Phil Flynn: The Energy Report March 25, 2019
Despite Friday’s sell-off due to an inversion in the yield curve, the oil demand numbers are telling us the exact opposite. As I pointed out in recent weeks, gasoline demand has been flourishing, with record low unemployment, rising wages and the strongest U.S. consumer in decades. This comes as we should see another drop in U.S. oil and products inventory and could face a supply squeeze in the coming weeks. The cumulative impact of sanctioned Venezuelan and Iranian oil will weigh on the U.S. economy that is not, I repeat, not in a recession. Yes, there was weak manufacturing data in Europe and uncertainty about the U.S. - China trade talks, yet the U.S. is at what one might say is full employment.
Recession fears and false flags, maybe the yield curve has more to do with the Fed reversing course on the unwinding of the balance sheet, where they have shifted from automatic pilot winddowns to being patient and cautious. The increased fears of an overseas slowdown are raising concerns that the U.S. will be the next shoe to fall, but to erase the current growth in the economy it would have to take a dramatic change in the fortunes of the economy, and to be honest, there are absolutely no signs that that is going to happen. U.S. growth, which is higher than many predicted it could be, may slow a bit but to go to negative growth, would take a major shock.
In the meantime, oil traders will have to deal with the reality that the U.S. rig count is continuing to fall, and U.S. demand for gasoline is running near record highs at 9.409 million barrels a day as of March 15th. Supplies of oil and distillates are all below the five-year average and gasoline just above the five -year average with strong demand and summer blend switchovers likely to cut into that cushion. The trend of lower drilling rigs will be a precursor to the U.S. lowering U.S. oil production estimates once again. Baker Hughes reports that the U.S. rig count fell by 10 rigs, 9 oil and 1 natural gas. The number of U.S. rigs dropped for a fifth week in a row.
This comes as we are reminded that crude oil inventories are about 2% below the five-year average for this time, distillate fuel inventories 4% below the five-year average for this time of year and gasoline 2% above the five-year average. The API and EIA should show another drop-in supply across the board with Crude being down 2.5 million, gas down 3 million, and distillates down 2 with runs steady. Crude imports and export numbers will be crazier going forward as the Houston Shipping channel is closed. Bloomberg News reports that the Houston Shipping Channel won’t reopen until the U.S. Coast Guard verifies that a cloud of cancer-causing benzene has dissipated, and oily runoff from the region’s worst chemical disaster in 14 years poses no threat to vessels or their crews.
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From the EIA weekly report for the week ending March 15:
Days of Supply (30 days of supply is considered "normal")
27.4 for Crude oil, down 0.8 from previous week
26.4 for Gasoline, down 1.0 from previous week
22.4 for Jet Fuel, down 1.1 from previous week
31.3 for Distillates, down 2.0 from previous week < a bit deceiving since we export a lot of diesel, which is not included in the calculation of days of supply.
Oil Price - March 25
Oil Price - March 25
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Oil Price - March 25
By John Kemp
LONDON, March 25 (Reuters) - Hedge funds bought another 65 million barrels of petroleum futures and options in the week to March 19, taking total purchases over the last 10 weeks to 384 million barrels, according to reports published on Friday.
The one-week increase in net long positions was the largest since the end of August 2018, a strong bullish signal about the expected direction of prices over the next six months.
Hedge funds and other money managers have boosted their overall bullish position in the six most important derivative contracts linked to crude and fuels prices to 685 million barrels, up from just 302 million on Jan. 8.
Funds were substantial net buyers in the most recent week of NYMEX and ICE WTI (+50 million barrels) as well as Brent (+16 million barrels) and U.S. gasoline (+12 million barrels).
But they were net sellers of U.S. heating oil (-4 million barrels) and European gasoil (-9 million barrels), according to exchange and regulatory data (https://tmsnrt.rs/2UT8fPK).
Funds now hold almost five bullish long positions for every short bearish one in petroleum, up from a ratio of less than 2:1 at the start of the year, but still far below the recent peak of 12:1 at the end of September.
