collapse marked the point of capitulation. The early buying this morning suggests that Friday’s move may have been exaggerated by light trading volume as most US Traders had the day off, and could lay the ground-work for a strong corrective bounce if the early gains can hold.

Baker Hughes reported a decline of 3 oil rigs last week, the first decline in the past 4 weeks. With the recent price plunge, expect to hear speculation on how US drillers may change their plans over the coming months. Given the project lead times, and the speed with which prices have dropped however, if we do see US drillers slow down, that likely won’t happen until next year.

The weekly commitments of traders reports from the CFTC was delayed due to the holiday, so we’ll have to wait until this afternoon to see how the speculators have been weathering the storm.

CLICK HERE for a PDF of today's charts

Market Talk
Wednesday, Nov 21 2018

Tidal Wave Of Selling Knocked 5% Off Petroleum Contracts

If you like lower prices there’s plenty to be thankful for this week, after a tidal wave of selling Tuesday knocked more than 5% off of most petroleum contracts, pushing prices to their lowest levels of the year. Unfortunately for most with a 401K plan, that drop coincided with another large sell-off in US equities.

Reports that the US President planned to take it easy on Saudi Arabia over the killing of journalist Jamal Khashoggi (and noting the important role the kingdom plays in keeping oil prices in check) seemed to at least take fears of tension between 2 of the 3 largest oil producing nations off the table, and sparked speculation that there could be some quid-pro-quo on future supply decisions.

The big question: Did Tuesday’s melt-down mark the bottom for energy prices? Today’s good read from Seeking Alpha gives 3 reasons why that may be the case. 1. China will soon end its oil destocking that’s helped inflate global inventories. 2. OPEC is preparing to cut production. 3. Speculators are back to a neutral stance in energy contracts after weeks of mass liquidation.

For those looking for reasons why the selling may continue, look at the increasing oil output expected from Russia & the US on the supply side of the equation, and on the demand side, take a look at why the OECD thinks that growth in the global economy will slow next year.

CME/NYMEX futures will trade in abbreviated sessions both Thursday and Friday (no settlements Thursday) but physical spot market assessments won’t be made and most US companies will be closed, so most rack prices will hold steady through Monday.

CLICK HERE for a PDF of today's charts

Market Talk
Tuesday, Nov 20 2018

Energy Complex Moving Sideways

Since setting multi-month lows one week ago, the energy complex has been moving sideways in choppy, back-and-forth trading. Monday’s session was a prime example of this as an early morning sell-off failed to hold and most contracts reversed course to finish the day with modest gains. We’re seeing another wave of selling to kick off Tuesday’s trading, and we’ll have to wait and see if this time it sticks.

US Equity markets are pointing to a sharply lower open this morning after a large sell-off Monday. As the charts below show, the correlation between equity and energy price movements has been weak lately, but if the fear trade takes hold again, that’s typically when we see the two move in lockstep. If that happens, it could be enough to push energy contracts below the lows set last week.

Volumes are already beginning to shrink in both futures and physical markets ahead of the Thanksgiving holiday. Spot market assessment companies will not be open Thursday or Friday, so most rack prices will carry through the long weekend even though futures will have abbreviated trading sessions both days.

We don’t talk about Natural Gas markets often here as they’re beyond the scope of our normal business, but the recent price spike – which has already put at least one trading firm out of business – is worth pointing out. For the past few years over-supply thanks to record US Production have kept the notoriously volatile natural gas prices in check. Lower inventories heading into a severe cold snap across the North Eastern US could put extra demand on heating oil in some markets to supplement for gas supplies.

RIN values have been ticking modestly higher over the past week, in what appears to be acknowledgement that the split congress makes a reform of the Renewable Fuel Standard less likely. Both sides of the debate are eagerly awaiting the official 2019 Renewable Volume Obligation figures, due out November 30.

CLICK HERE for a PDF of today's charts

Market Talk
Monday, Nov 19 2018

Selling In Energy Futures Has Picked Up

After a brief break last week, the selling in energy futures has picked up again to start Monday’s trading. RBOB gasoline is leading the complex lower, down more than 3 cents at the moment, while WTI is down 80 cents, trading within $1/barrel of its November lows.

There do not appear to be any smoking-gun headlines to blame the sell-off on so far, making it appear to be a continuation of the liquidation we’ve been watching for 6 weeks. The 3 days leading up to Thanksgiving can be some of the busiest of the year for gasoline demand as stations gear up for the busiest travel day of the year.

