Market Currents – Woolly Worm Edition
On the day that Tom Petty turns sixty-five, the crude complex is trying to rebound after yesterday’s bout of free fallin’. Things are pretty thin on the economic data front, the sum of which has been lower building permits and higher housing starts out in the US, while Germany saw weaker (and deflationary) producer prices.
Meanwhile, the crude complex is trying to muster a bounce ahead of tomorrow’s OPEC + 8 (Azerbaijan, Brazil, Colombia, Kazakhstan, Norway , Mexico, Oman, and Russia) meeting in Vienna, which really shouldn’t yield that much. At all.
We are not only passing through the peak of maintenance season for US refineries, but also through shoulder season (aka low demand period) for natural gas, where we see a slow-motion baton transfer from cooling to heating demand. Above-normal weather conditions are persisting on the weather outlooks (hark, left), meaning lingering storage injections in the coming weeks as heating demand is stymied.
An ongoing theme of strong supply, in combination with warmer weather, continues to keep a lid on natural gas in mid-two dollardom, as the prospect of a record storage level being achieved in the coming weeks is very much in the mix.
This warm start to winter is also providing a comfort blanket of hope that this winter’s El Niño weather pattern will mean these balmier conditions will continue.
I have already been conducting my usual field work ahead of this winter, and my initial results have been encouraging. I took a picture of this woolly worm (hark, right) this weekend. As you can see, there is is a wide band of brown, which points to a mild winter. (Should the woolly worm have been dominated by black, it would have signaled doom – an impending frigid winter).
So while the prospect of a warmer winter leans bearish for natural gas, it leans bullish for gasoline demand. We are in the throes of peak refinery maintenance season, with refinery utilization reaching the lowest point since mid-January at 86%. As maintenance ebbs in the coming weeks, we should see gasoline inventories starting to build as we head towards the end of the year.
While a milder winter should lead to more miles driven due to less inclement demand (c’mon, the woolly worm!), lower retail gasoline price should too incentivize greater consumption. The national average for gasoline is still on track to retest the January lows of just above $2/gallon by year-end, while South Carolina is already averaging well below that level. California remains elevated (as usual), but is making progress, well below $3/gallon:
There is an interesting piece out today which highlights how OPEC’s battle for market share of the Asia-Pacific region (which accounts for over a third of global demand) is pitching cartel members against each other. The below chart illustrates this scrap; Kuwait is undercutting its crude versus Saudi Arabia by the most on record. Iraq is also undertaking a similar tactic, as is Qatar, who is pricing its oil at its biggest discount in twenty-seven months.
Taking a quick peek at our #ClipperData, it highlights that
About The Author
Matt is a Director of Commodity Research at ClipperData. Matt specializes in extracting key themes from technical and fundamental analysis of the global energy market, and communicating these through daily and weekly deliverables. He also provides oil and natural gas analysis and commentary to national and international media outlets that include CNBC, Fox Business, Russia 24, the Wall Street Journal, MarketWatch, AFP, Bloomberg, Reuters, and the Oil Daily. Prior to joining ClipperData, he worked for eight years at Schneider Electric / Summit Energy as a Global Commodity Analyst, where he also founded and authored the blog, Energy Burrito. He started his career at the Royal Bank of Canada in the UK, spending eight years with the bank. During that time, he managed $55 million in assets as a portfolio manager and financial analyst.