Shale Boom Sends U.S. Crude Supply to Highest Since 1930s

The U.S. is stockpiling the most crude since the Great Depression, thanks to the shale boom that has boosted production to the most in 26 years.

Inventories rose 3.52 million barrels last week to 397.7 million, the highest level since 1931, according to Energy Information Administration data going back to 1920. Crude output climbed 59,000 barrels a day to 8.36 million, the most since January 1988, as the combination of horizontal drilling and hydraulic fracturing, or fracking, unlocked supplies from shale formations in the central U.S., including the Bakken in North Dakota and the Eagle Ford in Texas.

The burgeoning supply has sparked arguments over whether a 1975 law that prevents most U.S. crude exports should be repealed. It also may reduce the impetus for a quick approval of the Keystone XL pipeline moving Canadian crude to the U.S. Average weekly imports are down 3.7 percent so far this year, compared with the same period in 2013.

“This paints a secure supply picture for the U.S.,” said Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Pennsylvania. “This will add to the political debate about exports and Keystone. Whatever issues arise, it’s important to remember you would rather deal with the problems of a supply glut rather than a dearth.”

Keystone XL

President Barack Obama’s administration said on April 18 that it will postpone a ruling on Keystone XL. The State Department said it wouldn’t make a recommendation until questions are resolved about the way the pipeline’s northern route through Nebraska was approved. The southern portion of the project began moving crude in January to the Texas Gulf Coast from Cushing, Oklahoma.

Inventories along the Gulf Coast, known as PADD 3, rose 2.44 million barrels to 209.6 million last week, the most in EIA data going back to 1990.

Much of that inventory is light, sweet crude, or oil with low density and sulfur content, from the shale fields. Many refineries along the Gulf Coast are designed to run most efficiently on cheaper heavy, sour barrels imported from Mexico and Venezuela.

“The problem is that we have a glut of light, sweet crude when what we need is sour,” Schork said. “There have to find a way to swap the barrels we’ve got in hand or exporting them, so we can take full advantage of the rise in output.”

Energy Independence

Harold Hamm, the chairman and chief executive officer of Continental Resources Inc. (CLR), who became a billionaire drilling in North Dakota, told U.S. lawmakers Jan. 30 that the country, which EIA data show supplied 86 percent of its own energy last year, can drill its way to full independence by 2020. Hamm is leading an effort to get Congress to allow crude exports for the first time since the 1970s.

Senator Lisa Murkowski of Alaska, the senior Republican on the Energy and Natural Resources Committee, said in a Jan. 7 speech that she also supports changing the export rules.

The federal Jones Act restricts domestic seaborne trade to vessels owned, flagged and built in the U.S. and crewed by citizens. Thirteen tankers can haul crude domestically out of a global fleet of about 2,400, according to the U.S. Transportation Department’s Maritime Administration. The Jones Act is a 94-year-old law.

WTI Slips

West Texas Intermediate crude for June delivery slipped 31 cents, or 0.3 percent, to settle at $101.44 a barrel on the New York Mercantile Exchange. Futures ended trading at $104.37 a barrel on April 21, the second-highest level of 2014.

The U.S. inventory level was the highest in EIA weekly data begun in 1982 and monthly government data going back to 1920. Reports before 1976 were based on data from the Bureau of Mines, according to the EIA, and stockpiles of Alaskan crude oil in transit were included starting in 1981.

Imports decreased 475,000 barrels a day to 7.8 million in the seven days ended April 18. Arrivals have averaged 7.46 million barrels in 2014, according to EIA figures, down from 7.74 million for the first 16 weeks of 2013.

“Imports remain strong,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “We’ve yet to waive off imports but may be nearing a breaking point because of swollen supplies along the Gulf Coast. When that occurs, there will be a major rebalancing of global markets.”

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

Commodities futures trade volumes fall for second year

(Reuters) – Commodity futures trading volumes in India fell 40.49 percent in the year to March 2014, its second straight year of decline, the market regulator said on Tuesday.

In value terms, futures trading at commodity exchanges fell to 101.44 trillion rupees in the first twelve months from April 2013 from 170.46 trillion rupees a year ago, the Forward Markets Commission said in a statement on its website.

Trading in gold bullion fell more than 25 percent to 43 trillion rupees in the year to March 2014, from 78 trillion rupees in the same period last year. Metals volumes fell 46 percent to 17 trillion rupees, and volumes in agricultural commodities fell 25 percent to 16 trillion rupees.

The plunge in volumes and lack of fresh capital is expected to cause at least one national-level exchange, the Indian Commodity Exchange controlled by Reliance Capital (NSI:RELCAPITAL), to shut down.

