Shaken But Not Stirred
Oil bulls were shaken but not too stirred up after the first significant price decline in almost a month. Some said it was a delayed reaction to the big crude oil build in US inventory and others said it was a delayed reaction to the secret Russia, US and Saudi Arabian deal to raise oil production. Platts reported OPEC and its allies have surpassed their 1 million b/d output rise target, Saudi Arabia up to 10.60 mil b/d, Iran drops 100,000 b/d to 3.50 mil b/d, Libya pumps most since June 2013. There was also a reported crude oil build by private forecaster Genscape that showed a 1,707,764-barrel increase in crude supply in the Cushing Oklahoma Delivery point.
While all of that may be partly true, the main reason that we saw that pullback was that the oil market was shaken by the sharp pop in treasury yields and a falling stock market. Besides, after trending straight up for almost four weeks in a row, the market was overbought and had overachieved its short term $75 a barrel target which could lead to some range bound trading for a while until we start to get even closer to the U.S. State Department November 4th deadline for Iranian oil buyers to completely cut their purchases to avoid American sanctions.
Which by the way is the same date back in 1979 that Fifty-two American diplomats and citizens were taken hostage and held for 444 days in captivity. This is not a coincidence. President Donald Trump is sending a message to the world that when a rouge regime uses terrorists’ tactics against the United States, the US will not forget, and they will be held accountable. Take note all US enemies. Iran should be shaken and stirred.
The compliance to President Trump’s Iran oil sanctions, in my opinion, will exceed 95% because the warnings to those that don’t comply are being taken seriously by the world at large. They are on notice that the US is serious when it comes to defending our people and Nation.
Those that thought the US would be granting a lot of waivers, countries like India and Iraq , are instead working to find a substitute for Iranian oil. The White House said on Thursday as it reiterated its warning to all purchasers of Iranian oil to bring it down to zero by November 4 or face imminent sanctions from the United States. And as we are finding out, the US has a long memory or at least Donald Trump does.
The FT is reporting that oil firms in the EU are also cutting ties with Iranian oil. This means that we will see oil supply tighten when refiners go out of maintenance. We will also see both gasoline and diesel fuels start to rise. Hedgers should get hedged ahead of winter and farmers may want to think about getting some protection for next spring’s planting. Long term option plays may still be in order as well.
Oil traders will also use the Employment reports that will give another view of how Trumponomics continues to impact for the better the economic prospects for average Americans. While the headline number may be impacted by Hurricane Florence’s aftermath, the reports should confirm the best employment prospects in decades for both the rich and the poor.
If you want to test your sanity, trade natural gas. The market where Mother Nature always has the last say, despite the bullish or bearish fundamentals. Yesterday a larger than expected increase in supply set prices falling after rising on hot weather all week . Myra P. Saefong at Market Watch reported that the U.S. Energy Information Administration reported Thursday that domestic supplies of natural gas rose by 98 billion cubic feet for the week ending Sept. 28. That was above the 85 billion-cubic-foot increase expected by analysts polled by S&P Global Platts. Total stocks now stand at 2.866 trillion cubic feet, down 636 billion cubic feet from a year ago, and 607 billion below the five-year average, the government said.
Are you crazy yet? Well if not, read the EIA report on Natural gas as we saw both supply and demand reach records. The EIA writes that in the first half of 2018, U.S. natural gas supply and demand grew significantly compared to the first half of 2017. According to EIA’s Natural Gas Monthly, natural gas consumption and exports averaged 93.4 billion cubic feet per day (Bcf/d) during the first half of 2018, or 12% greater than during the first half of 2017. Total supply of U.S. natural gas, including domestic production, imports, and storage withdrawals, averaged 93.3 Bcf/d during the first half of 2018, a 12% increase from the first half of 2017.
Domestic natural gas consumption in the first half of 2018 increased in all sectors compared with year-ago levels. The largest growth occurred in the residential and commercial sectors, which increased by 3.8 Bcf/d (16%) combined, compared to the first half of 2017. Residential and commercial consumption is primarily related to heating needs, and the beginning of 2018 experienced record, prolonged cold temperatures across many of the Lower 48 states. Population-weighted heating degree days, a temperature-based proxy for heating demand, were 17% higher in the United States during the first half of 2018 than in the first half of 2017.
In the U.S. electric power sector, power plants used 3.6 Bcf/d (16%) more natural gas during the first half of 2018 compared with the same time last year. Electricity demand tends to increase as hot weather increases demand for air conditioning or as cold weather increases demand for electric space heating. Natural gas consumption in the power sector has also increased with the increased build out of natural gas-fired power plants in much of the country. Industrial consumption of natural gas in the United States (including lease and plant fuel) was 1.6 Bcf/d (6%) higher in the first half of 2018 compared to the first half of 2017. Industrial consumption of natural gas is affected by weather-related space heating needs, particularly in the Northeast and Midwest. In addition, industrial consumption is a function of industry-specific demand and market factors.