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Refined Products

Recap: Oil prices fell for the second consecutive session as the 5.7 million barrel spike in U.S. gasoline stocks overshadowed the 5.1 million barrel draw in U.S. crude oil inventories. Prior to the report, prices were enjoying modest gains due to the expected shutdown of the North Sea’s Forties pipeline. Since the closure of the pipeline, WTI’s discount to Brent has narrowed, with the February spread tightening as much as 12% since Monday. This spread settled at -$5.85 on Wednesday. The narrowing of the discount is most likely due to profit taking from Monday’s peak over -$7.00. With no definitive return to operation date on the pipeline, a shortage of oil appears inevitable and therefore, we could very easily see WTI’s discount widen out again.

January WTI settled at $56.60 a barrel, down 54 cents, or 1%, its lowest settlement in a week. Brent for February delivery fell 90 cents, or 1.4%, to finish the session at $62.44 a barrel. Products also slipped on Wednesday, with January gasoline losing 5.05 cents, or 3%, to settle at $1.647 a gallon, with January heating oil settling at $1.904 a gallon, down 2.96 cents, or 1.5%. 

Fundamental News:  In its monthly report, OPEC stated that it expects the world oil market to be balanced by late 2018 as its deal with other producers to cut output reduces excess oil in storage.  OPEC cut its estimate of global demand for its crude in 2018 by 270,000 bpd to 33.15 million bpd, in part because of higher US supply.  It stated that global oil demand is expected to increase 1.51 million bpd next year, unchanged from a previous forecast.  OPEC, citing secondary sources, stated that its November oil output fell by about 133,000 bpd to 32.45 million bpd.  OPEC’s 11 members with supply targets produced 29.556 million bpd in November, amounting to 121% compliance with the supply cut agreement. 

Barclays said it attributes most of the recent strength in oil prices to temporary factors and expect the inventory drawdown to pause next year.  It stated that depending on the Forties Pipeline outage duration, inventories could draw even more quickly in Europe, keeping prices elevated in the $60/barrel range.  It raised its fourth quarter Brent price outlook to $62/barrel from $60/barrel and maintained its 2018 outlook of $55/barrel.  It sees the price of WTI averaging $51/barrel in 2018. 

OPEC’s Secretary General, Mohammad Barkindo, reported that OPEC and allied producers are looking at a continuity strategy for oil supply management, signaling plans for further cooperation beyond the end of 2018 expiry of a supply cut agreement. 

The UAE’s Energy Minister, Suhail al-Mazroui, said that it was premature to talk about an exit strategy form the current global supply cut agreement between OPEC and non-OPEC producers.  Meanwhile, Kuwait’s Oil Minister, Ali Khalifa al-Sabah, said an exit strategy from supply cuts would be gradually implemented and would not disrupt the market.  He said the oil market is expected to rebalance towards the end of 2018. 

IIR reported that US oil refiners are expected to shut in 315,000 bpd of capacity in the week ending December 15th, increasing available refining capacity by 158,000 bpd from the previous week. 

Ineos shut a 65,000 bpd crude unit at its 200,000 bpd Grangemouth refinery in Scotland.  Ineos stated earlier that it is considering bringing forward its early 2018 planned maintenance at the refinery due to the Forties pipeline outage.  Britain’s Forties crude pipeline remained closed on Wednesday and INEOS said it was considering several options to repair a crack that has stopped shipments of oil and gas.  It said any work would likely take several weeks.  INEOS previously told clients that it believed the work would take no less than two weeks to complete. 

Early Market Call - as of 9:00 AM EDT

WTI - Jan $56.30, down 30 cents

RBOB - Jan $1.6594, up 1.27 cents

HO - Jan $1.8924, down 1.17 cents

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Natural Gas

Wednesday, December 13th saw the front-month NYMEX Natural Gas Futures Contracts open at $2.707, three cents above Tuesday’s closing price of $2.678.  Trading lower initially to $2.656, the lowest intraday mark since last February, the contract then mounted a staggered ascent to reach $2.720 by midday.  Building upward as bargain buying was bolstered by updated forecasts showing below-average temperatures dipping further into the Midwest in the coming week, prices tallied the intraday high of $2.751 at 12:40PM.  Scaling back to close out the day, January closed higher on Wednesday at $2.715.

The EIA Natural Gas Storage Report is due out at 10:30AM today.  The report is expected to show a 67 BCF withdrawal from storage for the week ended December 8th.  This compares to a 147 BCF withdrawal at this time last year and a five-year average withdrawal amount of 78 BCF.

This morning in Globex, WTI Crude was down 24 cents; Natural Gas was down five cents; Heating Oil was down one cent; and, Gasoline was up one cent.  

Natural Gas Glossary

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