Mind the Information Gap in Crude Oil // Mississippi Runs Out Of Water

The Commodity Report #121

Lukas Kuemmerle

Sep 18, 2023

Mind the Information Gap in Crude Oil

OPEC+ has missed its production targets for 30 consecutive months, most recently in August by 1.16 million bpd after slashing production quotas as the latest data by Bison Interests shows.

Total production for OPEC+ countries (excluding the OPEC exempt) in August 2023 was 35.66 million bpd, falling short of their 36.78 million bpd production quota.

The data also indicated that Saudi Arabia extended its cuts to 3 million bpd.

Ole Hansen from Saxo Bank had a great take here: “So much for the stable price narrative: Saudi Arabia may require prices of almost $100 a barrel to cover government spending as well as the ambitious projects of crown Prince Mohammed Bin Salman, estimates from Bloomberg Economics indicate. The kingdom has spent considerable sums on ventures ranging from the futuristic city known as Neom to the acquisition of top-flight footballers like Cristiano Ronaldo for its domestic league.“

Meanwhile, the IEA made a big move this week as well. The energy agency has made a substantial downward revision to its projected oil demand deficit this year. It now sees the market flipping into a surplus in 2024 - pegged at almost 500,000 bpd. Last month it saw a deficit of 160,000 bpd for 2024.

In terms of energy agency and OPEC data, I have a clear opinion. It’s not reliable, mostly not accurate (because it’s a forecast that depends on lagging data) and therefore not really relevant for our analysis and trading system. Forward-looking/leading indicators are what we’re interested in.

OPEC commented on this step by the IEA, saying its prediction of a peak in fossil fuel demand before 2030 presents a "dangerous" risk to global energy security by stoking calls to end investments in oil and gas projects. OPEC itself sees oil demand plateauing post-2035.

For now, also keep in mind the gap between the price of crude oil and the inventory situation.

The trend of declining oil product inventory data in the US could now also come to an end again - according to the typical seasonality. This could also lead to a correction in crude oil prices after hitting 90$ per barrel last week.

Subscribers of The Kuemmerle Report know that we’ve been already long crude oil since 30.08.23 and remain long. But what we have done now is tighten the SL and move it aggressively into the money.

Fund Managers Remain Neutral Commodities

Compared to its two-year z-score, fund managers remain close to neutral commodities. They also remain heavily long bonds and short REITs as well as equities (as pretty much the whole year)

The overweight in bonds stays by the way at extreme levels.

“Long commodities” meanwhile isn’t even in the top 3% of the most crowded trades of fund managers at the moment.

Mississippi Runs Out Of Water

The Mississippi River, which carries nearly half of US agricultural exports, has been steadily receding this year. With lower-than-normal precipitation forecast, levels will likely continue to fall in the coming weeks, USDA said.

A diminishing water level is likely to cripple the supply chain in a way similar to the one witnessed last year when nearly 2,000 barges were left stranded during late October, in the middle of what was the peak harvest season for soybeans and corn.

If the Mississippi River's water level shrinkage continues to persist in September and October, the barge transportation of corn and soybeans could be severely impeded, likely cutting export volumes, some market analysts said. Corn and soybean futures should stay volatile for some time…as should dry bulk rates.

For the corn belt/Mississippi region there is also forecasted below-trend precipitation over the next two weeks - this confirms the trend of declining water levels for even longer.

Unemployment Rate and the S&P

Nautilus Research shared this chart in which it highlighted what happened to the S&P 500 each time the unemployment rate surged above its 24-month moving average. Another statistic for the “to keep in mind bucket”.

This week look out for the following:

NAHB Housing Market Index on Monday and more housing data throughout the week as well as BIS lending data
FOMC meeting on Wednesday (consensus is pausing with a FED Funds Rate at 5,5%)
Philly Fed Manufacturing Index on Thursday
Flash Manufacturing and Service PMI data for all major economies on Friday

A subscription costs $29 a month, and you will receive an additional in-depth report every Sunday evening at 6:00 PM CEST. Moreover - you will receive a monthly economic growth report as well. That information will only be published to members and not the general public.

Till next Monday, Lukas

If you have any questions in the meantime, please feel free to contact me via Twitter or Mail.

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