Oil-glut concerns and geo-political drama set the stage for energy today. oil prices are still weak after the American Petroleum Institute raised fears of an ending supply glut as the market awaits today's Energy Information Administration supply report. The API report saw a big build of 6.3 million barrels over all and a 2.5 million barrel build in Cushing, Oklahoma. Rains in Texas may be one explanation for the surprise build. We're waiting for the EIA to see if they confirm the glut.
In the meantime the U.S. has launched airstrikes in Iraq to back approximately 7500 Peshmerga fighters who are the military of the Kurdish region of Iraqi. They are fighting to try and take the town of Sinjar away from ISIS that currently controls the strategic town. An early AP report says the Kurds captured part of Sinjar road cutting the supply lines between two ISIS strongholds. The conflict could disrupt oil flow out of the region as ISIS has used this area to fund their operations by selling oil.
OPEC is reporting that their output fell by 256,000 barrels mainly due to a drop in Iraqi production putting output at 31.38 million barrels. This has been the case since June and is still above demand which OPEC says is 29.6 million barrels. In other words, OPEC is still over producing and trying to regain market share.
The weakness in crude has sent the price of gasoline below 2 dollars a gallon in 41 states and even though last week prices edged up a couple of cents, price per gallon should be resuming its downward trend.
More signs of a slow down in the U.S. energy patch is being seen in rail car leasing rates. Industry research group Genscape said leasing rates for rail car model CPC-1232, designated for crude-oil transport, dropped from $2,000 per month in early 2014 to $475 month because of lower crude oil prices and a general weakening in the energy sector as reported by UPI.
The UPI reported that in North Dakota, the state at the heart of the shale oil boom, rail broke away from pipelines as the main source of crude oil delivery in 2012. After peaking in December 2014 when the state set its crude oil production record at 1.22 million barrels per day, transport by rail has been in a general decline and is now at parity with pipeline transport.
For Canada, research from the U.S. Energy Information Administration found rail could fill part of the vacuum left by the refusal of TransCanada's (TO:TRP) permit for the Keystone XL cross-border pipeline, designed to carry more than 800,000 bpd. Meanwhile, there has been a corresponding increase in the number of rail incidents involving crude-oil shipments. As a result of new regulations and enforcement measures, shippers are using the newer-model CPC-1232 tankers and phasing out DOT-111 cars, many of which were involved in recent, and sometimes fatal, derailments. Industry sources were quoted by Genscape as saying there is "little to no demand" for the older model cars.
Traders will also look for signs of slowing U.S. output in today's report.