- OPEC+’s July Meeting Collapsed as UAE delegates refused to go along with plans for monthly increases without an additional allocation for themselves. As of the time of this writing after the US Independence Day holiday, there has not been an agreement nor an announcement of the next meeting date. As the graphic to the right shows, the capacity exists if there is a will to produce it. Meanwhile, prices hit a three-year high as traders speculated whether supplies would match demand during economic reopenings. A reopening of Iran and its oil production seemed to sputter despite positive diplomatic noises. A renewed nuclear deal would add about 1 mbpd to global supply.
- Meanwhile, US Oil Production moved up slightly last month to 11.3 million barrels per day (mbpd) while operating rigs jumped higher to 376 as of July 2nd from 359 as of May 28th. As reference, this is about half the rigs operating before the pandemic but efficiency is much higher nowadays. The challenge is that oil reserves are at 445 million barrels (mb) (down from 479 mb a month ago and 503 mb in mid-March) to the lowest level of the year so far. Moves by the Biden administration to block pipelines (not just the high-profile Keystone XL) and new drilling continued so unless OPEC+ comes up with an agreement, higher energy prices seemed to be a reasonable bet. Higher gasoline prices still rippled through the economy with keeping an eye on refinery capacity. Because of several refinery closures in 2020, operable crude oil distillation capacity dropped -4.5% to a total of 18.1 mbpd at the start of 2021, close to demand levels and considering maintenance. JPMorgan estimated that refinery runs will be about 16.0 mbpd this year. Natural Gas was the big winner as production faltered, demand increased on summer heat and global LNG exports (mainly Qatar, Australia and the US) all declined in June. Natural Gas in storage was well below the five-year average but above 2019 and 2018 levels.
- Chinese Refining Throughput rose to a record high in May, boosted by increases from state owned refiners. Refinery runs averaged 14.31 mbpd, up +4.4 % year-on-year and up +4.5% from April. The prior record was 14.26 mbpd from November 2020. Meanwhile hog and pork prices collapsed as the size of the hog herd has almost fully recovered from African Swine Flu decimation (see graph right). In fact, the Financial Times reported that some fear a pork glut! What a complete turnaround from even just a few months ago.
- US Farmers Seeded the second-largest combined corn and soybean acreage ever this spring, as concerns about global food security pushed prices for the crops to their highest in more than eight years per the USDA. But the total for each crop fell below trade expectations, sparking a rally in futures prices after the data hit. However, that move was off lows as good weather scythed prices when traders speculated that yield risks declined. US grain exports globally held strong, especially versus last year (see graph left). In South America, the USDA predicted that Brazil will seek to increase soybean acreage and produce a new record volume of soybeans in 2021/22. China will need those beans as the USDA expected that country to switch soybean acres to corn. High grain prices have even caused India to become a corn exporter, forecasted to reach 2.6 million tonnes in 2021, the highest in seven years. Brazilian farmers will harvest just under 94 million tonnes of corn this season, a Reuters poll of ten forecasters indicated, a fall of 8.5% due to their severe drought. On the positive side, Ukraine was forecasted to maintain its corn exports of over 30 million tonnes this year and favorable weather looked to help wheat production there and also in Russia and Europe more broadly.
David Burkart, CFA
Coloma Capital Futures®, LLC
Special contributor to aiSource