Headlines:

  • Oil bulls aren’t out of the woods yet
    Oil investors seem to buy the idea that recovery is finally underway after three years of gluts, but a price boom seems unlikely as the options market shows that at least until OPEC’s supply deal expires, producers will pounce on any rallies. The oil price LCOc1 has gained about 20 percent in the last two months to above $52 a barrel, doggedly posting higher highs and higher lows, which would suggest this rally is more robust than the recoveries seen in March and May this year. “It has been a good rally since June but now crude oil has to prove that it can break its downtrend channel,” Petromatrix analyst Olivier Jakob said. Investors have been rattled by nagging doubt about the ability of the Organization of the Petroleum Exporting Countries and its partners to stick with a pledge to restrict output by 1.8 million barrels per day until March, especially given resurgent output from Libya and Nigeria, which are exempt. A 10 percent rise in U.S. production this year and the painfully slow decline in global oil inventories, which OPEC says must return to their longer-term average before the output restriction can disappear, has fed trader and investor skepticism. Since OPEC and its 11 partners, including Russia, began curtailing production in January, oil inventories across the world’s most developed nations have risen by around 40 million barrels and are still some 200 million barrels above their five-year average, OPEC’s target. However, year-on-year, inventories have fallen for two months in a row, marking the first annual declines in stocks in over three years, according to data from the U.S. Energy Information Administration. The premium of oil for delivery in December this year compared with December next year has fallen to just 62 cents, from nearly $2.50 at the start of July. The so-called “Dec/Dec” spread traded at an average premium of nearly $4.00 a barrel from late 2014 to early this year, when that structure turned negative after OPEC and its partners in late 2016 reached their historic decision to cut supply. But a seemingly relentless rise in global inventories and disenchantment with OPEC’s ability to rein in exports as well as output drove the Dec/Dec spread to its widest in nine months by June.

Summary:

It was a brutal week for November Beans this week after it suffered a 56 cent loss on the week. December Corn posted a small gain of 3’6 today and fared much better on the week only surrendering 6’4 cents as of the close today. The losses for December Wheat were also sizeable given its 23 cents (4.55%) decline for the week. The round of cooler weather and rain over the course of the week is what sent prices spiraling. Now that growers have had a week to size up how beneficial the rains have been rumor is starting to circulate that crops may not have received quit a much rain as was originally projected. Also, the US Dollar was stronger today after bouncing off of a big low at 92.548. The last time it traded that low was May 2nd last year. It has been in the midst of a major decline all year long and by the looks of its technical chart is due for a correction of sorts. We are only a few days away from the next USDA report which could make for some more fireworks when it is released on the 10th of this month.