{"id":4865,"date":"2019-02-14T15:55:10","date_gmt":"2019-02-14T20:55:10","guid":{"rendered":"https:\/\/www.fundamentalanalytics.com\/?p=4865"},"modified":"2019-02-14T15:55:10","modified_gmt":"2019-02-14T20:55:10","slug":"fundamental-analytics-monthly-newsletter-february-2019","status":"publish","type":"post","link":"https:\/\/www.fundamentalanalytics.com\/pt\/fundamental-analytics-monthly-newsletter-february-2019\/","title":{"rendered":"Fundamental Analytics Monthly Newsletter February 2019"},"content":{"rendered":"\n\n\n
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Our weekly commentaries and updates will remain free until April 2019. Effective April 2019, a subscription will be required in order to receive them. Of course, clients of Fundamental Analytics and BlackSummit Financial Group will continue receiving our weekly content for free. After April, our monthly newsletter will remain free of charge.<\/div>\n
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We would be happy to discuss this commentary with you and provide additional market insights. Feel free to call us at +1 859-687-2748 or email us at aaron.edwards@fundamentalanalytics.com<\/div>\n<\/div>\n<\/div>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n\n\n
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Monthly Newsletter: February 2019<\/div>\n
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February 04, 2019 | by Aaron Edwards and Joel Fingerman<\/div>\n
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Dear Joel:<\/span><\/div>\n
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Dados Fundamentalistas<\/div>\n
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The DOE report of January 30 was again very bullish to gasoline prices. Total Motor Gasoline Inventories decreased by 2.2 million barrels to 257.4 million barrels for the week ending January 25, 2019 (Chart 1, black line). The expectations average was for a 1.9 million barrel increase. Gasoline cracks should start to increase in value. By mid-February, refiners will move to driving season gasoline production.<\/div>\n
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Chart 1<\/div>\n<\/div>\n<\/div>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n\n\n
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Total Distillates Stocks decreased by 1.1 million barrels to 141.3 million barrels for the week ending January 25, 2019, while expectations average was for a 1.4 million barrel draw (Chart 2, black line). The DOE report was mixed for distillates prices as stocks decreased but demand was down.\u00a0Stocks data are bullish for prices while demand data are bearish for prices so these data do not provide a clear price direction implication.<\/div>\n
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Distillate cracks may indicate future direction and economic dynamics of crude oil:\u00a0An increase in the crack would indicate rising demand, while a fall could reflect economic weakness. The heating oil crack spread could become a useful indicator for the price of crude oil and tell us if the current rally in WTI prices will continue.<\/div>\n<\/div>\n<\/div>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n\n\n
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Chart 2<\/div>\n<\/div>\n<\/div>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n\n\n
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Platform Potential<\/div>\n
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The commodity market research platform offered by\u00a0Fundamental\u00a0Analytics\u00a0is intuitive and easy to use. The year-on-year default visualizations offer a superb tool for analyzing both fundamental and pricing data. Highly customizable features also facilitate price comparisons between different commodities. Research by our team in January, presented below, exemplifies how our platform can facilitate fundamental and pricing analysis of multiple commodities.<\/div>\n
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Note: The comments below reflect updates and commentaries that we send regularly to our distribution lists. Because some time has now passed since its original release, the content below should not be regarded as up-to-date market commentary.\u00a0If you wish to receive this type of analysis in a timely fashion, please let us know. In addition, you can conduct your own research by subscribing to our research platform.\u00a0For more information give us a call at (859) 687-2748 or visit\u00a0www.fundamentalanalytics.com<\/a>.<\/div>\n
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Commentary originally from January 24th<\/sup><\/div>\n
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Corn is the raw material used to produce biofuel ethanol in the United States. About 40% of the US corn crop goes to the production of ethanol. Although corn prices rebounded from their lows last September, ethanol prices have continued to weaken.<\/div>\n
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In fact, ethanol prices in equivalent bushel prices (1 bushel of corn produces 2.8 gallons of ethanol) have recently moved lower than corn prices. Chart 1 plots corn prices (black line) and equivalent ethanol prices (red line). When the black corn line is above the red ethanol line the spread, or margin, is negative.The negative margin means the ethanol output is priced lower than the price of corn needed for the production of ethanol. This bearish scenario provides trading opportunities for traders of ethanol outrights and ethanol-corn spreads.<\/div>\n
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Chart 1<\/div>\n<\/div>\n<\/div>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n\n\n
