Crude: Commodity crazy

January 17, 2017 08:43 AM
Daily Energy Markets Report

Donald Trump advisor Anthony Scaramucci, the founder of SkyBridge Capital, warns of a strong dollar and the dollar drops hot inflation data in the UK has commodities going crazy. Big bullish swings in soybeans, gold and oil and a pop and drop in copper suggests that we could see a big run in many commodity markets but we may have to temper that enthusiasm against perhaps weaker demand from China because of a weaker dollar. It might be time to go commodity crazy because we are going to get some crazy commodity moves. The oil bulls have control and some other commodities may be coming along for the ride.

Crude oil is gaining on the weak dollar as well as record compliance to OPEC and non-OPEC production cuts. Many market watchers are stunned that OPEC is not cheating so even the announcement by Saudi Arabia that an extension of cuts beyond the June agreement may not be needed, is not enough to derail the market. 

Bloomberg reported that, “OPEC probably won’t need to extend a deal it reached with other crude producers to cut output, given compliance with the reductions and the outlook for an increase in global demand, Saudi Energy Minister Khalid Al-Falih said.” So, the cuts through June 2017 maybe it unless the Saudis are already negotiating a new deal.

As far as Trump is concerned,m the Saudis are very optimistic that he will do a great job, especially with the hope that the United States will take a harder line on Iran. We still target $60.00 a barrel and longer term $73.00. Look for breaks to put on long term strategies, especially if Trump wants a weaker dollar.

The dollar is under pressure as the UK consumer price index came in at 1.6%, up from 1.2% in November, and ahead of the 1.4% forecasted by economists and at a two-year high. The Wall Street Journal reported that Scaramucci said the U.S. economy could withstand the impact of a strong dollar, while warning that deflation could cause a downturn that would be worse than past economic crises. Scaramucci said that while, “We have to be careful about a rising dollar, if you get better than expected growth in the U.S., you can have a strong dollar and robust growth in the U.S. that will lift the global economy.”

Reuters is reporting that global shipping insurers have devised a way to ensure nearly full coverage for Iranian oil exports from next month after striking a deal to provide cover without involving U.S. domiciled reinsurers, officials in Tokyo and London said. Restrictions on U.S. firms handling Iranian goods had greatly limited the number of reinsurers of cargoes, but the new arrangements -- which essentially allow re-insurance of ships without the involvement of U.S. firms -- should boost the number of eligible shipments. That will provide a boon to Iran, which is trying to raise oil exports after most sanctions were lifted as reported by Reuters.

Natural gas is caught between a warm front and a cold front. While this week’s withdrawal will be a near record 255, next week not so much. But then we hear the weather reports that winter will return with a vengeance and get us moving back to near record withdrawals.  

Soybeans got a friendly USDA report and Southern Hemisphere weather is in play.

The USDA also said that biofuels offer a critical tool for reducing greenhouse gas emissions. The report concluded that corn ethanol reduces greenhouse gas emissions by 43% compared to conventional gasoline today, would further reduce greenhouse gas emissions by 50% by 2022 and has the potential to reduce emissions by as much as 76%. Of course, there will be others that will dispute those findings.

About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.