Snow Job
An OPEC snow Job. What is Saudi Production! Oil prices thwarted a early morning recovery on a private report that put Saudi oil production above 10 million barrels a day. Not so according to the Official OPREC data that said that said its production decreased 139,500 barrels a day in February, to average 31.96 million barrels a day with Saudi Arabia cutting 68,100 barrels a day to 9.8 million barrels a day. Bur Traders are think the numbers are a snow job.
The big March snowstorm that is going to bury the northeast, as well as cold and snow in the midwest, is already having an impact on a lot of different markets in a lot of different ways. We saw oil and products struggle as grounded airlines and snowbound travelers will reduce the demand for jet fuel and gasoline. We also saw electricity and power prices soar and a rally for natural gas as we get the demand we failed to get in February now in March.
At the same time, we saw spikes in the cattle and hog markets, driving above key resistance as blizzard conditions will slow hog production and make it impossible, in some cases, to move cattle. Then you have wildfires in the plains that are also adding to the rancher’s woes in parts of Oklahoma and the Texas panhandle. Yet it is the financial markets where we saw a trading freeze as traders decided to put their bets on ice as they await the Fed and their widely-anticipated rate hike. It is going to be a crazy snow day, meaning anything can happen.
We know that oil is still reeling from last week’s oil market breakdown. Record longs got hit when oil inventories rose by 5 times more than expected. The increase in supply gives the market the perception that it will take more time to work off supply even though a lot of that oil will now be exported. The calls for oil inventories to rise once again is causing the market concern and for the market to break out of its breakdown, we may need a surprise drop in oil inventory.
Some are worried that an oil breakdown may be a precursor to a stock market correction. Others are worried that weak gasoline demand is a sign that consumers are showing reluctance at higher gasoline prices and perhaps signaling a spending slowdown. Well The National Association of Convenience Stores (NACS) reports that is not the case. They say that:
Despite rising gasoline prices, three in five (61%) gasoline consumers report feeling optimistic about the state of the economy, per the latest NACS Consumer Fuels survey. Consumer optimism is at an all-time high across the four-plus years the national survey has been conducted, surpassing the 58% economic optimism recorded in December 2016 following the presidential election.
The NACS says that most Americans are optimistic across all demographics examined. Older Americans (age 50 and older) are the most optimistic age group (65% optimistic), compared to 55% of those ages 18-34 who are optimistic. There also are regional differences, with southerners reporting the highest levels of economic optimism (64%) and midwesterners reporting the lowest (56%).
Americans also report a 4-cent rise in gas prices in their area. The reported median gas price of $2.29 brings gas prices back up to where they were at the beginning of the year when gasoline consumers reported a median price of $2.30 (January 2017). Price increases are being felt most strongly in the west, where a majority (52%) report seeing gas prices higher than they were last month.
By comparison, just 41% of gas consumers in the northeast and the south report seeing higher gas prices this month. Most gasoline consumers expect prices to continue increasing in the next month, a time when gas prices generally face upward pressure as the fuels industry undergoes the annual transition to producing summer-blend fuel. Half (51%) of all Americans say that they expect prices in 30 days to be “much higher” or “somewhat higher” than they are today. Just one in 10 (9%) expect prices to drop in the coming month.
Traditionally, rising prices have an inverse effect on consumer optimism. In March, 2013 when 85% of Americans said that gas prices had increased, optimism stood at only 41%. However, gas prices also were much higher in March, 2013 ($3.58). The strong optimism may also translate into increased sales for convenience retailers. One in five consumers (22%) say they will drive more this coming month and 19% say they will shop more. More than three in four consumers (76%) say that gas prices have an impact on their optimism according to NACS.
With record compliance by OPEC, one would think that we would see more of a drawdown in oil supply. We know that U.S. production, because of an uptick in Alaska and shale production, helped raise output to one year ago levels and that is raising concerns about addiig to the glut. Still usually oil inventories are high this time of year as refiners are in maintenance and as refiners start to emerge and kick up runs, inventories should start to fall.
We also will be exporting record amounts of U.S. gasoline supply as the U.S. is starting to become the refiner to the world. We are setting records for both crude and gasoline exports and that should continue to increase for the rest of this year.
Natural gas will be strong as gas demand rises. The cold could lead to a record March withdrawal next week.