The Energy Report 05/29/19

Risk Aversion Almost Everywhere

Trade war tensions are hot! It looks like markets are in a risk aversion mode everywhere you look, except for the grains. Unrelenting rains have caused one of the slowest planting seasons in history and could cause prices to skyrocket and increase ethanol costs and at some point, even spill over into the price of oil. The USDA reported that U.S. corn planting is just 58% complete, compared with 49% last week and the five-year average of 90% with the slowest pace of planting ever recorded.

Yet for oil that is a problem for later as we get a weak start to the day as global markets give in to continuing trade war fears. The mood is dire, and we are seeing markets price in a slowdown, causing oil to threaten its key support. The $10 a barrel break from its recent high of $66.60 puts major support at $56.60. We should hold that area, unless stocks really get rocked, because U.S. oil inventories are about to stop falling. Private forecasters saw a drop in Cushing Oklahoma crude oil stocks, which is a sign that refiners are starting to ramp up. Cushing Oklahoma also has constrained crude flow because of flooding. There still could be some downside, but in the big picture there is a lot more upside.

OPEC cuts are starting to bite the global markets and there is some hording of supply going on. U.S. inventories will start to fall as U.S. demand will break records. This comes as U.S. rig counts fall, especially in the Permian Basin, raising concerns about the trajectory of U.S. oil output. Geopolitical risk is also high as U.S. National Security Adviser John Bolton blamed Iran for attacks on oil tankers near the Persian Gulf this month.

Keep Your Eyes open! Reuters news is reporting “The United States has warned Hong Kong to be on alert for a vessel carrying Iranian petroleum that may seek to stop in the Asia financial hub and said that any entity providing services to the vessel will be violating U.S. sanctions.”  The news comes nearly a month after U.S. President Donald Trump’s administration stepped up moves to choke off Iran’s oil exports by scrapping waivers it had granted to big buyers of Iranian crude oil, including China.

The fully laden Pacific Bravo abruptly changed course on Monday to head towards Sri Lanka, according to shipping data on Refinitiv Eikon. The vessel had earlier identified Indonesia as its intended destination, according to ship-tracking data, but industry sources said it was most likely going to China.

Zero Hedge reported that “Venezuelan President Nicolas Maduro has pointed the finger at the United States and allies in “imperial aggression” for waging a “sabotage” campaign against vital fuel shipments as well as humanitarian aid being sent to the country after multiple tankers and shipments were reportedly damaged.”

Maduro is reported to have told a meeting with the political leadership of the United Socialist Party of Venezuela (PSUV) in Caracas this week that vessels carrying food “were sabotaged and did not leave the ports where they were going to leave.”  “Last week, sabotage was committed against ten tankers [with gasoline] to prevent them from reaching the Venezuelan coast. In any case, this problem is being dealt with and we are stabilizing the situation,” Maduro said late on Monday.

Nat gas is having issues and in a tight range, look to sell rallies.

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Phil Flynn

The PRICE Futures Group

Senior Market Analyst & Author of The Energy Report

Contributor to FOX Business Network

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