WTI futures retreated today as rising U.S. production and possible signs of slowing demand outweighed the prospects for OPEC extensions of output cuts. IEA lowered its 2018 oil demand outlook which contradicts the OPEC report from earlier this week which called for a strong rise in oil demand. Market will look for confirmation of OPEC action following meetings on November 30. Market will also be looking for price direction around the Fed meeting next month where it is still unclear if there is consensus to raise interest rates.
EIA inventory report bearish; Tax reform and/or lack of progress concerns; Upcoming OPEC meeting; Geopolitical tensions.
Dec WTI closed lower on Wednesday after the EIA confirmed a stocks build even though it was less than the API posted. Crude imports saw a bump higher while crude exports passed the 1-mmbbl/d mark as the Brent/WTI spread continues to provide that arb opportunity. Wednesday saw the trade target that psychological $55 value intraday only to claw back a bit higher before the close. We would guess we will see a bigger build next week as we think the numbers between the two reports are a function of time and location for their inclusion in the data. We also saw the refinery utilization continuing to improve and is near historical highs for this period as the Gulf refineries that have come back on line are in synch with the rest and are pumping out product to capture those profitable crack spreads. On the equity front, Asian markets are diverging with gains in contrast to the current Wall Street slide. In the big picture, product demand is showing weakness albeit still giving us robust numbers as the consumers continue to take advantage of the Indian Summer conditions. On that front, Chinese crude demand appears to be picking up after stalling on the heels of higher crude prices. EIA data now shows US crude stocks standing at a -31.3-mmbbl in the Y/Y with the 5Y at a +58.9-mmbbl number. The refinery utilization rate tapped 91% eclipsing both last year and the 5-year average number. On the technical charts, momentum studies are looking lower and could accelerate on a breach of support. The short-term MA is again negative with the close on Wednesday below the pivot swing keeping its abrasive attitude. Support comes in today at 54.56 with resistance at 55.91.
Dec RBOB gas continues to be the weak sister in the complex as it provides downside momentum. Action Wednesday saw some recovery from the intraday weakness but was unable to climb back into the green. The EIA numbers were somewhat less than the API but still a considerable improvement on the trade pre-guess. Implied demand fell about 300,000-bbls in just a week which coincides with the seasonal pattern that has been delayed. Overnight action continues to be under pressure. Reports that Chinese gas and diesel refining posted a record high last month as demand there continues to grow. We would guess the spec/funds have a ways to go before we start to see some mediation in the slide. However, don’t expect the move to continue strait down. Those that went short recently are going to be buying back and taking profits as the action continues. EIA data now has gas stocks at a -11.3-mmbbl in the Y/Y comparison with the 5Y at a +500,000 bbls number. Gas demand was up 1.55% in the 4WRA but still showing longer term erosion. On the technical charts, momentum studies remain weak and could accelerate lower on a breach of support. The intermediate-term MA is turned down with the close below the pivot swing keeping favor with the bear camp. Support comes in today at 1.7118 with resistance at 1.7633.
Dec Heat managed to recover early losses on Wednesday to close fractionally in the green for the day. Our take is that we did get a draw positing even if the numbers weren’t up to API or trade pre-guess anticipation. However, we wonder how well that support will hold as we see fall harvest demand winding down and now meteorologists are rescinding some of the potential cold that was previously forecasted to come our way. Overnight action seems to have gotten back on the downside trail in the early going. EIA data now has distillate stocks showing a -24.2-mmbbl level in the Y/Y data with the 5Y at a 1.1-mmbbl number. Distillate demand was up .82% in the 4WRA which is less than previous weeks. On the technical charts, momentum studies are looking lower and could accelerate on a breach of nearby support. The short-term MA is negative with the close on Wednesday holding above the pivot swing mildly supportive. Support comes in today at 1.8752 with resistance at 1.9329.
While it appears the outcome for the OPEC meeting will be a cap/cut extension, the actual continued implementation may be a bit controversial as geopolitical turmoil keeps members at odds. Participating members are wanting some corroboration from those with byes to help out the cause. The US tax reform is getting watered down daily with behind the scene changes nullifying some of the up-front cuts and different special interest groups stump for their cause. US domestic production continues to climb even as US exports are showing steady growth with several countries now tapping into those supplies. On the home front, we want to be a bit more conservative as prices continue to erode. We see the cash differentials helping point the way as distillates are all seeing red and gas is getting there.