The world’s second-biggest buyer of gold and second-biggest producer of wheat, India allowed commodities futures trading only in 2003. But enthusiasm has dried up since a scam was unearthed last July at the National Spot Exchange owned by Financial Technologies India, which also owns the largest exchange, the Multi Commodity Exchange (MCEI.NS).

In addition, also last July, India levied a Commodities Transaction Tax (CTT) of 0.01 percent on trade of all non-agricultural commodities futures and a few agricultural commodities futures, and increased restrictions on imports of bullion.

“The very first jolt was that when CTT was introduced and then the NSEL fiasco,” said Haresh Galipelli, vice-president, Inditrade Derivatives and Commodities in Hyderabad.

“We have already seen peaking of retail participation and for the market to reach new level, we need more participation of banks, institutions….”

India has 21 commodity bourses, including six operating at the national level, trading about 80 commodities ranging from gold to carbon credits. Foreigners are still not allowed to trade in futures, but can buy stakes in the exchanges.

“Consolidation will continue in commodity trading unless we pass the FCRA (Forward Contract Amendment Bill) and launch innovative products like options,” Galipelli said.

The bill has been pending in parliament for a decade.

Massing Of 15,000 Ukraine Troops, Hundreds Of Tanks Around Slavyansk - Satellite Images

Russian RIA Novosti reports that it has received satellite photos, "which clearly show the accumulation of a large number of Ukrainian military equipment and weapons on the border with the Russian Federation and in the vicinity of Slavyasnk." RIA cites a source in the Russian Defense Ministry, who commented that the pictures show a military formation designed "to wipe out the city and all its inhabitants from the face of the earth."

According to source, the group has more than 15,000 troops from the Ukraine army and national guard, about 160 tanks, 230 infantry fighting vehicles and APCs, and as much as 150 mortars, howitzers and multiple launch rocket systems ("Grad" and "Smerch").

The source concludes that "This concentration of troops in one area is not compatible with the potential of self-defense forces, armed with only a small number of pistols and submachine guns."

The satellite images are below:

It goes without saying that a matching build up (or at least an attempt at one) by Ukraine is normal and to be expected. The problem is that as we have witnessed every day over the past two weeks, military provocations on both sides of the conflict happen every day if not every hour. The latest one happened moments ago, as reported by RT:

Unknown assailants landed in helicopters and attacked a checkpoint in Soledar city in eastern Ukraine’s Donetsk region, a militia source told RIA Novosti adding that there is a fight going on. There is no information on the number of casualties.

Soledar is located about 30 kilometers south east of Slavyansk.

The people’s governor of Donbass region Denis Pushilin confirmed to RT that there is fighting in Soledar. As the unknown men attacked the checkpoint, the militia was forced to retreat, the source told RIA.

The second checkpoint is preparing for attack he said, adding that there are about 50 activists, many without weapons.

For now these skirmishes around "checkpoints" have been isolated events. But how long before the Ukraine "special forces" which may well amount to 15,000 troops as reported by Russian media, get involved. And how much longer after that until Russia retaliats. But the biggest question: who will be the agent provocateur who fires the first shot in hopes of launch an all out war? Indeed, who stands to gain the most from yet another war - one which will hardly be "contained"

Higher Gold Prices Seen In Weekly Survey - Kitco News

Concerns about potential escalation in the situation between Ukraine and Russia, plus a move back above certain technical chart levels, should support gold prices next week, a majority of participants said in the weekly Kitco News Gold Survey.

Out of 33 participants, 19 responded this week. Twelve see prices up, while four see prices down and three see prices sideways or unchanged. Market participants include bullion dealers, investment banks, futures traders and technical chart analysts.

A few see prices range-bound. “(It’s a) tough call this week. A strong argument could be made for all three directions. If I had to pick one, it would be sideways,” said Darin Newsom, senior analyst, DTN. “The June contract has posted a strong rally off its test of technical support at $1,265.20, and is poised for a higher weekly close. All this despite weekly Stochastics that remain bearish. This could easily set the stage for a continued rally next week back to resistance between $1,321.30 and $1,334.80. However, for arguments sake, I’ll say that the contract calms down next week and consolidates within this week’s range, so far, of $1,303.50 to $1,268.40.”

LME Will Start Position Reports on July 1 After Industry Calls

The London Metal Exchange, the world’s largest metals bourse, will start a commitment of traders report on July 1 after requests from consumers and producers to increase information about the market.

The report will be published on a weekly basis and show trader holdings each business day, the LME said in a notice to members today. It will show the composition of the LME market by category of trader, on an anonymous and aggregated basis, according to the notice.

The LME is joining NYSE Liffe and ICE Futures Europe in reporting trader positions similar to those issued by the U.S. Commodity Futures Trading Commission for U.S. exchanges. Aluminum makers including United Co. Rusal and Alcoa Inc. and beer makers last year asked the exchange to disclose holdings.

