OPEC foresees that global oil supply should reach a balance with demand by late 2018. November output from OPEC fell, supporting compliance from overall members. The challenge with this forecast will be how U.S. shale and non-OPEC producers perform during this time as stabilizing to rising prices might encourage greater output. Market was unable to hold onto gains associated with the draw in crude inventories and focused on the large build in gasoline stocks. Trading volumes will likely begin to fall as we head into the holiday break for many traders making volatility more of a factor.
(IEA monthly report) We see that 2018 might not be quite so happy for OPEC producers, as the group cuts back on its output. Amid a recovering oil price, U.S. crude producers are staging a comeback that has allowed many of them to restart operations. In the first half the surplus could be 200K bpd before reverting to a deficit of about 200K bpd in the second half, leaving 2018 as a whole showing a closely balanced market.
U.S. renewable fuel credits (RIN’s) have sunk to their lowest levels in two months amid efforts by President Donald Trump’s administration to mediate talks between oil and corn interests over ways help refiners meet the country’s biofuels policy; the White House hosted its second meeting in as many weeks on Wednesday about biofuels, between lawmakers representing the rival oil and biofuels industries), fueling speculation that a deal could be struck that would lower credit prices; prices of renewable fuel (D6) credits were trading at roughly 74 cents on Wednesday, its lowest levels since early October; No official results announced as yet, but we suspect select refiners will be granted EPA exception from buying RINS, with more talk that Ag lawmakers will get biodiesel credit reinstated at least retroactively for 2017.
(Feltes, RJO) Low volume yesterday a precursor for what’s in store remainder of year. Hear some talk of soy bottom pickers if next round of Arg rains falls short but can’t be sure on that until glimpse at Sunday forecast. In the meantime—Brazil is adding bean bushels and PRC is in no hurry to buy beans despite ample offers from US and S America.
You have been hearing about the oil leak in the Forties Pipeline in the North Sea. The pipeline ships 450,000 barrels of oil per day of North Sea crude oil from about 85 offshore platforms. The repairs are expected to take weeks to fix. This pipeline opened 42yrs ago in 1975. It delivers about 45% of the UK’s North Sea production. This Forties pipeline connects to the INEO’s refinery in Grangemouth, Scotland which supplies 80% of Scotland’s fuel. With this pipeline being down for weeks, will cause crude oil supplies in the UK to experience multi year lows going into winter. This pipeline shut down is one of the largest production outages in years. The closure of this pipeline for 30days will lower inventories 13.5mb at a time when inventories have been drawn down by OPEC’s 1.8mbpd production cut. This Forties pipeline losses will help to draw crude oil stocks down in this region much quicker than anticipated. Crude oil will likely continue to find support above $55 per barrel with potential to rally on up to the $62.50 area.
Even though the Forties pipeline will help add to the bullish fundamentals of the crude oil market, the gasoline market has been selling off. It the seasonal time of year when gasoline demand continues to fall and the price of ethanol that is blended with 10% of the gasoline is trading at a 10-yr low on a huge abundance of corn stocks.
The chart to the right is of the January RBOB gasoline futures. The market has come right down to test the long standing upward trendline support. Last week the heating oil/diesel fuel market broke the its trendline and then turned right back around and rallied back up through it. Gasoline may do the same thing on computer driven stop order hunting. The gasoline chart has a very nice Elliott 5-wave up count followed by a 3-wave correction. If the trend is going to continue up then this recent down trend should stop at 3-waves down and not take out the $1.66 level. If the $1.66 level holds, then we could see further rally on up to the $1.85-$1.90 level. If the market breaks below the $1.66 level and continues on down, then gasoline could see a much deeper sell off down into the $1.55 area.
We must watch the trendline and the $1.66 level very closely today. The market continues with the DOE inventory stocks as the crude oil continue to show draws of 6.1mb and the gasoline inventories built by 5.6mb.