All of the PowerShares DB Crude Oil ETNs are based on a total return version of the Deutsche Bank Liquid Commodity Index-Oil (the "Index") which is designed to reflect the performance of certain crude oil futures contracts plus the returns from investing in 3 month United States Treasury bills. The Long ETN is based on the Optimum Yield™ version of the Index and the Short and Double Short ETNs are based on the standard version of the Index. The Optimum Yield™ version of the index attempts to minimize the negative effects of contango and maximize the positive effects of backwardation by applying flexible roll rules to pick a new futures contract when a contract expires. The standard version of the index, which does not attempt to minimize the negative effects of contango and maximize the positive effects of backwardation, uses static roll rules that dictate that an expiring futures contract must be replaced with a contract having a pre-defined expiration date.
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U.S. Secretary of State John Kerry is traveling to Kiev today to "reaffirm the United States' strong support for Ukrainian sovereignty" as Russian troops take control of Crimea and threaten a full-scale invasion. In response, Ukraine has mobilized its reserves.
The U.S. has threatened to isolate Russia economically and is considering a range of sanctions unless it withdraws from Ukraine, including freezing assets, visa bans, action against banks and even expulsion from the G8. However, some European countries rely on Russia for energy so forging a widespread agreement on sanctions could be tough.
All sides are examining a get-out option for Russia that would involve sending international observers to Crimea and eastern Ukraine to protect the rights of ethnic Russians - one of Vladimir Putin's ostensible reasons for seizing Crimea - under any new government in Kiev.
The crisis has sent Russian markets tumbling and prompted the country's central bank to temporarily hike interest rates to 7% from 5.5%. The USD-RUB is +1.2% to 36.457 after earlier hitting 36.65. The broad ruble-based MICEX stock index is -9.4% and the dollar-based RTS is -11.1%.
Given Ukraine’s location, the country's situation obviously will impact Brent more than WTI; meanwhile, WTI’s losses are limited after U.S. government data yesterday showed crude supplies at Cushing, Okla., declining to a four-month low.
Phillips 66 (PSX -2.8%) has dropped 3.5% YTD, while Delek US (DK -5.3%) has plunged 17%, Valero (VLO -4.3%) has slipped 3.8%, Holly Frontier (HFC -3.1%) has fallen 8.2% and Marathon Petroleum (MPC -4.4%) is off 8.5% in 2014.
Mildly supportive EIA inventory numbers aren't enough to pull oil out of a big slide begun just before the new year. Off 1% today to $94.50 per barrel, February WTI crude was over $100 on December 27. USO -1.3%.
Natural gas is steady as the EIA reports a 97 bcf draw on inventories. Total stocks of 2.974 tcf are off 562 bcp from a year ago, and 289 bcf below the 5-year average. UNG +0.3%.
Airline stocks dip in early trading after a government report shows U.S. crude oil supplies stayed in a downward trend. Violence in the South Sudan has also been a recent factor in oil prices.
Besides the prospect for higher prices for aviation fuel, the airline sector was ripe to blow off a little steam after rallying before and after the merger of American Airlines and U.S. Airways, note analysts.
Decliners: United Continental (UAL) -3.2%, Delta Air Lines (DAL) -2.6%, Spirit Airlines (SAVE) -2.4%, JetBlue (JBLU) -1.5%, American Airlines (AAL) -1.5%, Southwest Airlines (LUV) -1.3%.
The API late yesterday reported a 3M barrel build in domestic supplies, a number the EIA is expected to confirm in its own report at 10:30 ET.
WTI crude (USO) is off 1.9% to $96.48, the lowest price since late June. Brent crude (BNO) isn't off nearly as much and the spread between the two has widened to a 6-month high of about $12 per barrel.
Behind the stock build and lower U.S. prices could be refinery maintenance shutdowns. Fewer runs mean lower demand for crude, but also mean less product - gasoline and distillate supplies are both expected to print lower in the EIA report.
It's the first time below the century mark for U.S.crude since July and is at least partly being blamed on dull demand thanks to refinery maintenance work. At the same time, domestic output is surging thanks to shale production.
November crude is off nearly $1 this morning and more than $10 since Labor Day to $99.85 per barrel.
AAA's daily report has national regular gasoline prices down to $3.349 per gallon vs. $3.486 a month ago and $3.676 a year ago.
The move lower — which happened in the space of 2 minutes and sent the yellow metal to a three-month low — is being blamed on a market order to sell 5K gold futures contracts, Nanex tells CNBC.
"About 2,700 went off and tripped the stop logic, halting gold futures for 10 seconds while liquidity replenished. When enough liquidity returned (after 10 seconds), the balance of about 2,300 completed," Nanex remarked.
The move appears to have affected silver, platinum, and even oil.
Non-OPEC supplies are expected to increase by a near-record 1.7M barrels per day to 56.4m next year, says the IEA in its monthly report. In addition to the big supply number, the IEA also slightly trimmed its world demand estimate - now seeing an increase of 1.1M barrels to 92M barrels per day.
"If the IEA picture on the supply side is correct, there is a real risk that Brent prices (BNO) will drop below $100 a barrel during 2014," says analyst Hannes Loacker.
WTI crude -1.3% to $101.64. Brent -0.3% to $111.45.
U.S. Secretary of State John Kerry and Iranian Foreign Minister Mohammad Javad Zarif had a private discussion over Iran's nuclear program yesterday at the U.N. in New York in what was the highest-level official meeting between the countries since before the Islamic Revolution in 1979.
Kerry said the talks, which came after wider negotiations between Iran and major international powers, were "constructive." However, he warned that much work was needed to be done, with the U.S. wanting clear proof that Iran was not developing nuclear weapons before sanctions would be eased.
Despite the caution, the improved relations helped send oil 0.5% lower to $102.49.