Daily Oil Market Report - 11th October 2018

Macro Risk-Off Day Part 2 : A sea of red across most asset classes with the exception of asset havens like gold. Macro concerns yet again dominated price action for oil. Crude oil prices fell very sharply with Brent briefly dropping below $80. Prompt Brent timespreads went down with flat price as well, with front spread down 7c to 37c. Products got dragged with crude oil as well. The RBOB horror show continues and the DOE weekly stats didn’t help RBOB either, with US showing a surprising increase in gasoline yield. Gasoline continues to trade at record discounts to heating oil, yet refiners are increasing the gasoline yields. Maybe we need to see negative RBOB and EBOB cracks for refiners to feel the pain and start cutting gasoline yields.

UAE started off the day with bearish headlines that they will have a production capacity of 3.5MMBD by year end. Their September production was nearly 3MMBD which gives them 500KBD of spare capacity if the market demands for it.

OPEC report was out today, nothing insightful in it. All eyes on IEA report tomorrow morning.

DOE weekly stats were out with a mega crude+product build of 11.28 million barrels. With the exception of distillates, all the numbers were bearish. Gasoline stock build of 3 million barrels was surprising despite a drop in crude refinery runs. Adding up the crude numbers did not make sense as it would lead to one of the largest balancing adjustment figures. Crude exports were up +853KBD and imports were down -568KBD yet we had a big stockbuild. This just shows that predicting crude stock numbers every week is getting harder due to volatility in US crude exports.

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Second day of macro risk-off. Suddenly twitter is full of financial pundits who have been predicting a stock market crash. These were the same people who have been calling a market crash since 2009. Gold jumped up almost 3% to reach the highest spot level in 3 months. Same could not be said for bitcoin which continue to drift lower. Emerging market currencies are surprisingly doing well in the last 2 days of market weakness.

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CHART OF THE DAY

US Weekly Stocks: Crude and product stocks gained a huge 11 million barrels today. This is the 4th time in the last 11 weeks that stocks have built over 10 million barrels. Total stocks have breached over 1.2 barrels and have reached similar stock levels seen this time last year, essentially eroding all the stock draws we have seen this year. We should expect crude stocks to build and product stocks to draw during refinery maintenance. However, given the unexpected gasoline build we might see overall stock builds in Q4. Another reason behind the surge in stock builds is the increase in share of other oils. Not completely sure what this contains but its now 24% of total stocks vs 20% in early 2017.


 2nd day of oil price sell off continues to drag structure down along with it. Still no spread in contango with only some parts of the WTI curve flirting with it. With the 2019 crude balances looking long, these deferred crude spreads look rich even at these levels.

2nd day of oil price sell off continues to drag structure down along with it. Still no spread in contango with only some parts of the WTI curve flirting with it. With the 2019 crude balances looking long, these deferred crude spreads look rich even at these levels.


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