Oil Market Report - 30th November

US-China trade wars paused for now: The big event over the weekend was the G20 meeting, which someone people believe to be more important than the OPEC meeting in 4 days time. There were a lot of important events over the weekend. Saudi’s MBS was able to meet all the world leaders as if the Khashoggi situation is now behind him. There was a also a photo of him and Putin and the start of a new bromance relationship. Everything else being equal, this is bullish oil as there are signs of increasing OPEC+ actions to balance the market in 2019. The most important conclusion of the G20 meeting was the pause in US-China trade escalations for now at least. This should provide support to risky asset classes particularly soft commodities like Soybeans.

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The last trading day of November was relatively quiet given the volatile month it has been. Brent and WTI was down around 50c, it was Brent expiry so ignore the Brent front month and timespread change. Average Brent price in November was $65.95, which gave a monthly price drop of around $15. This is one of the sharpest monthly price drops

On Friday, we also got the monthly EIA PSM data. US crude production came out at 11.475 million barrels per day for September. This was almost 400KBD higher than what the weekly data showed. The monthly data continues to outperform the weekly data which is basically derived from an EIA model. This should make the bulls worry whether the current weekly production number is still being underestimated. The September production number was 1.98MMBD higher year on year.

There was some interesting monthly demand numbers as well. The September demand numbers was up slightly y-o-y but the growth is being driven from all products excepting non gasoline. Diesel demand is up almost 6% YTD as the construction and drilling industry runs on diesel. While consumer focused gasoline demand continue to be slightly down YTD. Maybe with retail prices below $2/gal in many states, we can finally see an uptick in gasoline demand.

With November now over, there were some OPEC November production numbers coming out. Reuters survey showed that Venezuelan production had increased by 50KBD. Before this monthly increase, Venezuelan production has declined every month for the last 19 months. Maybe Venezuelan production has now finally bottomed out and due to the huge debt they owe to China, they cannot afford to lose any further production loss.

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Spec Length Update: Just when you thought spec length could not drop any further, Brent showed its 9th weekly drop in net spec length. However, WTI has had enough and showed an increase for the first time in 12 weeks. The rise in Brent shorts to reach the 5 year average is very interesting given prices are now below $60. Product spec length lost a lot of volume as well. Gasoil which had held length very well in the downturn is finally giving in. While RBOB has lost half its spec length in 5 weeks, given the ongoing weak gasoline cracks and the poor demand prints coming from the US.

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