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Stephen Schork is the editor and visionary behind The Schork Report (http://www.SchorkReport.com), the leading market intelligence resource for technical and fundamental analysis of the energy markets. Our parent company, The Schork Group, Inc. recently launched ETF Market Intelligence... More
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  • Refiners look to minimize inventory in Q4
    Reports have offered three (wildly) different opinions of where crude oil supplies stood as of last Friday. Crude oil supplies increased by 2.86 MMbbls… according to the DOE. According to the API, crude oil supplies increased by only 0.28 MMbbls last week. And, according to a pre-report survey on Bloomberg, crude oil supplies were going to fall by 1.4 MMbbls last week.
    With that said, there was nothing abnormal or unexpected about yesterday’s crude oil build. As noted in yesterday’s issue of The Schork Report, reports through the seasonal transition into the shoulder months tend to produce either greater than or less than expected reports. Whether you choose to believe crude oil stocks rose by 2.9 MMbbls or rose by 0.3 MMbbls or fell by 1.4 MMbbls, it does not matter. What matters is the trend. 
    In this regard, crude oil supplies have been trending inaccord with seasonal metrics since the beginning of the year. That is to say, crude oil supplies moved higher from January into the spring, dropped through the summer and now appear to be plateauing. 
    What differentiated this year’s movement was not the pattern, but the depth. Owing to a historically wide contango in the futures curve in the first quarter, traders were encouraged to build inventories. Indeed, crude oil supplies jumped from 325.8 MMbbls at the end of last year to 370.2 MMbbls in April; an increase of 13.6%.
    Today the contango on the NYMEX has narrowed substantially. It still exists, but it no longer pays to carry crude oil forward. Therefore, a good deal of those futures contracts that were sold against inventory in January, February, March and April will not be rolled as they expire in the months ahead. Rather, refiners will likely opt to convert their crude oil stocks into products.
    In this vein, as far as the trend is concerned for the fall, crude oil supplies tend to build as refineries shut in for turnarounds. Last week refinery utilization rates took a sharp (136 bp) downturn to 85.6% of capacity and runs fell by 316 Mbbl/d to a four-week low, 14.7 MMbbl/d. However, with the flattening of the curve refiners will look to minimize supply in the fourth quarter when they ramp back up from maintenance. These efforts will come in the form of increased throughput and lower imports.
     
    Tags: energy, crude, NYMEX, EIA, DOE, contango
    Sep 24 11:18 am | Link | Comment!
  • CFTC Attempts To Overhaul the Futures Markets
    In an attempt to overhaul the futures market, the CFTC is refining the weekly Commitment of Traders (COT) report to more accurately reflect the transparency of the market. The current program shows the weekly changes of the long and short positions of commercials (producers/end users), large non-commercials (large speculators), and non-reportable positions (small traders). The new COT report will break down positions even further into categories ranging from swap dealers, hedge funds and institutional investors, all the way to local farmers. The changes were proposed in early July and were expected to take hold last week. However, CFTC Chairman Gensler announced that there is a delay, noting, “We want to make sure that no one has such an outsized or large position that the concentrated position might have a burden to the market place.” Prior to 2000, speculators accounted for 20% of the open interest. At that time, regulations were loosened and since then the speculative position has risen to more than 50% of the open interest. While many are welcoming the new regulations, ETF Market Intelligence believes implementation may introduce a new set on unintended consequences.
    Meanwhile, NYMEX natural gas for September delivery went off the board last Thursday losing 67.5 cents or 19.2% since going prompt (July 30th).   It was the lowest monthly spot contract finish on the NYMEX (2.843) since early 2002. Even so, the contract for October delivery finished the week above $3 per MMBtu (3.033). Last Thursday’s EIA report showed an injection of 54Bcf of gas to inventories, slightly reducing the year-on-year surplus, but still leaving supplies ample.   Thus, UNG made another weekly low since inception last Friday ($11.13 per share). UNG still has yet to release its recently approved additional units, but is looking at ways to do so without angering the CFTC ie. swaps. Fundamentals are still in play.
    Tags: UNG, USO, DXO, DTO, OIL, XLE, KOL, GLD, GDX, crude oil, natural gas, gold, ETFs, energy, Exxon
    Sep 01 12:09 pm | Link | Comment!
  • Classic Crude Bear Trap

     

    Last week, the directional instability in the U.S. dollar index wreaked havoc on crude’s previous few weeks of steady upward momentum. Despite trading near its lowest levels since last December, the index (DXY) jumped almost 1% last Wednesday, which in turn helped the NYMEX crude contract plunge $3.88 or 5.8%. However, crude bounced back the next day as the dollar resumed its slide and Friday’s “less bad” GDP report lifted the September to finish its week in positive territory.
     
    We thought that we were thrown a curve ball as crude seemed to have jumped back on the fundamental bandwagon that resulted in Tuesday/Wednesday’s combined $5.03 rout. A sizeable build in inventories was recorded, durable goods dropped 2.5%, and Big Oil’s quarterly earnings were in the toilet.   Yet, when Thursday’s Initial Jobless Claims rose from 559k to 584k (bearish…right?), NYMEX crude oil skyrocketed $3.59. 
    Tags: UNG, USO, DXO, DTO, OIL, XLE, KOL, gold, crude, oil, double short, double long, etf, natural gas, exxon
    Aug 04 11:45 am | Link | Comment!
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