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Chart 2 provides a year-on-year overlay of the spread between ethanol and corn. The black line, the 2019 spread, is at record lows around -20 cents. Ethanol refiners are currently running at a loss. Ethanol inventories are near record high levels for this time of the year, so supply is plentiful (Chart 3).\u00a0Ethanol production dropped throughout December, but has recovered and is currently at a strong level similar to the previous two years (Chart 4). Production alone is not a sufficient trading signal, but, in context, it provides a bearish outlook.<\/div>\n
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Ethanol stocks are at record highs. Production is strong. Unless ethanol demand grows, ethanol prices remain bearish.<\/div>\n
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The spread between ethanol and corn (Chart 2, black line) has been dropping since mid-September. Assuming bearish ethanol prices, this spread can be expected to continue dropping as long as corn prices are stable or increasing. Based on the seasonal pattern of the last three years (Chart 5), it is reasonable to assume that the MAR CBOT corn contract will be stable or rising between January and its expiration. Thus, expectations are bearish for the ethanol-corn spread as well.<\/div>\n
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Chart 2<\/div>\n<\/div>\n<\/div>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n\n\n
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Chart 3<\/div>\n<\/div>\n<\/div>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n\n\n
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Chart 4<\/div>\n<\/div>\n<\/div>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n\n\n
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Chart 5<\/div>\n<\/div>\n<\/div>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n\n\n
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Weekly Commentary Summary<\/div>\n
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Fundamental\u00a0Analytics\u00a0offers timely weekly commentaries tied to reporting from the DOE, as well as weekly reports on crude oil and natural gas. We also offer a weekly commodity market update highlighting developments in agricultural and energy markets. If you are interested in receiving any or all of these updates, please let us know. Below are some summaries of our January Commodity Market Updates.<\/div>\n
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Note: The comments below reflect updates and commentaries that we send regularly to our distribution lists. Because some time has now passed since its original release, the content below should not be regarded as up-to-date market commentary.\u00a0If you wish to receive this type of analysis in a timely fashion, please let us know. In addition, you can conduct your own research by subscribing to our research platform.\u00a0For more information please give us a call at (859) 687-2748 or visit\u00a0www.fundamentalanalytics.com<\/a>.<\/div>\n
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January 8<\/div>\n
Energia<\/div>\n
January is the start of refineries turnaround, when parts of the refineries are shut down for maintenance and preparation for the summer driving season. There is a drop in Crude Runs in the refineries through January and into February. Correspondingly, there is a drop in the production of gasoline during this period as demand for gasoline is lower in January.<\/div>\n
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Grains<\/div>\n
Corn is the raw material in the production of biofuel ethanol in the US. About 40% of the US corn crop is used in the production of ethanol. Corn prices have rebounded since mid-September, but ethanol prices remain low. In fact, Ethanol prices in equivalent bushel prices (1 bushel of corn produces 2.8 gallons of ethanol) are lower than corn prices. Ethanol refiners are currently running at a loss. Ethanol inventories are at record high levels for this time of the year, so supply is plentiful. Consequently, ethanol refiners have been cutting production. For the week ending December 28, ethanol production dropped by 31,000 barrels per day.<\/div>\n
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January 16<\/div>\n
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Energia<\/div>\n
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Natural Gas prices gapped up on Monday due to cold weather and cold weather forecasts.<\/div>\n
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Natural Gas production remains strong but storage, as reported by the EIA for January 4, 2019, is at a record low of 2,614 bcf for this time of the year. The computer model forecast of storage by the end of the winter season has storage at about 1,400 bcf for a normal cold winter. Should the current seasonally colder winter weather continue for extended periods, storage would end up closer to 1,200 bcf. Low storage will cause prices to rise.<\/div>\n
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The March-April Natural Gas calendar spread is a measure of traders’ expectation of end of winter storage levels.\u00a0Expectation of low storage widens the spread. On Monday, the spread increased. In 2014, shortage ended at a record low and the 2014 March-April Natural Gas calendar spread spiked. The current March-April Natural Gas calendar spread has been as high and could even reach the level it reached in mid-November 2018 $1.58 in mid-November.<\/div>\n
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January 23<\/div>\n
Energia<\/div>\n
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US domestic crude oil prices are often influenced by global events.\u00a0On Monday the International Monetary Fund reported an increased possibility\u00a0of a global economic slowdown and reduced its 2019 global growth forecast to 3.5% from 3.7%.\u00a0Also on Monday China reported the lowest annual economic growth in nearly 30 years.\u00a0The annual economic growth rate of China was 6.6% in 2018.\u00a0Crude oil prices dropped nearly 2% in reaction to the global news.<\/div>\n
