Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665
Business and users of oil that did not buy into the lower for longer talk are giving thanks this Thanksgiving for having hedged their oil, gasoline and diesel purchases. Suddenly, the oil glut that many had predicted would last forever has suddenly turned into a very tight market. Oil futures are in contango for the first time since 2014 as refiners bid up the front months of oil to try to secure supply to meet surging global oil demand. In the U.S. there is already talk of diesel shortages driving up spot prices in some areas. U.S. oil production is still below expectations and shale firms are signaling they are not in a hurry to aggressively raise production until they are sure they can do it profitably. This comes ahead of a OPEC meeting where they are wildly expected to extend production cuts and with increasing geopolitical drama in Venezuela and Saudi Arabia.
Oil supplies are getting tighter. The American Petroleum Institute reported a massive 6.35 million barrels drop in crude oil supply as well as a 1.796 million barrel drop in the Cushing Oklahoma delivery point. That was coupled with a big 1.673 million barrels drop in the undersupplied distillate market signaling to crude that refiners will have no choice but to run full tilt for the foreseeable future. This drove the crude market into contango as traders start to fret about diesel shortages this winter.
Bloomberg News reported that a “diesel shortage in West Texas and New Mexico has sparked demand for truckers to long-haul supplies from Oklahoma, Mansfield says in an emailed notice. They say, “Supply concerns” emerged in Texas markets: Odessa, El Paso, Abilene, Amarillo, Lubbock as well as Albuquerque, N.M.. The tightness attributed to refinery turnaround delays from Hurricane Harvey, Explorer Pipeline shutdown and repairs earlier this month, record-high weekly diesel exports. They say mixed with limited supplies, exports have risen significantly out of Texas, causing demand to outstrip supply in the region. Mansfield says, “Prices will likely reflect the limited supply situation in the coming days”. There are record diesel exports because supplies are tight around the globe. Diesel producers got hit not only with weather and refining issues, but their biggest problem was the underestimation of demand.
The doom and gloom on weak demand earlier in the year has proven to have no basis. Markets reacted to underestimation of demand and overestimation in U.S. and global oil production forcing producers and some buyers into a false sense of everlasting bearishness.
The bears also misjudged OPEC and Non-OPEC’s resolve to reduce the overhang and many predicted that their historic deal would fall apart. They said that even if they did comply, oil from Libya and Nigeria and shale would overcome the market place. Instead we have seen just the opposite. Libyan oil production and Nigerian production has not been stable. In Iran they are struggling to export huge numbers even as sanctions were lifted and Venezuelan oil production is in a tailspin.
But that is the least of the drama in the collapsing socialist state. The Wall Street Journal reports that ”Venezuela’s intelligence agency arrested six top executives at the U.S. subsidiary of state-oil company Petróleos de Venezuela SA, as part of what authorities are calling an anticorruption crusade.”
Attorney General Tarek Saab said “the acting president and five board members of the subsidiary, Houston-based Citgo Petroleum Corp, tried to defraud the nation through a planned $4 billion financing deal with three little-known foreign investment funds.” Are they taking a page out of Saudi Arabia’s corruption crackdown playbook or is this just an act of desperation by Venezuelan President Maduro?
In Saudi Arabia this weekend they claim a ballistic missile was fired again. Al Jazeera reports that the U.S. State Department has cautioned its citizens “to carefully consider” travelling to Saudi Arabia, citing persisting “terrorist” threats and a spillover of violence from Yemen across the border. The travel warning, issued on Tuesday, warned of the threat of ballistic missiles fired by rebel groups from Yemen into the kingdom. This as the corruption crackdown in the Kingdom continues with no reports of Royal family members cutting deals to gain their freedom.
I give thanks to almighty God this thanksgiving that we live in the greatest country in the world and for the many blessing he has given this country. I also give thanks to the brave men and women in our military that keep us safe and protects our freedom and liberty. I pray for their safety and I wish everyone a happy Thanksgiving.
Questions? Ask Phil Flynn today at 312-264-4364
A Subsidiary of Price Holdings, Inc. – an Employee Owned Diversified Financial Services Firm. Member NIBA, NFA
Past results are not necessarily indicative of future results. Investing in futures can involve substantial risk of loss & is not suitable for everyone. Trading foreign exchange also involves a high degree of risk. The leverage created by trading on margin can work against you as well as for you, and losses can exceed your entire investment. Before opening an account and trading, you should seek advice from your advisors as appropriate to ensure that you understand the risks and can withstand the losses.
The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or futures. The Price Futures Group, its officers, directors, employees, and brokers may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction. Reproduction and/or distribution of any portion of this report are strictly prohibited without the written permission of the author. Trading in futures contracts, options on futures contracts, and forward contracts is not suitable for all investors and involves substantial risks. ©2017
Stay Tuned to the Fox Business Network to give you the best in business news! I will be among some fantastic speakers at The MoneyShow Orlando in early February. Get signed up early as rooms are filling up fast! Go to Flynn.OrlandoMoneyShow.com
Call to get the daily trade levels at 888-264-5665 or email me at firstname.lastname@example.org
SubscribeReceive daily summaries of all Market Insights blog posts.
Enter email below.
Most Recent Posts
- U.S. Drought Monitor in December? The Corn & Ethanol Report 12/15/17
- Bubblenomics. The Energy Report 12/15/17
- FED Raises Rates. The Corn & Ethanol Report 12/14/17
- Fed Raises Rates. The Nemenoff Report 12/14/17
- Gas Crazy. The Energy Report 12/14/17
- Happy Hanukkah. The Corn & Ethanol Report 12/13/17
- Its Beginning to Look a lot like Rate Hikes. The Energy Report 12/13/17
- Crop Production USDA Supply/Demand Today. The Corn & Ethanol Report 12/12/17