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 in DFW with the promise of heating up over the Labor Day weekend. It looks like our energy markets are heating up as well. However, as confusing as these markets seem to be right now, the underlying trends supporting the price of crude and the products are definitely pointing up!. Yesterday’s lackluster EIA Inventory report didn’t help the confusion other than to feed the supply theorists with production struggling to top 11 million barrels; it’s just stuck there and we’re losing rigs as well. None of this is due to a lack of demand, it’s just cyclical in corporate spending cycles for the balance of 2018. It appears the 2019 outlook will be strong for Cap-X. The underlying story here is and has been for a couple months now, is supplies struggling to meet demand for the next year and beyond. I’m beginning to agree, as long as the fundamentals keep static. I don’t believe this will happen so, I’m watching OPEC to see what they do to disrupt the status quo.

 

The EIA report showed some stagnation in production with only an increase of 38,000 barrels increase in crude oil. Gasoline was up 21,000 barrels and the distillates were up 982,000 barrels. Production was stuck on 11 million barrels per day and refinery runs were down a smidge -326,000. Exports continued weak as well managing only 1.779 million barrels per day, but that is somewhat better than last week.

 

In a Reuters story from Shadia Nasralla, Gwladys Fouche and Nerijus Adomitis, After years of restraint since crude prices slumped in 2014, oil services companies are now at loggerheads with producers as they battle for what they see as a fair share of the sector recovery. Oil industry suppliers say they have cut costs and prices to the bone and the recent rebound in crude justifies better rewards for anything from rigs to logistics and engineering services. Their overtures have met with stubborn resistance from producers. But there are increasing signs that something has to give, including recent strikes at North Sea platforms. “The cost savings that we have achieved over the past three years are not sustainable,” said Thierry Pilenko, Executive Chairman of TechnipFMC (FTI.N), one of the world’s biggest oil services groups. “A rig that was once at $600,000 day is now at $150,000, which is not even cash breakeven,” he added, referring to rig rental rates. “Cost inflation will come back … The drilling industry working below breakeven is not sustainable.” The oil market is cyclical by nature — if crude prices fall, so does investment and then output, which in turn drives up prices — and oil services companies ride the rollercoaster by using the upturns to raise their prices to offset the downturns. Global exploration and production spending shot up by a quarter in 2005, fell 8 percent in 2009, jumped by about 12 percent two years later and then tanked by more than a fifth in 2016, according to data from consultancy firm Rystad Energy. Consequently, average rig rates that were about $200,000 for a floating rig in 2005 more than doubled by 2012 and then fell to about $160,000 last year, Rystad said. “It is still a feast or famine cycle,” the CEO of oilfield services group Baker Hughes (BHGE.N), Lorenzo Simonelli, told an industry conference in the Norwegian oil capital of Stavanger. After benchmark oil futures contracts (LCOc1) slumped from more than $110 a barrel in 2014 to less than $30 in early 2016, oil producers cut spending drastically and promised shareholders that cost discipline was here to stay. Signs of rising rates have begun to emerge in the United States, but oil producers are loath to put the genie back in the bottle. “There might be pressure on costs, but we will never forget what we have learned,” Equinor Chief Executive Eldar Saetre told the Stavanger conference. Indeed, Equinor’s announcement on Tuesday that it plans to drill 3,000 production and exploration wells off Norway during the next two decades came with a caveat. “There is no room for cost inflation in those plans,” said Arne Sigve Nylund, head of Equinor’s Norwegian operations. “We need to deliver at the same level we are now … I call on suppliers to work with us on how to deliver at the lowest possible cost.” But with oil now trading around $75 a barrel, strikes at several of Total’s (TOTF.PA) North Sea offshore platforms are testimony to an industry wrestling with keeping efficiencies high and costs down. The way contracts are structured between producers and services will be key to the future level of costs. “There is a big dichotomy now. Some of the contractors are expecting to see price increases. They are almost saying ‘it’s my turn now’,” Luis Araujo, CEO of oil services company Aker Solutions (AKSOL.OL), said.

“I don’t buy into that. I think we should work together.” Araujo pointed to clients such as Aker BP (AKERBP.OL) offering contracts more akin to “incentive schemes” than ways to squeeze margins.

“In the future, maybe suppliers are going to get paid by performance. So instead of getting paid by the daily rates, (you) will be paid by how many meters you can drill.” Equinor’s Saetre put it even more succinctly at the Stavenger conference, with the words of U.S. rock star Bruce Springsteen emblazoned on the big screen: “Nobody wins unless everybody wins.” But given oil producers’ own constraints, the message might not have trickled through quite yet. “We have to be a bit cautious because the guys doing the presentations are the leaders. But then there is the next layer in line who are being educated to squeeze suppliers and not collaborate,” Araujo said.” (WOW, this article took short a track into La La Land)

 

Timbo’s Macro’s: With yesterday’s EIA report behind us, we got July personal spending today and it came in as expected at +.4%. Personal income also came in as expected at +.3% and this weeks Jobless Claims came in at 213,000 vs expectations of 214,000 new claims. At 08:00 CDT, WTI was trading up 27 with ULSD up 40 and RBOB was up 100. Gold was down 80 cents and the US $$ Index was up at 94.653. Bitcoin was down nearly $200 and back below $7,000.

