The Energy Report 06/10/19

One Deal Down

Ok, we have a trade deal with Mexico, again, after Mexico promised the Trump Administration that it would expand border programs to slow migration into the U.S.. Now if we get a deal with China it will be risk on nirvana. In fact, even the late deal with Mexico juiced up markets last night but data from China seemed to dampen the mood a bit. Reuters reported “that China’s exports unexpectedly returned to growth in May despite higher U.S. tariffs, but imports fell the most in nearly three years in a further sign of weak domestic demand that could prompt Beijing to step up stimulus measures.”

Some analysts suspected Chinese exporters may have rushed out shipments to the United States to avoid the new tariffs on $300 billion of goods that President Donald Trump is threatening to impose in a rapidly escalating trade dispute. But Monday’s better-than-expected export data is unlikely to ease fears that a longer and costlier U.S.-China trade war may no longer be avoidable, pushing the global economy towards recession.

The U.S.-China trade war concerns are raising fears of subpar oil demand growth. Yet are those fears being overstated, especially because we have the Fed telling us that they are lowering interest rates? The ECB is also hinting about a rate cut. The Chinese for their part are going to fight a trade war with massive stimulus spending. China’s May exports rose 1.1% from a year earlier, compared with market expectations for a modest decline, customs data showed.

You also have OPEC that is telling you that they are going to continue to restrain supply from the marketplace. According to the latest report from S&P Global Platts, OPEC production fell to 30.09 million b/d in May, the lowest since February 2015, before Gabon, Equatorial Guinea and Congo joined and when Qatar was still a member. Saudi Arabia’s crude output fell to 9.70 million b/d, lowest since January 2015. They also say that sanctions-hit Iran produced 2.45 million b/d, its lowest in almost 21 years. The cut was partly made up by Iraq whose production surged to an all-time high of 4.82 million b/d. Libya despite the potential for civil war, produced its most since June 2013.

Natural gas is still under pressure as summertime weather is hard to find. Below normal temperatures and above normal production is draining the market to new contract lows. Natural gas bulls need a heat wave and based on the forecast there is not one in sight.

Corn and Ethanol are getting a break. Dow Jones reports that U.S. crop prices are falling ahead of today’s planting progress data from the USDA. The weekly report has sparked several steep rallies over the past month by revealing that poor weather had put farmers behind schedule. By this time of year farmers have normally finished planting corn, but by last week only 67% of the crop had been planted. In an article for University of Illinois farmdoc website, Emerson Nafziger pointed to a 2018 study showing that corn planted on June 10 yields 25% less than corn planted at the normal time. By June 30, that loss reaches 61%. Still, perfect weather during the growing season could see a much better crop than that study suggests, Nafziger says.

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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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