“The LME believes that the introduction of a COTR will bring benefits to the market in terms of transparency,” Nick Ong-Seng, managing director of regulation and compliance, said in the notice. Additional costs to members from the reports would be outweighed by benefits to the market, the LME said.

The exchange wants to provide more information about the market after a U.K. judge last month tossed out part of its plan to ease backlogs of metal at warehouses. The LME faces 26 U.S. lawsuits alleging long waits for metal at warehouses boosted costs. The LME is seeking views from all interested parties on the proposed report until May 23, it said.

CFTC Reports

The CFTC releases weekly reports breaking down positions by type and NYSE Liffe, the derivatives arm of NYSE Euronext, began giving similar information for agricultural products in 2011. ICE Futures Europe started publishing Commitments of Traders Reports in Europe for Brent and gasoil in 2011.

For now, the LME publishes so-called warrant holdings reports that don’t include the type of holder of a position and are delayed two days before publication.

The reports will classify market open interest by category of participant, similar to the CFTC, including producer, merchant, processor or user; broker dealer or index trader; money manager; other reportables and not defined, according to the notice.

EXAMPLE of the CFTC REPORT of COMMEX.

Copper price extends rally as Beijing catches hedge funds short

Copper has been out of favour with hedge funds for a long time.

The red metal is the ONLY commodity in a list that includes everything from lean hogs and NY Harbor Ultra-Low Sulfur Diesel to cocoa and gold, that so-called managed money investors have placed in a net short position.

Hedge funds on the New York Comex have placed bets to the tune of 375 million pounds of copper that the price will go down according to CFTC data.

This year those bets have paid off big time with copper falling to a near four-year low of $2.88 a pound mid-March.

After a steady recovery, the price of the metal dipped below $3.00 again last week.

But when a new report surfaced Wednesday indicating that the Chinese State Reserves Bureau has bought up to 350,00 tonnes of copper between March and April to move into state warehouses it lit a fire under the price.

Orders from Beijing to buy when prices fall below $3.15 and to pick huge loads should copper go below $3.00 immediately put a floor under the price.

That sent managed money scrambling for July contracts to cover their positions.

After a jump yesterday, Friday saw copper consolidating its gains trading at a seven-week high just above $3.10.

Beijing was a big buyer during the height of the 2008 financial crisis, making the most of prices as low as $1.30 a pound

The last time the SRB intervened in base metals markets was in June 2013 when the copper price turned around before hitting $3.00 after sliding from a $3.70 high in February of that year.

The Chinese government, which naturally doesn't disclose purchases publicly, was also believed to be a big buyer during the height of the 2008 financial crisis when it made the most of prices as low as $1.30.

At the time of the 2013 reports, one metals trader told the FT the SRBs purchases "may be interpreted as a bullish sign," adding:

"If you had bought copper every time the SRB bought copper you would have made a fortune"

Fresh data about hedge funds' short and long positions as at Tuesday this week will be released by the US Commodities Futures Trading Commission after the markets close Friday.

It should reveal whether managed money anticipated the Beijing-inspired rally or blew their copper bets.

Sell In May And Go Away ...

As readers will recall from our recent preview of what equity performance this month was supposed to look like, at least based on historical data, April was supposed to be the best month of the year.

Sadly for the bulls, it has been anything but. That's the good news. The bad news is that as most know the old saying "sell in May and go away", there is nothing but pain for the next six months.

As FBN's JC O'Hara explains, the “Sell in May” slogan heard around Wall Street has some truth behind it. The gist of the saying suggests it’s better to be out of the market come May and re-enter during the fall months.

We ran the numbers over the last 20 years and found validity to the statement. We created a model that went long the market Jan, Feb, March, April, Oct, Nov & Dec. as well as a second model that went long the market May through Sept 30. We concluded that the May – Sept time period model, on average over the past 20 years, would have lost you money. The majority of the time the market was unimpressive over those summer months. The majority of the markets returns were housed in the first model that was long the months into May and the months after Sept. While there were instances where May – Sept was negative, the risk adjusted returns suggests investors do not necessarily need to exit the market but should expect flat markets with little if any of the yearly gains coming during this time period. The real money was made during other 7 months of the year. As we approach May we are not in the SELL camp yet, but rather acknowledge the fact that a volatile, stagnant, sideways moving market is what history implies. Over the next few pages of this report we examine the past 20 years and highlight where the majority of returns are found.

Naturally, all of the above implies that rigged, centrally-planned markets are even remotely comparable to normal historical markets, and trade paterns. They aren't. Still, for those who are curious what the infamous Sell in May phenomenon looks like, here it is:

And the full breakdown of the past 16 years: