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Showing posts from May, 2016

Fundamental Friday: 27 May 2016

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Crude oil: Crude oil fundamentals improved this week as prices threaten to jump above $50 for the first time since last year. Domestic output sped up its freefall as producers cut 24,000 b/d of production last week to end at a total of 8.767 million b/d. Since the beginning of the year, total crude oil production has fallen over 450,000 b/d. almost 5 percent in just under 6 months. Stockpiles fell as well marking the second draw on inventories in the past three weeks. After falling about 4.23 million barrels last week, total crude oil inventories ended at 1.232 billion barrels. Further confirmation is needed to call these declines signs of a reversal in trend.

Refinery fundamentals stabilized last week after peaking at a local maximum the week before. Refinery inputs dropped just under 100,000 b/d to 16.279 million b/d total. So far May refinery inputs average out to 16.276 million b/d which is higher than any April input values. Utilization capacity came in at 89.7 after a drop of 0.…

Chevron to Lead $37 Billion Investment in Tengiz Oil Field

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In an interview on Wednesday, May 25th, the Kazakh energy minister, Kanat Bozumbayev, announced plans for $37 billion to be invested in the Tengiz oil field led by Chevron Corp. Since 1993, the oil-rich basin has been known as one of the largest crude reserves in the world pumping out over 200,000 b/d worth of crude oil production. The local company, Tengizchevoil (TCO) is in charge of the operations with equity in the operations divided across Kazakh, Russian, and U.S. sources. According to the Wall Street Journal, Chevron owns 50 percent, Exxon-Mobil owns 25 percent, Kazakhstan's Kazmunaigas owns 20 percent, and Russias Lukarco owns 5 percent.
The new investment plans mark one of the first announcements of major capital spending by an oil major since oil prices caused capital expenditures to be reduced. The Wall Street Journal reported that "companies have been forced to delay or cancel about $270 billion in projects through March." With oil prices plunging at the beg…

How the Fed Could Break the Economy

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Stocks continue to move sluggishly at the beginning of this week with the Dow Jone Industrial Average moving at a flat 0.08 percent today. The S&P 500 and the Nasdaq indices are just as uninteresting with movement around the nil mark today as well. Trends in either direction have flatlined with daily market fluctuations stabilizing to a tight trading range. The limp movements have caused just a -0.74 percent change in the S&P 500 index, a change from more volatile times. As oscillations have dampened, the VIX volatility index has risen 6.4 percent over the past five days to add on to a monthly gain of 10.94 percent total. It seems that with no clear direction, the stock market has entered a very tense position where neither bulls nor bears show that they have the trend in their favor. In these situations, bears often win out.
The U.S. manufacturing PMI came out today with an expectation of 51 or higher for the month of May. Unfortunately, the index came in lower at 50.5 losing…

Fundamental Friday: 20 May 2016

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Crude oil: Domestic production continues down its bullish path reaching another milestone this week. Output fell 11,000 b/d to 8.791 million b/d as producers continue to limit their operations. After crossing the 8.8 million b/d level, the pace of decreases might slow as higher prices give the incentive to keep more wells online. Crude oil stockpiles failed to confirm a reversal that occurred last week. After falling the week before, stocks grew by 1.4 million barrels to 1.236 billion barrels total. Stabilization could occur somewhere around the 1.24 billion level if refineries can keep up with extraction rates.

So far, the domestic downstream operations are gearing up for summer demand. Refinery inputs increased by about 200,000 b/d to 16.371 million b/d this week. A streak of four straight weeks of refinery input gains should be bullish for the crude oil market while bearish on gas prices. Percent operable utilization increased by 1.4 percent to 90.5 percent total. With utilization …

The Green Premium

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With oil and gas production at its highest levels in years, no one would guess that its demise is not too far off. The debate over what the future of energy generation will look like continues to heat up as economic viability clashes with climate change politics. Since the beginning of the 2000's, energy companies have had to keep their ears to the ground as they prepare for the stampede of alternate power sources. Support for initiatives like the United Nations Framework Convention on Climate Change and the United States' own Global Climate Change Initiative have forced the market for cleaner sources wide open. The sleek, green feel of solar and wind power has already topped the dirty, industrial reputation of fossil fuel sources. As the markets for green energy quickly improve, the shrinking of the "green premium" will become more and more tolerable to a population with an intensifying concern for the environment.