Money managers continued to reduce their net-long holdings across the board last week, with the big 4 Petroleum contracts all reaching their lowest level of the year for speculative funds betting on higher prices.

Baker Hughes reported a net increase of 2 oil rigs operating in the US last week, with the total rig count reaching a fresh 3.5 year high at 888 rigs.

Today’s interesting read from the Economic Times: Just 3 men now control oil prices.

CLICK HERE for a PDF of today's charts

Market Talk
Friday, Nov 16 2018

Energy Complex Moving Higher

The energy complex is moving higher today after a couple of bearish DOE figures failed to provoke across-the-board buying yesterday. Gasoline futures sighed a 40 point loss on Thursday while a little more came out of the diesel prompt month contract at about -2 ¼ cents.

Diesel stocks continued lower and while that is expected this time of year, the days of forward cover chart, a look at our supplies + production vs demand, has hit a 5-year seasonal low and has reached levels not seen since 2008 and one time in early 2014. It could be that traders are banking on the restarts in Midwest refineries to save the day, last week saw a 7% production boost in PADD 2 throughput rates as the regions refineries are brought back from fall turnaround.

Ironically crude oil was the only of the major three contracts to settle with gains yesterday, in the face of a 10.3 million barrel build in inventories, the biggest build since February 2017 and 7th biggest in the history of the report. Apparently rumors and hopes of something actually coming from “supply cut talks” from OPEC was enough to keep the American benchmark in the green. The oil cartel will meet on December 6th to discuss production levels after which we will have not even close to a better idea of what to expect in 2019.

Prices are on the move this morning, RBOB and HO futures are adding around 3 cents so far today. While overtaking yesterday’s highs in pre-market trading seems bullish, the refined product contract still have a way to go to buck the bearish trend that’s been plaguing them since October. Peg $1.65 for gas and $2.15 for diesel as pivot points where the trend might spell higher prices going forward. WTI’s got a little further to go, will likely oscillate in the $50-$60 for the foreseeable future.

CLICK HERE for a PDF of today's charts

Market Talk
Thursday, Nov 15 2018

Energy Prices Bounced After Sizeable Selloff

Energy prices bounced yesterday after a sizeable selloff Tuesday led by diesel which tacked on as much as 7 cents intraday before settling with gains of ‘only’ 3.5 cents. Oil futures followed suit, adding about $1 per barrel, RBOB lagged behind and posted just over 1.5 cent gain on the day.

Premiums over the Colonial Pipeline Tariffs continued their trek higher yesterday and are now trading at levels not seen since December 2016. As of yesterday, shippers paid an additional 4 cents to move gasoline and 3 cents for diesel.

The American Petroleum Institute published their version of the weekly inventory report yesterday afternoon. They pegged crude oil inventory gains around 8.8 million barrels over the previous week. Gasoline builds of under 200 thousand barrels will likely fall by the wayside as traders focus on the 3.2 million barrel draw in diesel stocks.

With national stockpiles already seen at the bottom end of their 5-year range, further drop in ULSD levels could incite buying as the colder weather starts creeping in. Price action will likely be slow ahead of the DOE’s data release and will likely pick up after the state agency confirms or disproves the API’s estimates.

CLICK HERE for a PDF of today's charts

Market Talk
Monday, Nov 12 2018

WTI Settled Lower For 10th Straight Session

WTI settled lower for a 10th straight session on Friday, marking the first time in the 35 year history of the contract that’s happened. That streak appears to be coming to an end this morning after Saudi Arabia put its foot down, deciding it would take steps to rebalance the suddenly-oversupplied oil market, sending prices up more than 1% overnight.

Although OPEC did not officially make any changes to its policy during meetings this weekend, they did set the stage for a production cut at their next meeting in early December. While Russia warned the cartel not to make any “hasty” decisions, Saudi Arabia wasted no time announcing that it would unilaterally reduce output by around 500,000 barrels/day in December now that waivers have been granted that will allow more Iranian oil to reach the market.

Baker Hughes reported an increase of 12 drilling rigs in the US last week, the largest weekly increase in almost 6 months, which brings the total count to its highest since March of 2015. Unlike what we’ve seen most of the past year, Texas did not account for the majority of the increase last week. The Lone-Star State actually saw a decrease of 1 rig, while the gains were spread among Alaska, Colorado, Louisiana, New Mexico, North Dakota and Oklahoma.

Money managers continue to bail out of their long positions (bets on higher prices) across the petroleum complex, with net-length held by the large speculative category of trader reaching the lowest levels in more than a year for most contracts last week. It will be interesting to see if the change in stance from the Saudi’s will encourage the funds to return to betting on higher oil prices, but with open interest in Brent reaching a 2 year low, it’s possible the big money is just taking its ball to another game.