Until recently, most of the buying was concentrated in Brent and European gasoil, but buying rotated into WTI and U.S. gasoline in the most recent week.
Funds have reduced most, though not all, of the short positions that they started to accumulate from the end of August, indicating that the most recent short-selling cycle is nearing its end.
Portfolio managers have now reduced the number of short positions across the petroleum complex to just 173 million barrels, less than half a recent peak of 357 million on Jan. 8.
In NYMEX WTI, the number of short positions has fallen to just 51 million barrels, down from 133 million on Jan. 8.
Fund managers have become much less bearish about the outlook for oil prices since the start of the year as U.S.-China trade tensions have de-escalated.
Saudi Arabia has cut oil production aggressively and U.S. sanctions have disrupted exports from Venezuela and Iran, which has reduced fears about over-supply.
With so many short positions now squared up, however, short-covering will provide less support to petroleum prices going forward.
There is still plenty of scope to increase long positions, with current longs of 858 million barrels only just over half the recent peak of 1.6 billion barrels early last year.
Positions in U.S. heating oil and European gasoil remain very modest compared with last year, despite the potential consumption boost for both contracts from new shipping regulations at the end of the year.
LONDON, March 25 (Reuters) - Hedge funds bought another 65 million barrels of petroleum futures and options in the week to March 19, taking total purchases over the last 10 weeks to 384 million barrels, according to reports published on Friday.
The one-week increase in net long positions was the largest since the end of August 2018, a strong bullish signal about the expected direction of prices over the next six months.
Hedge funds and other money managers have boosted their overall bullish position in the six most important derivative contracts linked to crude and fuels prices to 685 million barrels, up from just 302 million on Jan. 8.
Funds were substantial net buyers in the most recent week of NYMEX and ICE WTI (+50 million barrels) as well as Brent (+16 million barrels) and U.S. gasoline (+12 million barrels).
But they were net sellers of U.S. heating oil (-4 million barrels) and European gasoil (-9 million barrels), according to exchange and regulatory data (https://tmsnrt.rs/2UT8fPK).
Funds now hold almost five bullish long positions for every short bearish one in petroleum, up from a ratio of less than 2:1 at the start of the year, but still far below the recent peak of 12:1 at the end of September.
Until recently, most of the buying was concentrated in Brent and European gasoil, but buying rotated into WTI and U.S. gasoline in the most recent week.
Funds have reduced most, though not all, of the short positions that they started to accumulate from the end of August, indicating that the most recent short-selling cycle is nearing its end.
Portfolio managers have now reduced the number of short positions across the petroleum complex to just 173 million barrels, less than half a recent peak of 357 million on Jan. 8.
In NYMEX WTI, the number of short positions has fallen to just 51 million barrels, down from 133 million on Jan. 8.
Fund managers have become much less bearish about the outlook for oil prices since the start of the year as U.S.-China trade tensions have de-escalated.
Saudi Arabia has cut oil production aggressively and U.S. sanctions have disrupted exports from Venezuela and Iran, which has reduced fears about over-supply.
With so many short positions now squared up, however, short-covering will provide less support to petroleum prices going forward.
There is still plenty of scope to increase long positions, with current longs of 858 million barrels only just over half the recent peak of 1.6 billion barrels early last year.
Positions in U.S. heating oil and European gasoil remain very modest compared with last year, despite the potential consumption boost for both contracts from new shipping regulations at the end of the year.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Oil Price - March 25
Other news last week that impacted oil traders.
On March 22 Reuters reported thousands of Algerians rallied again on Friday to demand the immediate resignation of President Abdelaziz Bouteflika, who is fighting for his political survival in the face of relentless protests and the desertion of long-time allies.
On March 21 Reuters reported Iran's oil exports had dropped in March to their lowest daily level this year, according to tanker data and industry sources, even before Washington formally requires importing countries to reduce purchases to avoid infringing U.S. sanctions. Shipments are averaging between 1.0 and 1.1 million b/d so far this month, according to Refinitiv Eikon data and three other companies that track Iranian exports. That's lower than February, when shipments were at least 1.3 million b/d.
