Daily Energy Commentary for November 25
Oil surged by almost 10% yesterday, fueled primarily by a robust rally in US stock market and secondarily by OPEC assurances that a cut will be forthcoming over the next few weeks. In addition, the crude market has been severely oversold for some time now, and thus a substantial bounce was long overdue. (In fact, we ran a graph some days ago showing the oversold indicator on WTI literally off the charts after the unprecedented price declines of the last few weeks). However, watching the action over the last few days, there is no doubt that the main upside driver in the commodity markets has been the better tone seen in US equities, with stocks posting their biggest two-day gain since 1987 by the close of Monday trading. Friday’s move higher was attributable to President-elect Obama appointing Timothy Geithner as Secretary of the Treasury, a known and well respected quantity on Wall Street, while Monday’s surge was due to the weekend announcement that the US government will shore up Citibank. The news was enough to trigger a gigantic relief rally in non-US stock markets as well, with the FTSE posting its biggest one-day percentage rise in at least 20 years.
On the OPEC side, bulls were thrown a lifeline when OPEC President Chakib Khelil categorically stated that at least a 1 million barrel per day cut was in the cards, ending the dithering that was prevalent for most of last week. However, we still suspect that the cartel is still well behind the curve, and playing a frantic game of “catch-up” in a market that is more than well supplied, even after an additional 1.0 mbpd of cuts possibly goes through.
It remains to be seen what will happen to the recent rallies we have been seeing in all the markets over the days ahead. As of this writing late on Monday night, some of crude’s gains are being rolled back, but the steadier tone should persist, particularly if US equities do not roll over. Moreover, things should remain steady ahead of the “unofficial” OPEC meeting on the 29th. Having said that, the macro problems we are facing are daunting, and the best we could hope for is for relative stabilization to set in. For energy, this could potentially mean that the stomach-churning declines of the past few months would eventually give way to sideways-moving, trading range markets. EIA numbers are out tomorrow, with the relevant forecasts tabulated alongside.
In Other News from Reuters...
* Noncommercials flipped their net positions into being net long on NYMEX in the week ending Nov 18th, with exposure rising to 10,995 lots long compared to 52,985 lots net short in the week before. WTI open interest fell to 1,122,604 lots from 1,154,740 lots. Net length in RBOB rose to 40,090 lots from 35,795 lots, while open interest rose to 18,713 lots to 183,988 lots. Net longs in heating oil fell to 2,801 lots from 7,704, while open interest was up 10,105 lots at 230,248 lots. Net shorts in nat gas were up at 166,340 lots from 160,351 lots the week before, while open interest fell by 9,225 lots to 742,054 lots. (We will run our usual charts on the numbers in next week’s report).
* Margins for complex refineries in Rotterdam running North Sea Brent rose to an average $10.17 a barrel over the past week from $9.81 in the week before, this according to Reuters data. In the Mediterranean, margins rose to $6.07 from $4.39 in the week before. In the US, Gulf Coast refinery margins dropped $1.54 a barrel, to $1.45 a barrel last week, this according to Credit Suisse calculations. In the Midwest, margins fell by $3.55 a barrel, to 33 cents a barrel. In the Northeast, refining margins were down 36c to $9.04 a barrel. In the Rockies, margins fell $1.64 a barrel to $9.38. West Coast margins dropped $3.17 a barrel to $8.45 a barrel.
* China’s apparent oil demand grew 4.3% in October from the same month last year, this according to Reuters calculations. For the first 10 months of the year, implied demand was up 5.5% at 7.34 mbpd. Implied demand for gasoline was 1.43 mbpd, down slightly on the month, but up 6.2% on the year. Diesel demand fell slightly on the month to 2.83 mbpd, but up 12.5% on the year.
* Militants in the Niger Delta threatened to interrupt shipping and attack Chevron’s oil and gas facilities if a military commander there is not transferred immediately. “If the commander of the JTF is not changed with immediate effect, we will stop the free flow of boats and vessels in the Delta waterways and make Delta state ungovernable” militants said.
* A fire on the oil pipeline between Iraq and Turkey was extinguished on Sunday night and oil is expected to be flowing again within a week , this according to a source at the Turkish Energy Ministry. Kurdish rebels claimed responsibility for the blast that caused the fire.
Quote of the Day: “Our objective is to reach a price of $70-$90 [ a barrel]. Why that price? Because it’s the price of the marginal cost for new developments, whether that’s Canadian bituminous sands, the Brazilian deep offshore, or even Venezuelan heavy crude.” OPEC President Chakib Khelil
European North Sea crude oil quotes as reported by Reuters: Forties for loading Dec. 4-9 bid dated BFOE minus $1.15 within the window. A Dec. 12 loading Oseberg was offered at dated plus $1.50, a Dec. 17 Gullfaks at dated plus $2.90, and a Dec. 15 Ekofisk at dated plus $0.95. Two Aasgaard cargoes and one Norne were offered as available without quoting prices. Grane for Dec. 17 offered at dated minus $4.50 and Troll for Dec. 21 at dated plus $3.70.
U.S. gasoline/distillate quotes as reported by Reuters: In Gulf Coast trading, prompt M4 was at 5.6c under January. On distillates, prompt ULSD was down at 5c under January. In New York Harbor, heating oil was at even to the December screen, ULSD was down at 5.5c over December, low sulfur diesel was down at 0.75c over and jet was down at 6.5c over.
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