There are only a few weeks left in the 2018 Atlantic hurricane season, but it appears we’ll have to deal with at least one more storm. The system is given a 90% chance of developing into a tropical system over the next 5 days as it heads towards Florida. At this point it looks like it will get pushed back out to sea, but we’ll need to watch it for a few more days to be sure there won’t be any impact to energy infrastructure.

CLICK HERE for a PDF of today's charts

Market Talk
Friday, Nov 9 2018

The Meltdown Continues

The meltdown continues as WTI trades lower for a 10th consecutive session, breaking below $60 for the first time since March, and reaching its lowest level since Valentine’s day. Unlike the mixed action we’ve seen for much of the week, the entire energy complex is joining in the selloff this morning, with Brent trading sub $70 for the first time since April, and RBOB reaching a 13 month low at $1.6069.

Thursday’s action was highlighted by the reversal of Wednesday’s huge move in HO vs RBOB, with diesel taking a 9 cent advantage one day and giving back 7 cents the next. That type of whipsaw action suggests there were some large positions forced into liquidation, and the similar action between the two so far today suggests that those positions may be unwound.

Most petroleum contracts are now trading more than 20% below their October highs, a measure that many point to as indicating a “bear market” while others see this type of rapid drop as nothing more than a buying opportunity. There’s a similar disconnect in the technical outlook with short term indicators begging for a corrective bounce while longer term charts suggest there’s still plenty of room to fall now that the 2018 bull market is “officially” dead.

As always, we’ll have to wait to see which side of the argument is right this time, and how OPEC will (or won’t) react this weekend to the sell-off.

The FED left interest rates unchanged as expected at the November FOMC meeting, and noted continued strength in the US labor market, which suggests they will continue on the path of gradual rate increases. That plan seems to have disappointed those hoping that the Red October for stocks would cause the central bank to pause in raising rates. The CME’s FEDWatch tool still shows that traders are putting a 75% probability of the next rate hike in December, but they have reduced bets on a 50 point rate hike to zero following yesterday’s statement.

CLICK HERE for a PDF of today's charts

Market Talk
Friday, Nov 9 2018

American Crude Oil Benchmark Extended Losing Streak

The American crude oil benchmark extended its record losing streak to a 12 days in a big way Tuesday, posting losses close to $4 and dragging down refined products along the way. Both gas and diesel futures got a 10 cent haircut yesterday, losses of around 5% for each contract.

Yesterday’s price action brought RBOB down to the lowest level in over a year, capping off total losses of 65 cents for the prompt contract over the past 2 months. The HO contract wiped out just under 35 cents in the same time period, kept somewhat afloat by tight national supplies and the possibility of demand increases with the cooler weather.

The premiums over Colonial Pipeline tariffs spiked yesterday, representing an increased economic incentive to ship product up the main refined products artery of the United States. The difference between physical prices in Houston and New York spurred values to their highest levels since Q1 of this year. Premiums for shipping up both the gas and diesel line are currently just under 3 cents.

The weekly inventory report published by the Departments of Energy will be delayed this week due to Monday being Veterans’ Day, data will be published tomorrow at 10am central instead.

It looks like ‘capitulation’ was the name of the game yesterday as any remaining players with long bets in energy futures opted to wipe the board and start over. The complex is bouncing this morning, with the most pronounced gains shown in the ULSD contract at 4 cents over yesterday’s settlement. Gas and crude oil are lagging behind but still participating, both are tacking on 1% to start the day.

The charts are looking to take a breather over the next few sessions, recovering from the support-busting action that took place yesterday. Expect some sideways patterns going into the first round of holidays next week while traders try to figure out which way this thing needs to go next.

CLICK HERE for a PDF of today's charts

Market Talk
Friday, Nov 9 2018

Monday Rally Failed To Hold On

The Monday rally sparked by promises of production cuts failed to hold on, and WTI settled lower for a record setting 11th session, and the selling continued overnight. RBOB gasoline futures reached a fresh 13 month low this morning, and WTI came within a few cents of reaching its lows for the year on what is shaping up to be day # 12 of its selloff.

The US/Saudi relationship continues to get more complicated after the Kingdom’s oil minister promised unilateral production cuts in December over the weekend, and the US President fired back that he hoped they would not Monday morning. The latest Twitter attack on OPEC & Friends is seen by some as making it more likely that the cartel will announce a new production cut in December as they fight to end the sell-off while also battling to prove they won’t be pushed around by the US.

