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02-13-18 amupdate
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News/Views

On an API basis at least, our thoughts regarding the timing of a rebound in U.S. commercial crude oil stocks was correct, but we will reserve final judgement until the EIA numbers are released later this morning. Late yesterday the API reported that for the week ending January 19 crude oil inventories increased by some 4.8 million barrels to 416.2 million barrels, in contrast to consensus expectations of a draw with the build even larger than our estimate.  Primary gasoline supplies increased by 4.1 million barrels, more than analysts’ estimates, while distillate fuel oil stocks fell by 1.3 million barrels, less than what the market was looking for.

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The EIA released the latest Weekly Petroleum Status Report for the week ending November 17, and we provide our thoughts on the data within the context of our forecast refinery balances.  In sum, the crude oil draw was roughly in line, the negligible gasoline stock increase was somewhat constructive, while the distillate build was bearish, all relative to consensus expectations.

Turning first to crude oil, the EIA reported that commercial inventories fell by some 1.9 million barrels to 457.1 million barrels, below last year by 31.9 million barrels.  Stocks in PAD II fell by 2.4 million barrels, including a draw at Cushing of 1.9 million barrels.  Supplies in PAD III declined by 2.5 million barrels.  Adding up all other districts yields a stock build of 3.2 million barrels.

Refiner crude oil inputs recovered by 199 MB/D from the previous week and exceeded 16.8 MMB/D.  Gross crude oil imports eased by 25 MB/D and averaged almost 7.9 MMB/D.  Estimated gross exports recovered by 469 MB/D and averaged almost 1.6 MMB/D.

We would note, however, that adding up the individual variables implies a stock decline in excess of 6.0 million barrels, i.e. comparable to the magnitude reported by the API.

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11-15-17 amupdate
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Summary of Current Market Conditions

Overview

 

  • Hydrocarbon prices rose over the weekend.  NYMEX crude oil up $0.30 to $55.94 per barrel; ICE Brent up $0.41 to $62.48 per barrel; NYMEX natural gas up $0.086 to $3.070 per mmBtu.

 

News/Views

 

  • Thus far this Monday morning crude oil prices are firming modestly in a follow-through to Friday’s gain, reflecting the new consensus view of a “tightening” market as well as word of the princely purge in Saudi Arabia.  In terms of the latter, we are somewhat surprised that oil prices are not rising more, given the “traditional” knee-jerk reaction to any surprise political developments out of the Kingdom, but perhaps the market is assuming, correctly in our view, that Crown Prince Mohammed bin Salman has no intention at this point of revising Saudi oil policy.

 

  • To put current prices into perspective, in our November 1 report we stated, “We also estimated where CFTC-reported Managed Money might now stand at $55.00 per barrel, using the last two weeks implied price gain per reported increase in futures-only net length.  If the relationships of the last two reporting periods held over the past week, it would imply that futures-only net length now stands at about 316,400 contracts.  If so, this still lies short of the record of 405,328 contracts set on February 21 of this year.  Taking the exercise further, if the relationships we devised are reasonable and funds take futures-only net length up to the February 21 record, it would imply that the December NYMEX crude oil contract would reach about $62.45 per barrel.

 

  • As our table below reveals, on October 31 when the prompt NYMEX crude oil contract settled at $54.38 per barrel, Managed Money futures-only net length stood at 295,232 contracts, so it looks like our arithmetic was almost dead on the mark.  More importantly, however, if we perform the same exercise with the data between October 24 and October 31, it would imply that the record would now be matched at “only” about $58.20 per barrel.

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CRUDE OIL MARKET FUNDAMENTALS: Crude oil’s rebound from a 1-week
low led to upside follow-through this week, but the market has already given
back early strength and may require additional bullish supply news to retest its
late-September high. Nonetheless, energy prices had a significant change in
fortune on Friday as they were able to rebound from heavy early losses to finish the day with sizable gains. Comments from a Chinese central bank official were thought to have weakened that nation’s demand outlook and became a source of across-the-board pressure. However, a “risk on” mood fueled by increased expectations of US tax reform measures helped crude oil and the products to find their footing later in the day. News that US crude oil exports rose above the 2.5 million barrel per day (bpd) level also provided support going into the weekend. The CEO of Schlumberger stated that investment demand in North America could moderate over the next few quarters, however, which could result in US crude oil production closing in on a near-term ceiling. This was backed up by latest Baker Hughes oil rig count, which showed the number of rigs operating fell by 7, down to 736. This was the third decline in a row and the seventh decline of the past ten weeks. Iraqi forces have taken control of oil fields in Kurdistan, which could go some ways towards relieving supply anxiety from that region. The Saudi Oil Minister stated that the global oil market is improving, as compliance with output cuts from the Oil Producers Agreement is extremely high. The Commitments of Traders Futures and Options report as of October 17th for crude oil showed non-commercial traders were net long 478,294 contracts, an increase of 3,493 on the week. Non-commercial and nonreportable traders combined held a net long of 475,931 contracts, an increase of 2,024.

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Data from the U.S. Energy Information Administration Thursday showed (http://ir.eia.gov/wpsr/wpsrsummary.pdf) that domestic crude supplies fell by 2.8 million barrels for the week ended Oct. 6. That was well above the forecast for a decline of 400,000 barrels by analysts surveyed by S&P Global Platts. In contrast, the American Petroleum Institute reported late Wednesday an increase of 3.1 million barrels, according to sources. Gasoline stockpiles were up 2.5 million barrels for the week, while distillate stockpiles fell 1.5 million barrels, according to the EIA. The S&P Global Platts survey forecasted drops of 1.4 million for gasoline and 1.64 million for distillates. November crude fell 85 cents, or 1.7%, from Wednesday to $50.45 a barrel on the New York Mercantile Exchange. Prices traded at $50.25 before the supply data (http://www.marketwatch.com/story/oil-slips-on-worries-about-rising-us-crude-stockpiles-2017-10-12). -Myra P. Saefong

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1204 GMT – Energy company stocks have some catching up to do with the rebound in oil prices, says Morgan Stanley as it upgrades the sector to over-weight from equal-weight. Shares in the likes of BP PLC, Royal Dutch Shell PLC and Repsol SA have lagged a rise in the price of a barrel of Brent crude to a two-year high of $58, the brokerage says. Stock valuations in the sector remain depressed and among the cheapest in Europe and would likely benefit from any revival in bond yields, it adds. “Bond markets have appeared too pessimistic on inflation and we see scope for a further rise in yields as USD weakness and higher commodity prices feed into higher U.S. inflation,” Morgan Stanley says. (philip.waller@wsj.com)

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By Alison Sider

Natural gas prices fell Monday amid mild weather that is likely to limit demand. Natural gas for November delivery fell 9.9 cents, or 3.29%, to $2.908 a million British thermal units on the New York Mercantile Exchange. Weather forecasts over the weekend were mixed, and temperatures are likely to be relatively mild in the coming weeks. That limits the need for natural gas either as heating fuel or to power increased electricity use to run air conditioners. Kyle Cooper, a consultant at Ion Energy Group, said data released by pipeline companies over the weekend indicated there were large injections of natural gas into storage facilities. “It’s early October–there’s no A/C demand, no heating demand–this is the peak of shoulder season,” he said. “This is when demand for natural gas is lowest.” At the same time, natural gas production has remained strong. “Although exports appear to be on the upswing and imports are being restrained, production has proven stronger than we had anticipated in adding to recent downside price pressures,” Jim Ritterbusch, president of Ritterbusch & Associates, wrote in a client note.

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