RINS, biofuels… WSJ

by Jim Colburn • Sunday, October 30, 2016


 

Here is my take… Get rid of the ethanol program! (Do read the whole article)…

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“The price of the credits has skyrocketed this year, amid complaints from fuel suppliers that they are being forced by the Environmental Protection Agency to blend more ethanol than consumers or car makers are willing to accept.

The EPA has raised the required ethanol amount to 10.5% of total fuel as required by legislation. But auto makers argue that anything above 10% is potentially damaging to some engines, and consumers have been slow to embrace the more ethanol-heavy blends.

Another area of dispute is the step in the fuel supply chain at which the credits are created. It takes place at the point where ethanol and gasoline are blended. That favors companies that control vast networks of gasoline stations and thus reap more credits than the amount of oil they actually refine into fuel, while disadvantaging smaller refiners without as much of a retail presence.”

The link is here: http://www.wsj.com/articles/big-oil-companies-reap-windfall-from-ethanol-rules-1477564201

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Dog bites man… WSJ

by Jim Colburn • Sunday, October 30, 2016

This is news?

From the WSJ:

“A weekend marathon of talks between major oil producers failed to finalize plans to implement an output cut, threatening the viability of an agreement reached last month to reduce production by as much as 2%.”

“Iraq and Iran’s insistence on exemptions emerged as a big sticking point Friday as those members refused to agree to cut their burgeoning output.”

Some skepticism is probably already built into the current price, but many expect the oil market to balance by the second half of last year even without an OPEC freeze or cut… I’ll be interested to see how the market reacts Sunday night…

There are also implications for options traders.. Implied vol for December options have actually been trading under January… December options expire before the November 30th meeting while January options will be still alive… An option seller might stay in December, while option buyers might move into January… Should the market react to OPEC’s failure to agree and prices collapse, the Dec/Jan vol spread could flip back to more normal levels with Dec over Jan…

 

The link is here:  http://www.wsj.com/articles/opec-secretary-general-warns-against-delaying-production-cuts-1477748202

 

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Chartbook from CarpeDiem…

by Jim Colburn • Friday, October 28, 2016

The CarpeDiem website posted some excellent charts related to energy… This one shows how little consumers spend on energy as a percent of total expenditures:

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Air travel is cheap:

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Despite lower oil prices, US oil production has stopped declining:

 

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Natural gas is used more than coal to produce electricity:

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CO2 emissions have declined:

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Here is the site:  https://www.aei.org/publication/blog/carpe-diem/

 

 

 

 

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OPEC and non-OPEC Oil Supply

by Jim Colburn • Thursday, October 27, 2016

The IEA releases its monthly Oil Market Report for non-subscribers about two weeks after the initial release on October 11…Here are two charts showing OPEC and non-OPEC supply:

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The IEA and others expect demand in the 2nd half of 2017 to balance the market even without an OPEC agreement… Should the November meeting fall apart, how far will prices fall is question for oil traders, especially oil options traders… If I am confident that, say, $40 is still a good price floor even with a bad result (with supply/demand balance looming), I might look at selling $40 into the meeting… I’m not recommending this (selling puts was a disastrous trade after the November 2014 meeting fell apart), but we may see a muted price response to the downside after this meeting… And, we are still over a month away, much can happen in the world of energy markets…

Speaking of options… December options expire before the November OPEC meeting, so any purchasing of price protection needs to occur in January options… We already see Jan options settling at around 2 vol points over December… This is unusual… Front month implied vol is normally higher than the second month…

Here is the link to the IEA report:  https://www.iea.org/oilmarketreport/omrpublic/currentreport/#Overview

 

 

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OPEC deal skeptics… Bloomberg

by Jim Colburn • Tuesday, October 25, 2016

Have we covered this yet?  Here is Bloomberg doing the math:

“In Algiers, OPEC agreed to reduce its production to a range of between 32.5 and 33 million barrels a day. That means for Saudi Arabia and other countries willing to cut, the numbers look like this. In a best-case scenario — based on Nigeria meeting its target to restore production, Libya maintaining recent improvements and Iran, Iraq and Venezuela staying at September levels — reductions of 1.3 million barrels a day would be required to meet the top end of the Algiers target. In a worst case, where Iran, Iraq and Venezuela produce more than they did last month, that rises to over 2 million barrels a day…”

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The link is here:  http://www.bloomberg.com/news/articles/2016-10-25/saudi-arabia-faces-worsening-opec-equation-as-exemptions-mount

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Short positions held by producers, merchants… EIA

by Jim Colburn • Monday, October 24, 2016

From Today in Energy via the CFTC, here is a long term look at short positions held by producers and merchants through October 11th:

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http://www.eia.gov/todayinenergy/detail.php?id=28472

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7 Tips for Interpreting Macro Data… Jason Furman

by Jim Colburn • Saturday, October 22, 2016

Furman does an excellent job on how to look at and interpret macro data here:  http://www.milkenreview.org/articles/extracting-the-signal-from-the-noise-7-tips-for-interpreting-macroeconomic-data

Here is a simple summary, but do read the whole thing:

“But all of this has a simple bottom line: when assessing the overall health of the economy, never read too much into a single data snapshot. Rely, instead, on data series over substantial periods and in the context of what other data suggest is happening.”

 

 

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Brent spreads… Reuters

by Jim Colburn • Friday, October 21, 2016

Oil timespreads tend to be traded from a fundamental perspective (meaning an analysis of  supply/demand conditions), while flat price trading includes a strong technical perspective (using trend following systems, chart recognition, etc. to make decisions)…  Kemp suggests that physical traders are showing skepticism of an OPEC agreement with evidence showing up in the spread market:

“For many physical traders, timespreads rather than spot prices provide the most reliable guide to the supply-demand-stocks balance (“Brent contango is hard to square with missing barrels”, Reuters, March 9 ).”

“In the past, a strengthening of crude timespreads has usually coincided with a shift in the supply-demand balance from surplus to deficit (tmsnrt.rs/2eeJkpP).

“But timespreads in Brent, more representative of global oil market conditions, have remained weak despite the Algiers agreement (tmsnrt.rs/2eeHG7B).”

“Continued weakness in the spreads suggests many market participants see the road to rebalancing as a long one with a sustained drawdown in crude inventories still some way into the future.”

Here is the chart:

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http://www.reuters.com/article/oil-global-kemp-idUSL8N1CR3U1

 

 

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Nigerian Oil Exports Rebounding… FuelFix

by Jim Colburn • Friday, October 21, 2016

Here is the chart:

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And here is the site:

http://fuelfix.com/blog/2016/10/20/market-currents-nigerian-oil-exports-rebounding/

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US Oil stocks… EIA

by Jim Colburn • Thursday, October 20, 2016

Recent draws in US petroleum stocks can be put in perspective by the EIA’s weekly chart showing stock levels compared with 5 year highs and lows:

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Stocks are still 24.1 million over last year… But when we compare current “days supply” (which accounts for demand) to last year, we see a market moving, slowly, toward balance…

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