Here’s an unintended consequence of the government shutdown that the Republicans may not have envisioned: commodity market turmoil.
John Kemp of Reuters makes the excellent point on Wednesday that the shutdown, if it continues, will soon hit important government data statistics services such as the CFTC’s weekly commitments of traders report and even potentially the EIA’s weekly inventory figures. Read more
The justification for Wednesday’s commodity rout is still that RBOB futures fell (or crashed) after the EIA reported larger than expected US stockbuilds in gasoline. The more than 8 per cent move, in the usually much more stable contract, saw the CME lift margins for speculators by 21.4 per cent for Thursday.
But is the RBOB situation really all that simple? Read more
John Kemp has an excellent column out Wednesday on the latest auto sales data, emphasising that buyers of US cars are increasingly shifting towards compact, fuel-efficient vehicles, and pointing to recent analyses arguing that $4 gas won’t reduce demand the way it did in 2008, mostly because of higher employment and better general economic conditions.
Kemp’s piece is also a handy primer on the methodology behind collecting data on US gas consumption. Read more
The US Energy Information Administration, distributor of the world’s most scrutinised and transparent energy statistics, is facing tough budget choices on account of the government’s ongoing debt ceiling fiasco.
Indeed, as the now hard-up EIA stated in a press release on Thursday, it’s come to the point where it’s even holding meetings to seek advice on how it can make its data gathering processes more efficient: Read more
The US government’s announcement on Wednesday of its civil case against BP over the Gulf of Mexico oil spill is a reminder of what has been clear from the start: the final impact of the disaster will be decided in the courts, the FT reports. BP has already set aside $39.9bn before tax to cover the costs of the spill. If it is found to have been grossly negligent in the actions that led to the explosion on the Deepwater Horizon rig on April 20, it could face additional penalties of $21bn or more. In other energy news, the FT reports that US recoverable reserves of natural gas are much larger than previously estimated, the government’s Energy Information Administration has said, suggesting higher production can be sustained at lower prices than it expected a year ago. In the first release from its Annual Energy Outlook for 2011, the EIA more than doubled its central estimate of the country’s technically recoverable reserves of shale gas, from 353,000bn cubic feet to 827,000bn cubic feet. The estimate would be enough to cover the entire gas consumption of the US for 36 years.
Wednesday’s weekly EIA oil inventory data is worth coming back to on Thursday.
Not only did the EIA report an exceptionally large and unexpected crude draw, it turns out the draw was the largest of its kind for this time of year since 1989. Read more
The WTI super-contango is back, which incidentally also implies the inevitable return of so-called ‘Cushing syndrome‘ – a term nicely coined by JBC Energy, as it happens.
On Thursday, US inventory data showed that Cushing stocks — the delivery point for WTI futures — fell last week by 330,495 barrels to 37.6m, but there is reason to suspect further builds are imminent, according to the JBC Energy analysts. Read more
EIA US oil inventory data released on Wednesday surprised many investors by reporting unexpectedly large draws in crude, distillates and gasoline stocks last week.
While on the surface this came might have come across as bullish for the energy complex, one factor more than others probably accounted for the pickup in demand. Via Reuters: Read more
The FT focuses on a very noteworthy trend highlighted in Wednesday’s IEA report — the disappearance of US driving season for a second year.
As the IEA explained in its August oil market report (emphasis FT Alphaville’s): Read more
At the beginning of March there was a lot of talk in the crude market about an end to the contango coming soon, mostly due to some destocking of floating inventory. FT Alphaville was not convinced. In fact we reminded:
As WTI returns to a premium at the front end, the effect is support for the overall front-end oil price (as people return to purchase WTI over Brent). Restocking of floating storage meanwhile sees further selling into the curve (or the buying of time spreads), flattening the curve out of contango at first — but potentially seeing it revert as storage once again becomes full.
Here’s a shocker: gasoline stocks fell much more than expected last week , with a corresponding smaller than expected build up in crude stocks according to the latest EIA stock data. Nymex crude rallied strongly on the numbers on Wednesday, only to lose ground again. The real standout – an unexpectedly large drawdown in Cushing stocks specifically, down by 400,000 barrels from recent record highs to 34.5m barrels. All of which means gasoline demand looks to be picking up in the US.
The Cushing factor has led to a tightening of the front-end timespreads, however. As Goldman Sachs stated in a recent report, this could be the result of an incentive to convert Cushing stocks to gasoline on account of relatively attractive margins. Read more
Oil prices will average more than $100 a barrel this year, according to the US Energy Information Administration which on Tuesday raised its 2008 forecast for West Texas Intermediate to $100.61 a barrel from the $94.11 projected a month ago. The EIA warned that the global oil market remained “fundamentally tight” despite a slowdown in US oil consumption and growing risks to global economic growth.