Latest Market Commentary

October 21, 2016 

The market driving news from yesterday was the European Central bank president , Mario Draghi, indicating that the ECB will most likely continue their monetary stimulus program well beyond the March 2017 target and the ECB also left interest rates unchanged. The ECB president also said, “An abrupt ending to the bond buying purchases is unlikely.” He also said a sudden stop in not present. This news sent the Euro lower and the Dollar Index responded by trading to a new 7 month high. As a result of a higher dollar that put pressure on commodities as a whole and the energy market responded accordingly as it traded lower. Also helping the dollar surge to a 7 month high was the release of the US existing home sales number. In September existing home sells rose by 3.2% versus August. The market was expecting a drop in existing home sales in September of 1.5% so this was good economic news for the market.

The optimism about supplies beginning to rebalance or coming in to balance has been more prevalent in the reports and news the last few days. He is the lead in a story from Reuters; from sharp cuts to Chinese oil production to falling inventories of refined fuel products, signs are mounting that Asia’s oil markets are slowing returning to balance.

According to a Reuters article Russian Energy Minister, Alexander Novak responding to the question about the need for a freeze, responded with, “Yes, this is our main positions, it has not changed.” But you have to contrast this with comments recently by CEO of Rosneft, Russia state run Oil Company that they could increase crude oil production by 4 million bpd for the next several years. The battle between supply and demand continues.

RBOB managed to get below the $1.50 level but crude has been able to hold above $50.

We have talked a lot about propane exports and how that maybe the biggest factor to impact getting rid of the large overhang in stocks and another export terminal is getting ready to come online. Phillips 66 is getting ready to open its new Freeport LPG Export terminal in November. This facility is rated at 150,000 bpd and it will get its supplies from Phillips 66’s 100,000 bpd natural gas fractionator located at the company’s Sweeny Complex in Old Ocean, Texas.

The dollar is again trading higher this morning and it if can continue that strength that will have to weight on the energy complex at some point. Maybe the global supply and demand balance is getting more in line and OPEC and Russia will cut production but this current rally has been very strong and it needs a pullback. If the bears can get some more downside today and the market close lower to end the week that may provide the bears the momentum to give the market a pullback.

Tim Danze, MFA Oil Company Hedging Manager