The Energy Report | Explosive

Posted on 01/19/2018 11:51 AM


The International Energy Agency came out with an “explosive” report talking about “explosive” production growth as the United States will become the undisputed leader in global oil production. Take that Saudi Arabia and Russia! The agency that is known by traders as the agency that has way under estimated, is now proclaiming the U.S. as the new global energy powerhouse, a moniker by the peak oil freaks and the Obama administration that was thought to be impossible. Instead of paying attention to the shale revolution, people were whining about peak oil and the need for alternatives instead of realizing the power of the markets and American ingenuity. When they said it couldn’t be done some guys down in Texas, like George P. Mitchell, Harold Ham and Aubrey McClendon went ahead and did it anyway, They changed the world and they changed the marketplace and they did the impossible, setting the stage for U.S. energy independence.

Yet, energy independence does not mean cheap oil in the way you might think. Oil prices are driven not only by supply but also by demand. Also, by the fact that U.S. gains may be offset by losses elsewhere, mainly Venezuela, but also a drop in North Sea production which lowered their estimate of December oil supply to 97.7 million bpd, down 405,000 bpd from November. The IEA said that “Global crude oil markets saw an exceptionally tight 4Q17,” with a combined fall of 1 million bpd during that period on declining stocks in industrialized nations and a fall in Chinese balances.

Yet, the IEA also is once again coming out on the low side for demand growth. They admit that the oil price recovery was by robust global demand growth in 2017 but stubbornly believe that it will slow down in 2018. Despite evidence to the contrary the IEA kept its oil demand growth estimate for 2018 unchanged at 1.3 million bpd, down from 1.6 million bpd in 2017, saying that we will see a slowdown of demand in China and a reluctance to buy oil at higher prices.

Yet, the price might not seem so high if you are outside of the United States as the dollar continues its retreat. The dollar is down 10% from a year ago and that means the impact of higher crude prices has been shielded by the increased purchasing power of foreign crude buyers. So in other words, the International Energy Agency (IEA) will keep to its time-honored tradition of underestimating demand.

The U.S. supply picture for crude continues to tighten. The Energy Information Administration (EIA) reported that crude supply fell by 6,. million barrels more than twice the median estimates of . -3.150 million barrels. It was led by a 4.184 million barrel drop in Cushing Oklahoma where strong demand and Canadian pipeline capacity issues saw one of the biggest draws in that hub in history.

There is still a lot of winter spec gas with supply up 3.620 million barrels. Yet a 3.887 million barrel drop in distillates will keep diesel prices at the pump on an upward trajectory. Refinery utilization fell 2.3 ppt because of weather and refinery crude inputs fell by 448k b/d mainly due to the impact of higher oil prices and changing patterns of oil use in China.

Platts is reporting that China is inching closer to launching its first crude oil futures contract but it will happen only after the Lunar New Year holiday which ends on February 23, a government source with knowledge of the matter said.

"Basically, there is no problem [for the crude contract] to get approval from the State Council," the source said, but added that it was unlikely to be kicked off before the Lunar New Year. Approval from the State Council is the final hurdle in the launch of the medium sour crude futures contract. Once it is approved, the exchange will release the deliverable crude grades, differentials of the deliverable grades against the standard contract and the delivery venue, a source with host platform Shanghai International Energy Exchange said recently. "The exchange should officially release these details two weeks ahead of the launch in order to give enough time to inform the potential players," said a futures trader in South China. Given this schedule, analysts expect the earliest launch date as most likely in late March after China's most important annual political events in early to middle March -- the National People's Congress and the Chinese People's Political Consultative Conference.

INE's parent company, the Shanghai Futures Exchange, has been developing the medium sour crude futures contract since 2009, with some progress seen between 2012 and the third quarter of 2015. The launch of the contract has been delayed several times.

Although it had been widely expected to start up in 2017, INE only announced the basic terms and general trading rules while accepting more members and carrying out several trial runs for the system.

Tune into the Fox Business Network (FBN) is the best in business! The MoneyShow Orlando is coming in February. Sign up for my class talking about the historic bottom in oil prices and why many were son bearish at the bottom. Rooms are selling out so act quickly. Golf under the stars or float down a lazy river. Maybe even find a way to make some money. You can sign up for my Masters Class at or see me at the opening ceremonies!

Call me at 888-264-5665 or email me Get my daily trade levels for all major markets. Also call me to get signed up for John Kemps reports.


You can follow Price Futures Group on Twitter or click here for their website.


The views, opinions and positions expressed by the author are theirs alone and do not necessarily reflect the views, opinions or positions of the Inputs Monitor.

Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The valuation of futures and options may fluctuate and as a result, clients may lose more than their original investment. In no event should the content of this website be construed as an express or implied promise, guarantee, or implication by or from The PRICE Futures Group, Inc. that you will profit or that losses can or will be limited whatsoever. Past performance is not indicative of future results. Information provided on this website is intended solely for informative purpose and is obtained from sources believed to be reliable. No guarantee of any kind is implied or possible where projections of future conditions are attempted.

The leverage created by trading on margin can work against you as well as for you, and losses can exceed your entire investment. Before opening an account and trading, you should seek advice from your advisors as appropriate to ensure that you understand the risks and can withstand the losses.

Add new comment