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In contrast, US domestic natural gas prices are not affected by global economic events but rather by US domestic factors of supply\/demand and weather.\u00a0However, those factors are often not sufficient to explain natural gas price behavior.\u00a0Last Friday prices were up in response to cold weather forecasts.\u00a0Yet, when the cold weather materialized, prices dropped sharply on Tuesday, down over 12%.\u00a0This price behavior illustrates the difficulty and risk of speculating in natural gas.<\/div>\n
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January 30<\/div>\n
Energia<\/div>\n
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Since mid-December prices have dropped from $4.00 to $2.87, 28%, as of Monday’s settle.\u00a0During the same time period March Open Interest increased from 216,000 contracts to 307,000 contracts, a 42% increase.\u00a0As a general rule, when open interest grows as prices are falling this is an indication of new shorts in the market.<\/div>\n
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Last weekend a new extended forecast predicted milder winter in early February.\u00a0Despite the severe cold weather this week in much of the US, the market gapped down on Monday in response to the longer term forecast.\u00a0Being short natural gas in mid-winter can be a risky position, especially with the relatively low natural gas shortage level.\u00a0In mid-November prices had an explosive up move when cold weather forecasts were released.\u00a0Those holding short positions in winter are more sensitive to upside risks and will quickly cover if prices turn.\u00a0\u00a0A new cold weather forecast in the next days or weeks is likely to create dramatic price up moves from a short covering rally given the high price volatility in natural gas.<\/div>\n
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The full content of our weekly commentaries can be accessed on our website at\u00a0www.fundamentalanalytics.com\/articles<\/a>. Weekly commentaries and updates will be free until April. Effective April 2019, a subscription will be required in order to receive them. Of course, clients of\u00a0Fundamental\u00a0Analytics\u00a0and BlackSummit Financial Group will continue receiving them for free.<\/div>\n
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What to Watch in Upcoming Weeks<\/div>\n
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Below are a few things to watch in early\/mid-February of 2019. These factors are likely to impact energy and agricultural markets.<\/div>\n
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\u25cf\u00a0\u00a0\u00a0\u00a0\u00a0Ag Market response to delayed USDA reports<\/div>\n
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\u25cf\u00a0\u00a0\u00a0\u00a0\u00a0Magnitude of losses to South American soybean crop<\/div>\n
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\u25cf\u00a0\u00a0\u00a0\u00a0\u00a0Gasoline cracks and refineries moving to driving season production levels.<\/div>\n
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\u25cf\u00a0\u00a0\u00a0\u00a0\u00a0Distillate cracks may indicate future direction of crude oil.<\/div>\n
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\u25cf\u00a0\u00a0\u00a0\u00a0\u00a0US sanctions on PDVSA, the Venezuelan state-owned oil company, are in line with expectations but may have little impact on price.<\/div>\n
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For more insights and analysis or to find out about our free trial offer, go to\u00a0www.fundamentalanalytics.com<\/a><\/div>\n
Follow us on Twitter\u00a0@fundanalytics<\/a>,\u00a0Facebook<\/a>, or on\u00a0LinkedIn<\/a><\/div>\n
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Regards,<\/div>\n
The\u00a0Fundamental\u00a0Analytics\u00a0Team<\/div>\n
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Disclosure<\/div>\n
Trading and investment carry a high level of risk, and\u00a0Fundamental\u00a0Analytics\u00a0LLC does not make any recommendations for buying or selling any financial instruments. We offer educational information on ways to use our sophisticated research analysis platform, but it is up to our customers and other readers to make their own trading and investment decisions or to consult with a registered advisor. The opinions expressed here are solely those of the author and do not constitute advice by Fundamental\u00a0Analytics\u00a0or its affiliates.<\/div>\n<\/div>\n<\/div>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>","protected":false},"excerpt":{"rendered":"

Our weekly commentaries and updates will remain free until April 2019. Effective April 2019, a subscription will be required in order to receive them. Of course, clients of Fundamental Analytics and BlackSummit Financial Group will continue receiving our weekly content for free. After April, our monthly newsletter will remain free of charge. We would be […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[1],"tags":[],"class_list":["post-4865","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/www.fundamentalanalytics.com\/pt\/wp-json\/wp\/v2\/posts\/4865","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.fundamentalanalytics.com\/pt\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.fundamentalanalytics.com\/pt\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.fundamentalanalytics.com\/pt\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.fundamentalanalytics.com\/pt\/wp-json\/wp\/v2\/comments?post=4865"}],"version-history":[{"count":1,"href":"https:\/\/www.fundamentalanalytics.com\/pt\/wp-json\/wp\/v2\/posts\/4865\/revisions"}],"predecessor-version":[{"id":4866,"href":"https:\/\/www.fundamentalanalytics.com\/pt\/wp-json\/wp\/v2\/posts\/4865\/revisions\/4866"}],"wp:attachment":[{"href":"https:\/\/www.fundamentalanalytics.com\/pt\/wp-json\/wp\/v2\/media?parent=4865"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.fundamentalanalytics.com\/pt\/wp-json\/wp\/v2\/categories?post=4865"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.fundamentalanalytics.com\/pt\/wp-json\/wp\/v2\/tags?post=4865"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}