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Matt Smith

Matt Smith

Taking a voyage across the world of energy with ClipperData’s Director of Commodity Research. Follow on Twitter @ClipperData, @mattvsmith01

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Strong Dollar, Warm Weather, Full Storage Keep Prices From Breaking Trend

Welcome to national ‘Answer the phone like Buddy the Elf‘ day (please act accordingly). Despite the current festive backdrop, Christmas cheer continues to be distinctly absent in the crude complex, as prices are glum once more.

Greasing the wheels for today’s wobbles has been news overnight from the Bank of Japan, who announced new steps via quantitative easing to boost its ailing economy. While BoJ Governor Haruhiko Kuroda described the stimulus measures as an adjustment – as opposed to an expansion – the market viewed it as surprising as it was desperate. Signs that the Japanese economy could be even weaker than it seems has sent a shock-wave through markets.

After the dollar initially sold off strongly and the Yen rallied, the sugar high quickly wore off (the type of high you get from candy, candy canes, candy corns and syrup – the Elf’s four food groups) normal service has resumed: the dollar is looking up. Aside from the Japanese excitement, there been a lack of economic data out overnight – a shrinking Eurozone current account and ongoing rampant Brazilian inflation have been the two releases of note. Related: Colombia’s Oil Dreams Fall Short

Rising supply and weak emerging market demand has been a constant theme across commodityland™ this year, while this week has exemplified the turbulence felt from the influence of a stronger dollar. This week’s first US interest rate hike for nine-and-a-half years has boosted the dollar…and put concrete boots on commodities:



The theme of weak pricing stretches across energy commodities and geographies alike. U.S. natural gas prices are at their lowest level since the 1990’s, as ongoing strong production dwarfs (elfs?) lackluster Related: OPEC Members In Jeopardy, How Long Can They Hold Out?

demand, sponsored by balmy conditions. The latest 8-14 day outlook shows above-normal temperatures stretching through the eastern two-thirds of the U.S. to New Year’s Eve – across all the key regions for natural gas heating demand.

Hence, it is not beyond the realms of possibility that we could see an injection from next week’s natural gas storage report – something unheard of for this time of year. Natural gas and retail gasoline prices are in a race to the bottom it would seem; natural gas is testing $1.70/MMBtu, while the national average for retail gasoline prices is set to break through $2/gal into one dollardom. Related: Lithium: The Bright Spot For The Commodity Sector

In terms of geographies, the warmer weather is crushing commodities in Europe as well. Gasoil crack spreads are getting crushed as inventories fill up (hark, chart below). The supply side is so strong that tankers carrying diesel from the U.S. to Europe this week have been doing ‘mid-Atlantic U-turns‘ and heading back to the U.S. European storage is said to be nearly full to the brim: the global oil glut is morphing into one for products too.

 

By Matt Smith

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