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Energy Brief November 28

by Archer Financial Services | Nov 28, 2018
by Steve Platt and Mike McElroy

Price Overview

Watch Steve's video on the Oil Market here https://youtu.be/BFBLGYkdJJg

The petroleum complex traded in a choppy fashion with values attracting scattered selling in response to the DOE report that showed a build in commercial crude inventories of 3.6 mb.  It was the tenth straight week of increases and incorporated a decline in stocks from the SPR of 2 mb. Buying developed as equity values recovered following remarks by Chairman Powell indicating Fed policy was appropriate given that financial vulnerabilities are at a moderate level. The recovery was not broad-based as the market grapples with the G-20 meeting this weekend and next week’s OPEC meeting.

Reports Crown Prince Mohammed bin Salman will meet Putin at the G-20, along with Trump’s attendance at the meeting might allow for some bilateral negotiating ahead of the OPEC meeting. Saudi Arabia indicated that they will not cut output on their own to stabilize prices, suggesting other participants to the prior agreement will need to participate in production cuts.  Putin indicated that Russia was in touch with OPEC and that Moscow would be satisfied with a Brent price near 60.00 per barrel and would not be averse to continuing their joint efforts with OPEC.  Nigeria indicated it was too early to participate in any production cuts, but indicated that other members would need to step in to stabilize values.
crude oil chart

As we indicated yesterday, the ball appears to be in Russia and Saudi Arabia’s court.  It appears the market will be in surplus by upwards of 1 mb/d during the first quarter, suggesting a market not in balance until the waivers on Iranian crude are lifted might keep the market on edge.

The DOE report showed commercial inventories rose by 3.6 mb, with 2 million barrels withdrawn from the SPR.  Domestic production in the US was 11.7 mb with exports at 2.4 mb. Capacity utilization surged to 95.6 mb while Cushing stocks rose by 1.2 mb to 36.5 mb. In products, distillate inventories rose by 2.6 mb while gasoline stocks fell by .8 mb.
Crude

The build in distillate inventories has helped lead to a retracement in the ULSD crack. The January has fallen from a high of 31.86 on November 11th to 26.90 today. The weakness reflects the shifting of the crude slate toward middle distillates in response to the favorable margins.  The price decline has started to attract demand, with exports of distillate surging to 1.7 mb in the latest week compared to 1.0 a week ago.

Natural Gas

The midday forecast suggesting that temperatures will remain cold into the first week of December helped uncover a wave of buying interest.  The jump led to shortcovering following recent selling that had been in response to revisions upward in demand forecasts. Nervousness ahead of tomorrow’s EIA report was also apparent with a withdrawal of 73 expected, compared to 35 last year and 49 on the five year average.  Concerns of freezeoffs inhibiting production in Texas might persist and help underpin values given the high offtake against the low stocks, which are near 20 percent below the five year average.  

natural gas chart

Charts Courtesy of DTN Prophet X


Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The views and opinions expressed in this letter are those of the author and do not reflect the views of ADM Investor Services, Inc. or its staff. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options ADMIS position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to. The authors of this piece currently maintain positions in the commodities mentioned within this report. Charts Courtesy of DTN Prophet X, EIA.

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