By Matt Smith
On the day that Tom Petty turns sixty-five, the crude complex
is trying to rebound after yesterday’s bout of free fallin’. Things are
pretty thin on the economic data front, the sum of which has been lower
building permits and higher housing starts out in the U.S., while
Germany saw weaker (and deflationary) producer prices.
Meanwhile,
the crude complex is trying to muster a bounce ahead of tomorrow’s OPEC +
8 (Azerbaijan, Brazil, Colombia, Kazakhstan, Norway, Mexico, Oman, and
Russia) meeting in Vienna, which really shouldn’t yield that much. At
all.
8-14 day outlook to Nov 2
We
are not only passing through the peak of maintenance season for U.S.
refineries, but also through shoulder season (aka low demand period) for
natural gas, where we see a slow-motion baton transfer from cooling to
heating demand. Above-normal weather conditions are persisting on the
weather outlooks, mean lingering storage injections in the coming weeks
as heating demand is stymied.
An ongoing theme of strong supply,
in combination with warmer weather, continues to keep a lid on natural
gas in mid-two dollardom, as the prospect of a record storage level
being achieved in the coming weeks is very much in the mix.
This
warm start to winter is also providing a comfort blanket of hope that
this winter’s El Niño weather pattern will mean these balmier conditions
will continue.
So while the prospect of a warmer winter leans
bearish for natural gas, it leans bullish for gasoline demand. We are in
the throes of peak refinery maintenance season, with refinery
utilization reaching the lowest point since mid-January at 86 percent.
As maintenance ebbs in the coming weeks, we should see gasoline
inventories starting to build as we head towards the end of the year.
While
a milder winter should lead to more miles driven due to less inclement
demand, lower retail gasoline price should too incentivize greater
consumption. The national average for gasoline is still on track to
retest the January lows of just above $2/gallon by year-end, while South
Carolina is already averaging well below that level. California remains
elevated (as usual), but is making progress, well below $3/gallon:
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(Click Image To Enlarge)
There is an interesting piece
out today which highlights how OPEC’s battle for market share of the
Asia-Pacific region (which accounts for over a third of global demand)
is pitching cartel members against each other. The below chart
illustrates this scrap; Kuwait is undercutting its crude versus Saudi
Arabia by the most on record. Iraq is also undertaking a similar tactic,
as is Qatar, who is pricing its oil at its biggest discount in
twenty-seven months.
(Click Image To Enlarge)
Taking a quick peek at our #ClipperData,
it highlights that ~80 percent of Kuwait’s crude exports go into Asia.
Of these, the vast majority are going to three countries: China, Japan,
and South Korea. Looking ahead, the battle for market share in the
Asia-Pacific market is likely to only get fiercer as congestion builds
in the area.
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