Right on cue, OPEC’s monthly oil market report released this morning showed another month of increasing output, with gains from Saudi Arabia and UAE outpacing losses from Iran and Venezuela. The cartel’s forecasts also show a bearish combination of lower demand and increased supply estimates for 2019, and hints that the group may act in December to, “…support oil market stability”.

ULSD futures once again find themselves as a reluctant participant in the selling, as diesel stocks remain relatively tight compared to gasoline and oil. ULSD has traded below its 200 day moving average in each of the past 3 sessions, but so far has managed to climb back above that support every time. If we see that level break this week, charts suggest a test of the July lows around $2.04 is likely, but if it holds, it’s possible that strength in distillates could be a key factor in finally ending the petroleum price collapse.

CLICK HERE for a PDF of today's charts

Market Talk
Thursday, Nov 8 2018

Bearish Figures From DOE Wiped Out OPEC-Rumor Gains

Wednesday was a busy and volatile day of trading for energy contracts as some bearish figures from the DOE largely wiped out the early OPEC-Rumor gains, and created one of the largest divergences between gasoline and diesel prices of the past 10 years. The reversal pushed WTI and RBOB futures to fresh multi-month lows, and set the stage for a test of the $60 mark for WTI and $70 for Brent in the near future.

The EIA’s estimate of US crude oil production surged by 400,000 barrels last week, from what was an all-time high of 11.2 million barrels/day to 11.6 million. For perspective, that weekly increase amounts to roughly 40% of the anticipated drop in Iranian exports that had the market all stirred up for most of the summer. Of course the realities of the differing crude grades and transportation bottlenecks means the new US barrels can’t replace Iranian barrels so easily, but the raw number is another reminder just how efficient US producers have become in the past few years.

RBOB gasoline futures completed a 50 cent tumble in just 35 days, from a high of $2.15 Oct 3, to a low of $1.6382 on Nov 7. While we expect gasoline prices to drop in the fall due to the annual RVP transition, this year’s slide happened after both futures and spot markets had already made the switch to winter-grade products, making it especially remarkable.

You may have also noticed that RBOB and ULSD prices widened by more than 9 cents/gallon during Wednesday’s trading, pushing the “Heat to Gas” spread to levels not seen in almost 5 years, and taking back its status as a “Widow Maker” trade.

We’ve only seen ULSD trade 50+ cents above RBOB a handful of times in the past 13 years (since RBOB became the primary futures contract and usually those spikes are reserved for extreme winter weather events that create a spike in heating demand, which certainly isn’t the case today. If we do get a severe cold snap this winter however, with values already approaching record levels, it’s not hard to imagine the diesel premiums approaching all-time record levels, with $1/gallon spreads a distant but suddenly realistic possibility.

CLICK HERE for a PDF of today's charts

Market Talk
Wednesday, Nov 7 2018

Energy Futures Trading Higher

After another soft day of trading Tuesday, Rumors that OPEC may be discussing a production cut ahead of their meeting this weekend has energy futures trading higher this morning, erasing overnight losses that were sparked by a large build in US crude oil inventories.

The OPEC discussions have already been called nothing more than an attempt at “verbal intervention” to stall the price collapse. Given the challenges the cartel has faced in reaching an agreement over the past few years, may be nothing more than a good excuse to see some profit taking after prices reached multi-month lows.

The API was said to show US oil inventories increased more than 7.8 million barrels last week, which sent most prices lower overnight, while refined products saw draws of 3.6 million barrels for diesel and 1.2 million barrels for gasoline.

The EIA released its monthly Short Term Energy Outlook Tuesday, and reduced its price forecast for petroleum products for the first time in several months as global supplies look to be building more than they expected in previous reports. The agency’s weekly status report is due out at its regular time of 9:30 central today.

A look at the forward curves: WTI and Brent show the sell-off of the past month has focused on the front end of the curve, as the global supply outlook shifted from shortage to excess, and the first few months moved from backwardation to contango as a result.

RBOB gasoline’s forward curve was fairly steady with ample supplies and soft demand a theme throughout, which also helps to explain why gasoline prices are 52 cents cheaper than Diesel. ULSD meanwhile is seeing a bit of a guessing game as traders try to determine when the IMO bunker fuel spec change due 2020 may create a shortage next year.

Colorado voters rejected a proposed law that would have sharply reduced oil and natural gas drilling in the state.

