Daily Oil Market Report - 14th November


Catching a Falling Knife: WTI finally ended its unprecedented 12 day losing streak with a gain of 56c. The RSI has reached record low levels for WTI and its now less than 5. However, this might be a dead cat bounce as the latest API data might prove that this knife has further to fall. Crude inventories rose by 8.8 million barrels when the market expectation was around a 3 million build. The big crude build came in despite crude runs increasing by 216KBD as the refinery maintenance have started to wind down. The biggest surprise was the rise in crude imports. We are still not seeing a structural decline in crude imports despite record production and high stocks. Maybe, the US refiners find it profitable to store crude as the WTI contango is above 20c on average for the first 6 spreads.

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We had a fair amount of fundamental data out. The most headline grabbing was the IEA report. IEA had an overall bearish report as it left its oil demand forecast unchanged for 2018 and 2019 at 1.3 and 1.4MMBD respectively. However, we expect the 2019 demand estimates to be revised upwards given the low flat price environment.

The reason why we expect 2019 demand to be revised upwards is because Chinese and Indian demand has fared well despite the high flat price in earlier on the year. Chinese October runs came out at 12.46 million barrels per day. That is close to the record high print set last month. Chinese refiners are running hard as there must be good margins or good demand in the country. Two new big refineries totaling 800KBD is expected to start up in Q1 2019 and we should see the number hitting 13MMBD very soon.

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Indian oil demand was fairly constructive as well. There’s been a worry that Indian oil demand might start to contract due to the currency crisis the rupee has faced this year. Pump prices had hit record high due to currency depreciation but also due to removal of subsidies. Indian oil demand was up 200KBD y-o-y , which is around 4%. Still lower than their GDP growth, but we expect this low flat price environment is great for the Indian economy.

Today, the main market mover was not oil but natural gas. Natural gas prices have surged over 30% in the last week due to cold weather. Prices have reached 4 year high despite record increases in supply. This price action is possibly an overshoot as there were rumors about a big fund in the market that was long oil and short natural gas and was forced to stop out from both ends.

EIA released their Drilling Productivity Report earlier this week and Permian Basin continues to show incredible growth. Production grew by 63KBD m-o-m. The December production is expected to be around 3.632MMBD which will easily surpass Iranian production. The next target for Permian is to beat Iraqi production which might occur in late 2019 at this rate.

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