Commodity Fund Re balancing (DJ-UBS)

We’re getting this contribution from one of the teeming millions on the DJ-UBS Commodity Fund and we think it’s an interesting play.  Let the cart get ahead of the horse!

Here are the new weights for 2014 compared to 2013:

2014       2013  Change

Brent Crude Oil         6.51%      5.79%      0.72%

Gold                   11.53%     10.82%      0.71%

Silver                  4.14%      3.90%      0.24%

Copper                  7.51%      7.28%      0.23%

Heating Oil             3.72%      3.52%      0.20%

Soybeans                5.68%      5.49%      0.19%

Unleaded Gasoline       3.62%      3.46%      0.16%

Corn                    7.20%      7.05%      0.14%

Soybean Oil             2.83%      2.74%      0.09%

Soybean Meal            2.68%      2.61%      0.08%

Sugar                   3.96%      3.88%      0.07%

Live Cattle             3.27%      3.28%     -0.01%

Lean Hogs               1.87%      1.90%     -0.03%

Wheat                   3.34%      3.43%     -0.09%

HRW Wheat               1.21%      1.32%     -0.11%

Coffee                  2.32%      2.44%     -0.12%

Cotton                  1.58%      1.77%     -0.19%

Nickel                  2.05%      2.24%     -0.19%

Aluminum                4.72%      4.91%     -0.19%

Zinc                    2.31%      2.52%     -0.21%

WTI Crude Oil           8.49%      9.21%     -0.72%

Natural Gas             9.45%     10.42%     -0.98%

Downtown barrel bound

I think everyone is looking for a good reason to why the market has fell apart this morning and all we can come up with is what we’ve been talking about for some time now.  When the US economy isn’t doing well, you should expect oil to turn lower too.  We can look back to 2008/2009 and almost use that as a predictor of the recession that was about to hit.  I’m not going to tell you that we’re headed into a double dip, but we’re in a stall here.  It’s very possible that we see an opposite move from 2012 and we get the WTI/Brent spread blowing back out to the $20 level.

There has been some Fed speak this morning.

  • Philly Fed President Plosser was on CNBC and saying the market was getting more concerned about the QE tapering.  Reading into that we think he’s saying that the market knows it’s coming.
  • St Louis Fed President Bullard is on the tape.  He’s talking in circles and he’s saying that QE tapering will come with jobs growth.  Then he’s going on about how jobs growth has been positive.  This is interesting because we are getting an affirmation that they are looking more at the Unemployment Rate, not Non Farm Payrolls.  He’s trying to say that non farm payrolls have shown “significant growth”, but we’re thinking he’s drinking the President Obama jobs numbers.  Yes, we have seen solid growth year over year, but the recent numbers have stalled.  We have seen the rate continue to drop, but as job creation is slowing, that’s a sign that people are dropping out of the system, it’s not necessarily getting better.
  • We think that this lack of job creation growth is another factor in weaker oil demand.  With less workers in the daily commute, we’re not able to get our demand numbers back on track.

 

 

Scary Stuff

We missed a lot yesterday because of our oil conference: “Crude in Motion”.  The topic was mainly about oil and the rail boom, but we heard a few things regarding pipelines, barges and even trucks.  Over the next few days we’ll try to drop a few tidbits in here and there.

Just to keep everyone up to date:

  • Libya is still a mess, but may is lifting it’s force majeure.  We think Brent is going to continue to lead the way up and out.  That’s great for Brent bulls, but not so much for EU refiners.  It’s possible that Ineos spoke too soon about keeping Grangemouth open.  We see this WTI/Brent spread as irrelevant to the US, but for trading purposes we think it moves on out to the $18 area into 2014.
  • Irving Oil St. John refinery (300K) might be down and that’s causing even more tightness in gasoline.  Add that on to the Citgo Lemont (167K) issues.
  • We think the extended maintenance in the US Gulf may be refiners tinkering with the crude they can take.  Now that Keystone XL is ready to go (800K b/d) and Seaway is going to expand another 400K b/d to 800K, the best bet is to change some things to handle more light sweet.
  • That last idea may be getting confirm as we back out more imports.  Hard to think we’re still bringing in much light sweet as it is.
  • Iraq is talking about expanding production, but that’s without any interruptions or explosions.  Yeah, we’re not holding our breath.