On March 22 Reuters reported German manufacturing contracted further in March, a survey showed on Friday, compounding fears that unresolved trade disputes are exacerbating a slowdown in Europe's biggest economy. After nine successive years of growth, the German economy is facing trade conflicts between the United States and both China and the European Union as well as weakening economic activity in the euro zone. IHS Markit's flash composite Purchasing Managers' Index (PMI) measuring activity in services and manufacturing, which together account for more than two-thirds of the economy, fell to 51.5, it lowest reading since June 2013.
On March 20 Bloomberg reported Venezuela’s exports to the U.S. hit zero last week after American sanctions on PDVSA. American refiners took no crude from the Latin American country for the first time in government data going back to 2010.
On March 21 Reuters reported Venezuelan opposition leader Juan Guaido said on Thursday intelligence agents had arrested his chief of staff following a pre-dawn raid, signaling that President Nicolas Maduro may be cracking down on the opposition's challenge to his rule. Venezuela's Information Ministry did not immediately respond to a request for comment.
On March 19 Bloomberg reported that the Chairman of Libya's National Oil Corp. has said that production at the Sharara field is currently 260,000 b/d (around 50,000 Bopd short of peak), and he expects it to keep rising in the near future. He is also hopeful that BP plc (BP-NC) will soon resume production very soon in a field in western Libya as well.
On March 18 Reuters reported OPEC scrapped its planned meeting in April and will decide instead whether to extend output cuts in June, once the market has assessed the impact of U.S. sanctions on Iran and the crisis in Venezuela. A ministerial panel of OPEC and its allies recommended that they cancel the extraordinary meeting scheduled for April 17-18 and hold the next regular talks on June 25-26.
On March 22 Reuters reported thousands of Algerians rallied again on Friday to demand the immediate resignation of President Abdelaziz Bouteflika, who is fighting for his political survival in the face of relentless protests and the desertion of long-time allies.
On March 21 Reuters reported Iran's oil exports had dropped in March to their lowest daily level this year, according to tanker data and industry sources, even before Washington formally requires importing countries to reduce purchases to avoid infringing U.S. sanctions. Shipments are averaging between 1.0 and 1.1 million b/d so far this month, according to Refinitiv Eikon data and three other companies that track Iranian exports. That's lower than February, when shipments were at least 1.3 million b/d.
On March 22 Reuters reported German manufacturing contracted further in March, a survey showed on Friday, compounding fears that unresolved trade disputes are exacerbating a slowdown in Europe's biggest economy. After nine successive years of growth, the German economy is facing trade conflicts between the United States and both China and the European Union as well as weakening economic activity in the euro zone. IHS Markit's flash composite Purchasing Managers' Index (PMI) measuring activity in services and manufacturing, which together account for more than two-thirds of the economy, fell to 51.5, it lowest reading since June 2013.
On March 20 Bloomberg reported Venezuela’s exports to the U.S. hit zero last week after American sanctions on PDVSA. American refiners took no crude from the Latin American country for the first time in government data going back to 2010.
On March 21 Reuters reported Venezuelan opposition leader Juan Guaido said on Thursday intelligence agents had arrested his chief of staff following a pre-dawn raid, signaling that President Nicolas Maduro may be cracking down on the opposition's challenge to his rule. Venezuela's Information Ministry did not immediately respond to a request for comment.
On March 19 Bloomberg reported that the Chairman of Libya's National Oil Corp. has said that production at the Sharara field is currently 260,000 b/d (around 50,000 Bopd short of peak), and he expects it to keep rising in the near future. He is also hopeful that BP plc (BP-NC) will soon resume production very soon in a field in western Libya as well.
On March 18 Reuters reported OPEC scrapped its planned meeting in April and will decide instead whether to extend output cuts in June, once the market has assessed the impact of U.S. sanctions on Iran and the crisis in Venezuela. A ministerial panel of OPEC and its allies recommended that they cancel the extraordinary meeting scheduled for April 17-18 and hold the next regular talks on June 25-26.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group