What is the "green premium?" In short, th…

With Lower Volatility, Open Interest Will Grow

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Using the open interest metric, an investor can determine the support behind the current trend and whether it has the liquidity to continue. Technically defined, open interest is the amount of contracts that are open on the market at any given time. The data is usually provided in aggregated form which is the sum of the open interest of each monthly contract. As expected, the month up next for delivery will have the highest open interest as traders try and put themselves in a good position by the delivery date. The data, provided by the CME group and the CFTC, is used by traders to measure where the money in the market is located. The CFTC records weekly trader commitment data which differentiates between long and short positions as well as different kinds of traders. Analysis of this data, in particular, describes the fuel behind the trend.

Open interest data can be hard to find especially if you want to use historical open interest data to analyzed past trends. The CME provides diff…

Fundamental Friday: 13 May 2016

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Crude oil: Crude oil production continues to fall for the 9th straight week continuing to justify the recovery in prices. With a drop of 23,000 b/d, last weeks production came in at 8.802 million b/d. Further declines of 300,000 b/d over the next couple of months will put output levels at July 2014 levels. The WTI spot price was above $100 per barrel then. Stockpile data this past week has reached a potential reversal point. A decline of about 3.4 million barrels to 1.235 billion barrels marks the first draw on inventories after four straight weeks of surplus. Since the beginning of the year, 58 million barrels of crude oil have been stored away despite reductions in downstream operations. Keep an eye on stock change over the next couple weeks to see if this reversal represents a shift in crude oil fundamentals.

Refinery inputs jumped by 190,000 b/d to 16.18 million b/d adding onto gains at the end of April. In fact, last week's input levels are already above the April average per…

Can the World Still Rely on China's Demand?

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The Chinese slowdown did more than drag down its own economy, it singlehandedly created financial tremors throughout the world's markets. With growth rates well over 6 percent, China's robust development has become an integral part of global expansion. Just last year, investors saw the disintegration of billions of dollars worth of wealth on the Asian giant's stock market. The globalized economy experienced economic withdrawals with lagging Chinese demand, a substance to which both foreign and local industries have become addicted. It goes without saying that industrial and manufacturing demand in the Chinese economy acts a relevant indicator of the world's financial condition similar to the status of the United States. For that reason, investors have no choice but to realize the implications that can come from changes in demand for foreign goods, services, and capital.


A country's stock market is often a leading indicator of its economic performance. In China, two…

GDP Growth Trends during the Glut

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The widespread effects of the oil glut have been well known in the corporate arena as multinational firm's earnings reports dominate the headlines of the financial news. National banks across the globe have drawn most of their concern from the dwindling of profits and the shrinking of prices. The WTI and Brent spot prices for crude are followed every day as well as their implications for the next quarter's bottom line. Meanwhile, several nations are being brought to their knees as a result of the downturn while others have pushed through. The internal dynamics of this unique period has once again separated the global economy into two factions: the oil-exporters and the oil importers.


Oil shocks can have numerous effects on the global economy, but typically, there are two different economic reactions that occur in oil exporters and oil importers. The price collapse we have seen can be characterized as a supply shock with flooding markets weighing heavily on spot prices across t…

Fundamental Friday: 6 May 2016

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Crude oil: Crude oil production falls at an even faster pace this past week. Down 113,000 b/d from the week before, the EIA estimates have extraction rate estimated at 8.825 million. This single week alone tops all of the losses in the last three weeks. Stocks continued to grow, though, and even picked up pace. A gain of 2.8 million barrels brought total crude stocks to 1.238 billion barrels.

Refinery statistics remained relatively flat throughout the week. Inputs jumped just 139,000 b/d to 15.986 million b/d, a level consistent with the monthly average. Utilization jumped in conjunction with inputs. Up 1.6 percent, capacity was measured at 89.7 percent total, higher than the past three estimates.



Natural gas: Natural gas fundamentals continue to get more and more bullish as the weather warms. Underground stocks grew by 68 bcf to 225 bcf total. The accelerated trend is only topped by last weeks growth which combines for a 140 bcf growth over the last two weeks. Natural gas rigs dropped …

Exxon-Mobil Disappoints in the First Quarter

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Amidst the excitement that surrounds the earning season, it is necessary for investors to take a fundamental turn on their analysis. As crude oil prices stage a rebound, the financials of energy companies should start to show more earnings potential for the rest of 2016. The year-to-date gain for the WTI spot price has grown to 11.3 percent with a three-month rebound nearing 20 percent. First quarter earnings might not reflect this recent growth, but an acute fundamental analysis can inform investors on which firm will be in the best position to rebound. Exxon-Mobil may be one of these companies that will shape up into a premium investment with the potential for increasing dividends and share appreciation. With bankruptcies in the oil and gas exploration and production increasing 380 percent since 2014 according to Wall Street Journal, fine-tuning one's analysis is the necessary response in these risky periods.



Last week, Exxon-Mobil reported a net income of $1.8 billion in the fi…