 

Libya (AGAIN)

OIL EXPORTS AT LIBYA’S MELLITAH TERMINAL ENI.MI SUSPENDED DUE TO PROTEST AT PORT -COMPANY SOURCE

LIBYA’S CRUDE OIL EXPORTS CUT TO AROUND 90,000 BPD, WITH LOSS OF MELLITAH-MARKET SOURCES

At this point we think it’s worth noting that this the issues in Libya seem to continue.  We think this gives lift to Brent here and could keep it strong not only in the near term, but into the next year.  This also portends favorably for going long Brent and short WTI.  Libya has become the modern turn on Nigeria and losing their 1.3M b/d of high quality light grades on a consistent basis.

Gas now, money later

We’re here to just review something that is flying under the radar this morning, but worth paying attention to.  Well to be honest, it’s worth paying up for some RB futures while we’re at it.

New York and Governor Cuomo has decided that NY will be the first state to have an emergency gasoline reserve.  The NorthEast already has an emergency reserve for Heating Oil, but this reserve is coming in on the back of Hurricane Sandy that caused gasoline prices in the Tri State area to jump considerably.  This would obviously help temper anything like that happening again, but it will have it’s repercussions on the current gasoline market.

Let’s look at the numbers.  NY is allocating $10M to this reserve which is supposed to hold about 3M gallons.  Given the current prices, we can see them hitting that supply somewhere in the next few months.  Although, we do think this isn’t a bad time to start this project.  Gasoline prices are heading into the winter season and more refinery production should be coming as maintenance season is ending.  What this is going to do though is provide some sort of floor for the falling gasoline prices.

3M gallons is about 72K barrels and although it’s seems like a drop in the barrel in principle, it’s a solid number that people will be thinking about.  When President Bush started adding more crude to the SPR, in theory, it was really a nominal amount in theory, but the principle that there was a solid draw down in the supply was significant enough for more people to keep prices supported.  We also are curious to see if other States think this may be a worthwhile venture.  Either way, we’re looking at this a reason for support here in RB and also a reason to see it stronger into the rest of the month (RBZ3).

For the Chart lovers

Those who care about techs, we just hit some resistance on the 60min chart and things could be looking lower from here.

ECLZ13 ~ 1 Hour_10252013_081522am

 

Busy Bee….as in R-B

There was an explosion at the Lemont IL Citgo Refinery this morning.  That is taking 167K b/d offline.  We’d like to think that some of it is still running, but a fire in Lemont IL isn’t worth trying to keep the love coming.  We’ll wait until the smoke clears before we start selling any RB on the screen here.  This doesn’t mean we’re going to be buying into it either.  The Jobless Claims (350K) this morning we’re well shy of the expectation (335K) and we think demand is not going to be looking good for the next few weeks.

Maybe a good idea to sell the fire (RB spreads, cracks) and buy the facts.

Right like rain

I have to say I hope the teeming millions are enjoying this website as much as I am.  If you’re not coming here at least…hmm…a thousand times a day, you’re not living up to it’s full potential.

Anyway, a few Reuters headlines worth noting this morning:

SOURCE CLOSE TO SAUDI POLICY SAYS “SHIFT AWAY FROM THE U.S. IS A MAJOR ONE” THAT WILL END COORDINATION ON SYRIA WAR AND AFFECT COMMERCIAL TIES – RTRS

SAUDI INTELLIGENCE CHIEF TELLS EUROPEAN ENVOYS THE KINGDOM WILL LIMIT DEALINGS WITH WASHINGTON IN PROTEST AT U.S. STANCE ON SYRIA, IRAN -SOURCE CLOSE TO SAUDI

Yeah, excuse us while we pat ourselves on the back for bringing that story up in our Newsletter yesterday (Monday 10/21).  You’re welcome and we also do great horoscope readings.

EIA: better late than never

The weekly oil inventory report will be released today at 10:30am EST and I have to wonder if that wasn’t somehow leaked.  Seems strange that people started sell WTI around 6am EST and fuels didn’t move.