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Market Talk
Tuesday, Nov 6 2018

Election Day In The US

It’s election day in the US and NYMEX futures are celebrating with a modest move higher this morning after reaching multi-month lows Monday and trading lower for most of the overnight session. If these gains can hold, it would snap a streak of 5-straight losing sessions for RBOB and WTI.

Brent Crude has not yet joined the US contracts in the move higher as the European grade is still digesting the unexpected reality that new waivers offered to buyers of Iranian crude may mean the global market will shift from shortage to excess in short order.

After announcing the waivers last week without providing details, the 8 countries that are getting a reprieve were named specifically Monday. China, India, Italy, Greece, Japan, South Korea, Taiwan and Turkey were all given an additional 180 days to purchase Iranian Oil. It’s important to note that those country’s account for the majority of Iranian Exports, meaning the sanctions may have minimal impact on oil supplies for the next 6 months.

It’s also worth noting that by naming Taiwan, the US is also sending a message to China that it is willing to move away from the long-held policy of not naming the disputed territory as a stand-alone nation, which could have consequences in the ongoing trade-tantrums.

The 6 month waivers also appear to be a cunning move as that will coincide with new infrastructure projects in the US to get more Permian Basin crude oil to the coast, and for more of the largest crude oil tankers to bring it to the global market.

While it’s unlikely that the mid-term election results will have much of a near-term impact on energy supplies nationwide, Colorado is voting today on a measure that could drastically reduce drilling activity in the state, which ranks as the 6th largest in oil and natural gas production.

Good news for Canadian Oil Producers, Western Canadian Select prices surged more than 10 percent in Monday’s trading. Bad news? WCS is still only $20/barrel.

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Market Talk
Monday, Nov 5 2018

Energy Market Trying To Find Bottom

The energy market is trying to find a bottom this morning after 4 weeks of selling have pushed most petroleum contracts to 6-8 month lows. US sanctions against Iranian interests are officially in place, but waivers granted last week and an attempt by European nations to find a legal workaround are suggesting that global supplies may remain ample near term.

The early bounce was foreshadowed by several short term technical indicators that had moved further into over-sold territory than they’ve been at any point this year, which begs for a short term correction. Longer term the technical landscape looks to be more bearish with the 15 month old bullish trend being broken in October, there still looks to be a good chance that we’ll see an attempt at WTI in the $50s and Brent in the $60s later in November.

Money managers don’t appear to be enjoying the ride on the energy elevator with another week of across-the-board reductions in their net long holdings. The selling by those funds leaves the speculative bets on higher prices for Brent, WTI and RBOB all at their lowest levels of the year. At some point these holdings could become an indicator that a bottom is near (once the liquidation by speculators is over) but despite the selling over the past 4 weeks, most energy contracts still show speculative length above their previous 5 year average.

Baker Hughes reported a decline of 1 oil rig last week, the first time in 4 weeks that the US has seen a decrease in drilling activity.

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Market Talk
Friday, Nov 2 2018

Energy Futures Continue To Melt-Down

Brief & delayed update today due to our company’s annual meeting. Energy futures continue to melt-down after the US granted waivers on its sanctions against Iran. We’ve fallen so far so fast that we’re due for a corrective bounce sometime soon (and a Friday afternoon is often a good time to see some mean-reversion trading) but longer term the charts point to $60 for WTI which would likely mean another dime taken off of product prices.

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Market Talk
Thursday, Nov 1 2018

Wheels Come Off Energy Bus

The wheels came off the energy bus to end October trading with a heavy wave of selling pushing most of the complex to new lows for the month despite another rally in stocks. The weak finish left behind a bearish outside-down reversal bar on the monthly charts, which suggests more selling may be coming soon, and offered little hope to those waiting for the buyers to step in.

The timing of the sell-off was a bit curious as the liquidation really didn’t get going until the last hour of trading, suggesting it wasn’t a DOE-Inventory-inspired move. Given the move just moments before trading halted for the month, it seems this latest move may be the latest sign that the big funds that contributed heavily to the rally in oil prices over the past 18 months may have decided to take their ball to a different game.

Bearish Notes from the DOE report: US Oil stocks continue to build, and US Oil production made it back to its record high of 11.2 million barrels/day last week, after a 2 week drop owing to precautionary evacuations of oil rigs ahead of Hurricane Michael.

Bullish Notes: Total US petroleum demand held above the 5-year range for this time of year for a 2nd consecutive week, helping refined product inventories to draw down again. While several industry veterans continue to suggest that the DOE’s demand estimates are inflated by export calculations, the fact that demand seems to be holding up in the face of brutal October weather across much of the country is encouraging as we approach the winter doldrums.

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Market Talk
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