 

Hurricane Season: It’s Backkkkkkk.

Technicals

 

INO Morning Energy Commentary: October NYMEX crude oil was 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, June’s high crossing at 71.29 is the next upside target. Closes below the 20-day moving average crossing at 67.14 would signal that a short-term top has been posted. First resistance is the overnight high crossing at 70.01. 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 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, May’s high crossing at 229.92 is the next upside target. Closes below the 50-day moving average crossing at 215.35 would confirm that a short-term top has been posted. 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 the overnight high crossing at 226.08. Second resistance is May’s high crossing at 229.92. First support is the 50-day moving average crossing at 215.35. Second support is August’s low crossing at 208.05.

October unleaded gas 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 204.04 is the next upside target. Closes below the 20-day moving average crossing at 193.86 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 higher overnight as it consolidates some of the decline off August’s high. Stochastics and the RSI are oversold and are turning bullish signaling that a low is in or near. If October extends the decline off August’s high, August’s low crossing at 2.751 is the next downside target. Closes above the 20-day moving average crossing at 2.918 would confirm that a short-term low has been posted. First resistance is the 20-day moving average crossing at 2.918. Second resistance is the 87% retracement level of the June-July-decline crossing at 2.982. First support is Wednesday’s low crossing at 2.830. Second support is August’s low crossing at 2.751.

 

INO Morning Currency Commentary: The September Dollar was steady to slightly 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 95.42 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 115.62 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 slightly 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 near-term. Closes above the 50-day moving average crossing at 1.3070 would signal that the short-term trend has turned sideways to higher while at the same time 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 the 50-day moving average crossing at 1.3070. Second resistance is the reaction high crossing at 1.3240. 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 steady to slightly 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 near-term. If September extends the aforementioned rally, the 38% retracement level of the February-July-decline crossing at 1.0383 is the next upside target. Closes below the 50-day moving average crossing at 1.0127 would confirm that a short-term top has been posted. First resistance is the overnight high crossing at 1.0336. Second resistance is the 38% retracement level of the February-July-decline crossing at 1.0383. First support is the 50-day moving average crossing at 1.0127. Second support is August’s low crossing at 1.0042.

The September Canadian Dollar was lower overnight as it consolidates some of the rally off June’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 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 76.35 would confirm that a short-term top has been posted. 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 higher 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 1.170400 1.171570 1.167900 1.169205 -0.001195 -0.10%
US Dollar 94.568 94.719 94.469 94.653 +0.124 +0.16%
Bonds 143.78125 144.21875 143.71875 144.21875 +0.37500 +0.26%
Crude Oil 69.71 70.08 69.55 69.87 +0.36 +0.52%
Natural Gas 2.875 2.890 2.862 2.884 +0.021 +0.73%
Gold 1205.505 1205.505 1200.900 1203.620 -1.885 -0.16%
Silver 14.7136 14.7480 14.6125 14.6525 -0.0611 -0.42%
Dow Indu 26082.53 26167.94 26035.30 26124.57 +60.55 +0.23%
S&P 500 2900.62 2916.50 2898.40 2914.04 +16.52 +0.57%
Nasdaq 8044.34 8113.56 8042.10 8109.38 +79.34 +0.98%
Emini Dow 26155 26168 26047 26083 -64 -0.24%
Emini S&P 2915.75 2916.25 2907.00 2910.00 -4.75 -0.16%
Emini Nasdaq 7672.75 7674.50 7647.25 7654.25 -14.50 -0.19%
Bitcoin Bitstamp BTC 7020.81 7110.00 6810.00 6845.90 -174.91 -2.49%

 

S&P 500

2914.04

+16.52 +0.57%

Dow Indu

26124.57

+60.55 +0.23%

Nasdaq

8109.38

+79.34 +0.98%

Crude Oil

69.87

+0.36 +0.52%

Gold

1203.620

-1.885 -0.16%

Euro

1.169205

-0.001195 -0.10%

US Dollar

94.653

+0.124 +0.16%

 

 

 

Tim Snyder, President

Matador Economics, Inc.

860 W Airport Freeway, Suite #102

Hurst, Texas 75056

(806) 441-7721

tim@matadoreconomics.com

Tim Snyder 8 30 18 Matador Charts