WHY SHOULD YOU PAY CLOSER ATTENTION TO IRAQ: I came across this item this morning via one of the crop/weather twitter accounts I follow on a regular basis:
Assume the following:
–The World produces about 92 million barrels of oil per day, unfortunately the world uses about 92 million barrels of oil per day, so there is very little room for error.
–US produces about 8 to 8.5 million barrels of oil per day, but we use about 18-19 million barrels per day.
–Iraq produces about 2-3 million barrels per day.
–Total “extra” surplus in the world is thought to be around 1.4 to 1.5 billion barrels, with the US holding about half of that total “extra” world surplus in our Strategic Petroleum Reserves.
“Many analysts believe a complete shutdown in Iraq could prompt crude oil prices to soar to $150 per barrel or perhaps even higher, maybe $200 per barrel on the knee-jerk.”
The latter is opinion, but I think the bullet points, even if they are off by a little bit, remind us of an important fact; there isn’t a glut of crude oil in the world that can get to where it needs to get in a timely fashion to offset significant price spikes due to geopolitical unrest. The terrorists in Iraq are a serious bunch…as serious and organized as any terrorist group in history and likely now better funded. Read this article to get a better understanding and to also be reminded that just because they haven’t sacked another city in Iraq in the last few days doesn’t mean they are retreating to some spider hole in Tikrit.
Bottom line; the crazy factor upside in energy commodities cannot be ignored right now.
We also cannot ignore the burgeoning corn crop. Take a look at this graph from the folks at Freese-Notis:
This graph samples previous years when the corn crop showed very good ratings at this point in the year, just as we are seeing this year. In fact, this month’s rating of 74% Good or Excellent is near historic highs. As you can see from the graph above, the years where the numbers were similarly strong, we saw the rains continue and the crop stayed strong. The 2010 and 2008 numbers were bracketed around the 2009 El Nino year and the 1998 number was also on the heels of the 1997-1998 El Nino…just in case you were wondering if I could make it through one of these updates without referencing El Nino. OK, OK, since you asked, here is an El Nino item for you published on June 23rd. It describes this year’s El Nino as being ‘irreversible’ and one oceanic scientist says this: “Everything suggests El Nino will be very strong, without ruling out the possibility of an extraordinary event.”
IS THE BOY ALREADY HERE? El Nino translates to ‘The Boy’ in Spanish…has he already arrived in America? This event typically sees summer and fall rains aplenty in the Midwest. Take a look at this data as it relates to drought conditions:
EIA’S AT 9:30A CENTRAL TOMORROW: There was neither a build nor a draw last week in the Midwest…if we have another similar inventory report tomorrow, I believe that will lead to upward movement on contract prices. Given the corn crop and the favorable grain drying prospects, there is still a lot of 4Q14 buying that needs to be done…and a lot of inventory that needs to be built. The former will happen…but will the latter?
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