Don’t forget the upcoming Economics of Oil and Gas Roundtable, October 25, 2018. Sign-up today at tim@matadoreconomics.com

 

Good Thursday Morning my good friends it’s a warm morning here in DFW and our energy markets are warming up as well. There are several issues driving us this morning with the Iranian’s reporting they have control of the Strait of Hormuz. Added to that is the story that Iranian crude oil exports could drop as much as 70 million barrels next month! Plus the deteriorating relationship between the US and the NOKO’s, not that it ever was anything but nearly non-existent. The Chinese trade war could be accelerating and US economic metrics continue to grow positively. (See Timbo’s Macro’s below) Adding to the frenzy was the weekly API report on inventories showing a draw of 5.17 million barrels, with gasoline adding 21,000 barrels and the distillates adding 982,000 barrels for the week ending 8-24-2018. This may foreshadow this morning’s EIA report from the US Department of Energy, as we expect a draw in crude here as well.

 

In a Houston Chronical story from Heesu Lee and Grant Smith, “Brent crude is signaling that U.S. sanctions against Iran’s oil exports are starting to be felt in global markets. Futures for settlement in November — when the American measures will go into effect — are trading higher than contracts for later months. That market structure, known as backwardation, is reflecting fears of a supply crunch. Meanwhile, Brent’s premium to New York prices has risen as U.S. crude is weighed down by pipeline bottlenecks and speculation that President Donald Trump will pursue efforts to lower fuel costs. “U.S. sanctions towards Iran” are “already starting to materialize,” said Bjarne Schieldrop, Oslo-based chief commodities analyst at SEB AB. “This is driving up the physical crude oil market, shifting the Brent crude curve into backwardation.” Most of Iran’s customers are already facing difficulties in buying the country’s crude even before sanctions are imposed on Nov. 4. Adding to the global supply situation is Venezuela’s economic struggle that’s sending its oil production lower. Investors are starting to see increasing uncertainty over whether other members of the Organization of Petroleum Exporting Countries will be able to pump more to fill any supply gap. Brent for November settlement was at $76.48 a barrel on the London-based ICE Futures Europe exchange at 10:30 a.m. local time, 10 cents higher than the December contract. That’s the widest backwardation between the second and third-month contracts since early July. October Brent, which expires Aug. 31, rose 21 cents to $76.16 a barrel. West Texas Intermediate crude for October delivery gained 25 cents to $68.78 a barrel on the New York Mercantile Exchange, after declining 34 cents on Tuesday. Total volume traded was about 52 percent below the 100-day average. The U.S. crude benchmark’s discount to Brent was at $7.37 a barrel after closing at $7.42 on Tuesday, the widest in more than two months. “There’s certainly a bottleneck — not enough pipelines to get all of the oil we’re producing in West Texas to get it to its two main outlet markets,” Stephen Schork, president of the Schork Group Inc., said in a Bloomberg radio interview. “I would expect that premium to continue to grow, given that you have the geopolitics, the Brent market is absolutely more vulnerable.”

 

Timbo’s Macro’s: This morning we got the second reading of the US GDP and had a surprising 4.2% vs expectations of 4.0%. The first read had a 4.1%, so we’re refining those numbers in a positive direction. That’s a really good number even with the addition of very large US Soybean exports. That should offset next quarter, but really only reflects on pre-tariff jitter trading. Adding to the Macro-frenzy was yesterday’s Consumer Confidence number coming in at an 18 year high 133.4 vs expectations of 127.9. these are huge numbers and good for demand side for crude oil and the refined products. We’ll also get this weeks EIA numbers at 10:30 EDT. I’ll send them when I get them! At 08:00 CDT, WTI was trading up 60 with ULSD up 134 with RBOB up 48. Gold was down $4.20 and the value of the US $$ index has been slipping, but is ticking up a tad at 94.891. Bitcoin was now trading back above $7,000 trading up $39.

 

Hurricane Season: Maybe…

Technicals

 

INO Morning Energy Commentary: October NYMEX crude oil was slightly higher in overnight trading. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near-term. If October extends the rally off August’s low, June’s high crossing at 71.29 is the next upside target. Closes below the 20-day moving average crossing at 66.99 would signal that a short-term top has been posted. First resistance is last-Friday’s high crossing at 69.31. Second resistance is June’s high crossing at 71.29. First support is August’s low crossing at 63.89. Second support is June’s low crossing at 62.60.

October heating oil was steady to slightly higher overnight as it extends the rally off August’s low. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near-term. If October extends the rally off August’s low, July’s high crossing at 224.48 is the next upside target. Closes below the 50-day moving average crossing at 214.99 would confirm that a short-term top has been posted. From a broad perspective, October heating oil has been in a broad trading range since May. Closes above May’s high crossing at 229.92 or below July’s low crossing at 205.41 are needed to confirm a breakout of this trading range and point the direction of the next trending move. First resistance is July’s high crossing at 224.48. Second resistance is May’s high crossing at 229.92. First support is the 50-day moving average crossing at 214.99. Second support is August’s low crossing at 208.05.

October unleaded gas was steady to slightly higher overnight. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near-term. If October extends the rally off August’s low, the late-July high crossing at 201.57 is the next upside target. Closes below the 20-day moving average crossing at 193.39 would confirm that a short-term top has been posted. First resistance is the late-July high crossing at 201.57. Second resistance is July’s high crossing at 204.04. First support is August’s low crossing at 186.62. Second support is July’s low crossing at 185.93.

October Henry natural gas was slightly lower overnight as it extends the decline off August’s high. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible. If October extends the decline off August’s high, August’s low crossing at 2.751 is the next downside target. Closes above the 10-day moving average crossing at 2.914 would temper the near-term bearish outlook. First resistance is the 87% retracement level of the June-July-decline crossing at 2.982. Second resistance is June’s high crossing at 3.025. First support is August’s low crossing at 2.751. Second support is July’s low crossing at 2.688.

 

INO Morning Currency Commentary: The September Dollar was higher overnight as it consolidates some of the decline off August’s high. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near-term. If September extends the decline off August’s high, the late-July low crossing at 93.87 is the next downside target. Closes above the 20-day moving average crossing at 95.46 would temper the near-term bearish outlook. If September resumes this year’s rally, monthly resistance crossing at 97.70 is the next upside target. First resistance is August’s high crossing at 96.87. Second resistance is weekly resistance crossing at 97.70. First support is the 25% retracement level of the January-August-rally crossing at 94.52. Second support is the late-July low crossing at 93.87.

The September Euro was lower overnight as it consolidates some of the rally off August’s low. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible. If September extends the rally off August’s low, the late-July high crossing at 117.90 is the next upside target. Closes below the 20-day moving average crossing at 115.55 would temper the near-term friendly outlook. If September renews this summer’s decline, the 75% retracement level of the 2016-2018 rally crossing at 112.78 is the next downside target. First resistance is the late-July high crossing at 117.90. Second resistance is July’s high crossing at 118.52. First support is August’s low crossing at 113.28. Second support is the 75% retracement level of the 2016-2018 rally crossing at 112.78.

The September British Pound was steady to slightly higher overnight as it extends the trading range of the past six-days. Stochastics and the RSI remain neutral to bullish signaling that sideways to higher prices are possible near-term. Closes above last-Wednesday’s high crossing at 1.2949 are needed to confirm that a short-term low has been posted while opening the door for additional gains near-term. If September renews the decline off July’s high, the 87% retracement level of the 2016-2018-rally crossing at 1.2600 is the next downside target. First resistance is last-Wednesday’s high crossing at 1.2949. Second resistance is the 50-day moving average crossing at 1.3071. First support is August’s low crossing at 1.2678. Second support is the 87% retracement level of the 2016-2018-rally crossing at 1.2600.

The September Swiss Franc was mostly steady overnight as it consolidates some of the rally off August’s low. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near-term. If September extends the aforementioned rally, June’s high crossing at 1.0302 is the next upside target. Closes below the 50-day moving average crossing at 1.0121 would confirm that a short-term top has been posted. First resistance is Tuesday’s high crossing at 1.0279. Second resistance is June’s high crossing at 1.0302. First support is the 50-day moving average crossing at 1.0121. Second support is July’s low crossing at 0.9984.

The September Canadian Dollar was slightly lower overnight. Stochastics and the RSI are neutral to bullish signaling that sideways to higher prices are possible near-term. If September extends the rally off August’s low, June’s high crossing at 77.94 is the next upside target. Closes below the 50-day moving average crossing at 76.30 would temper the near-term friendly outlook. First resistance is Tuesday’s high crossing at 77.63. Second resistance is June’s high crossing at 77.94. First support is August’s low crossing at 75.93. Second support is July’s low crossing at 75.31.

The September Japanese Yen was steady to slightly lower overnight as it consolidates some of the decline off last-Tuesday’s high. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near-term. If September extends the decline off August’s high, August’s low crossing at 0.8943 is the next downside target. If September renews the rally off July’s low, the 38% retracement level of the March-July decline crossing at 0.9172 is the next upside target. First resistance is last-Tuesday’s high crossing at 0.9126. Second resistance is the 38% retracement level of the March-July decline crossing at 0.9172. First support is August’s low crossing at 0.8943. Second support is July’s low crossing at 0.8867.

 

Market Snapshot

Symbol Open High Low Last Change %
Euro 1.169600 1.169600 1.165735 1.165850 -0.003750 -0.32%
US Dollar 94.703 94.932 94.688 94.891 +0.174 +0.22%
Bonds 143.78125 144.03125 143.68750 143.84375 +0.15625 +0.11%
Crude Oil 68.54 69.14 68.37 68.98 +0.45 +0.66%
Natural Gas 2.854 2.872 2.830 2.869 +0.024 +0.84%
Gold 1204.230 1205.800 1201.895 1202.620 -1.610 -0.13%
Silver 14.76600 14.77250 14.67300 14.68885 -0.07715 -0.52%
Dow Indu 26092.70 26122.24 26037.85 26064.02 +14.38 +0.06%
S&P 500 2901.45 2903.77 2893.50 2897.52 +0.78 +0.03%
Nasdaq 8039.01 8046.31 8009.59 8026.28 +8.38 +0.10%
Emini Dow 26092 26155 26060 26074 -11 -0.04%
Emini S&P 2900.50 2905.00 2897.50 2899.00 -0.25 -0.01%
Emini Nasdaq 7581 7600 7581 7585 +7 +0.09%
Bitcoin Bitstamp BTC 7044.40 7125.28 6990.04 7083.10 +38.70 +0.55%

 

S&P 500

2897.52

+0.78 +0.03%

Dow Indu

26064.02

+14.38 +0.06%

Nasdaq

8026.28

+8.38 +0.10%

Crude Oil

68.98

+0.45 +0.66%

Gold

1202.620

-1.610 -0.13%

Euro

1.165850

-0.003750 -0.32%

US Dollar

94.891

+0.174 +0.22%

 

 

Tim Snyder, President

Matador Economics, Inc.

860 W Airport Freeway, Suite #102

Hurst, Texas 75056

(806) 441-7721

tim@matadoreconomics.com

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