Daily Oil Market Report - 20th November
Repeat of Thanksgiving 2014?: The market capitulation continued as Brent and WTI traded below $65 and $55 respectively. All the gains made during this year are now lost. Brent dropped over $4, the selloff intensified over the day after Trump took a softening stance on Saudi Arabia despite the Khashoggi murder. WTI prices did not drop as sharply as Brent and the surprise API draw of 1.5 million barrels helped WTI rebound further. The front WTI/Brent arb gained 49c today and it was up a further 50c post settlement after the API data release. Maybe the market is finally believing that the US crude stocks have stopped building as refinery runs increase.
API’s product numbers showed gasoline stocks increases by 706K barrels and distillate stocks fells by 1800K barrels. Both numbers were slightly less than the Reuters consensus. Refinery runs picked by 398KBD and an uptick in runs should be bearish for products, but bullish crude for the next few weeks. We will keep an eye on gasoline yield as the ongoing negative gasoline cracks should force some refiners to reduce the yield.
The sharp selloff in flat price has made all technical indicators useless. RSI has been below 15 for a while now, implying a strong buy. However, its been very painful for the buy the dip crowd. The 200 Day Moving average is now over $12 over the settlement price for Brent and WTI. Last time, the gap was this wide was in Q1 2016 when prices hit panic levels.
Despite the sharp sell off today, spreads and structure held relatively well. WTI Jun/Dec was surprisingly up 27c even though front month was down by $3.
It wasn’t just oil that had a bad day, equity markets, coal and bitcoin had bad days as well. S&P was down over 3% and is only 60 points away from the YTD lows. The selloff in tech stocks continue, with market cap in Apple and Amazon down over $200bn from their peak. Even shares in big refiners like Valero are down 35% from their peak and people have forgotten about how Valero will benefit from IMO during this market rout. Bitcoin continued its 2nd sharp day of sell offs, with prices down over $1000 in the last 2 days. We are seeing a lot less TV coverage for people who were previously calling for bitcoin to hit $50,000.
Thanksgiving 2014 vs 2018: The current market is looking eerily similar to the market we had in Thanksgiving in 2014. The market back then was expecting OPEC to cut production to stop the prices declining any further. However, the Saudi minister at the time, Al-Naimi decided to leave the group’s output ceiling unchanged despite huge global oversupply, marking a major shift away from its long-standing policy of defending prices. The meeting was held on Thanksgiving day and prices fell over $6 on that day despite low liquidity. This time around, Saudi has been very vocal of production cuts. However, the market is pricing in as if those cuts of around 1-1.4MMBD are still not enough. There is some truth in that, as OPEC is producing more than 2MMBD since Thanksgiving 2014. Surprisingly, Iraq is the largest increase in absolute production since then. The resumption of exports from Kirkuk will make their job harder to comply with further cuts.
In addition, the increased pressure from the international community on Saudi and the growing pressure on the NOPEC bill might tie Saudi’s hands in controlling prices to their favored price range.
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