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What does the OPEC meetings rescheduling mean for oil?
The big news this week in the oil world is OPEC’s decision to reschedule its meetings.
It’s not the decision the oil market was hoping for. Instead, there are differing opinions among its members regarding OPEC’s planned extension of oil output cuts.
Talks have been rescheduled to December 3rd 2020.
The call for rescheduling came because of disagreements between the three OPEC heavyweights on how best to proceed. Saudi Arabia, Russia and the UAE all have different visions on how best to proceed:
- Saudi Arabia – Proposes to extend the current 2 million bpd cuts through January and beyond.
- Russia – Favours a gradual increase in production volumes starting in January.
- UAE – Happy to extend production cuts but only if all OPEC members commit and comply with them and wait for all members that have exceeded production quotas to catch up with others.
Originally, after committing to production cuts in April, OPEC+ states were due to begin increasing output in January 2021. The current cuts are worth 7.7m bpd.
It seems not all is rosy within OPEC’s world. The disagreements, and failure to reach an agreement on Monday, underscores tensions within the cartel. 2020 has been an especially trying time for oil, and perhaps OPEC is struggling to deal with the current situation, or at least currently unable to find common ground on how to proceed.
ADNOC, the UAE’s national oil company, for instance, is rumoured to be questioning the validity of its membership. Even Saudi Arabia has its doubts. Flashes from Monday 30th November suggested the world’s largest oil producer is considering giving up its position as OPEC co-chair.
How have prices reacted? Prices have whipsawed on the news, but on the morning of December 1st, WTI and Brent were trading at $45 and above $48 respectively.
Commentators believe that cuts will be agreed on Thursday’s meeting.
Statistically, the outlook is good for natural gas into December.
Total US consumption of natural gas rose by 22.8% compared with the previous report week, according to data from the EIA.
In the residential and commercial sectors, consumption climbed by 81.9% as temperatures cool from a warmer than expected November.
In fact, prices have rallied 4% on the onset of colder weather feeding into higher consumption across the US.
A storm is brewing in the Atlantic with a 40% chance of turning into a cyclone.
Stocks start December on positive note, OPEC delays meeting
OPEC has delayed a decision on tapering production cuts after failing to reach agreement on the first day of the cartel’s biannual ministerial meeting. OPEC ministers were due to speak with Russia and other allies today, the second of a two-day meeting, to agree a plan on how to proceed with output restraint that has helped to stabilise the oil market after a tumultuous spring that saw WTI go negative at one point.
Those talks have been delayed until Thursday to allow more time for discussions to take place. It looks as though OPEC wanted to have a collective stance before discussing with allies, however, some members are holding out against Saudi Arabian demands to delay the taper of 2m bpd in January. The UAE wants countries who have exceeded quotas to catch up before agreeing to an extension, while Russia seems to favour a gradual increase in output from January, albeit less than 2m bpd from day one.
OPEC+ agreed in April to reduce output by around 10m bpd, or about 10% of global supply. Prices stabilised but then stagnated over the summer in a tight range before rallying sharply over the month of November on vaccines hopes. The lack of agreement on Monday underlines the tense relationships within the cartel at a time of severe stress on oil demand due to the persistence of the pandemic and lockdown measures. Whilst on balance it still looks as though OPEC+ will agree some extension of the current cuts, worth 7.7m bpd, it will not do anything to inspire confidence in the cartel’s ongoing ability to stabilise oil markets. Prices were moving around a bit on the flashes but as of this morning WTI (Jan) was steady at $45 with Brent holding above $47.
Global stock markets enjoyed a spectacular November, with the Dow Jones notching its best month since 1987 and the Euro Stoxx 600 enjoying its best month ever or at least since records began I 1986. Even the laggard FTSE 100 got in on the action, rallying over 12% for its best month 31 years. The value rotation sent the Russell 2000 to its best month on record. A little end-of-month tidying of positions and profit-taking left shares lower for the day, with European bourses and US futures trading higher this morning. We can allow that given the extreme moves over the month.
For European and UK equities, December is starting in the same vein as November and we are seeing a positive reflation trade in play this morning as countries race to approve Covid vaccines. Britain may be the first to approve the Pfizer-BioNTech vaccine and jabs could be on offer by the weekend. Financials and Basic Materials led the charge on the FTSE 100 as the blue chips climbed over 1% in the first hours of trade with Lloyds and Natwest +4%, HSBC +3%. GOAT favourite IAG rose 5%, with Compass +4%. Meanwhile, in European banks, UniCredit shares slipped sharply again as the CEO Jean Pierre Mustier stepped down, with sources citing a rift with the board over strategy for the sudden departure.
Royal Mail shares rose another 3%, meaning it has doubled since the end of July. Liberum is the latest broker to get more positive after the company reported a surge in parcel volumes and moved closer to ending Saturday post. Fair play to Citigroup for issuing a double upgrade back in April from sell to buy on the expected volume increase in parcels due to online shopping.
Shares in pandemic work from home winner Zoom fell around 5% after-hours as the company hinted at slowing revenue growth, even as it beat market expectations for earnings per share. The company delivered EPS of $0.99 vs $0.76 expected, whilst revenues of $777m beat the $694m forecast.
The dollar remains subdued but didn’t crack after breaching 91.70 and is holding this level for the time being. EURUSD failed to sustain a move past 1.20 but the dams may be open and bulls will have another crack. GBPUSD has held in its 1.33-1.34 range with markets preparing for news either way on Brexit. We may see traders increase long positions on expectations of a deal being achieved.
Real yields keep moving lower, with the US 10-year Treasury Inflation Protected Securities (TIPS) moving to –0.93. The move in real rates ought to be supportive of gold but hasn’t been yet – will we see a mean reversion with gold moving up again soon? After the seasonal selling into Thanksgiving, there could be some dip buying. US ISM manufacturing PMI later see at 57.9 vs 59.3 last time, whilst we are also looking to Fed chair Jay Powell testifying before Congress later.
Chart: Gold (inverse) vs 10-year TIPS – recent divergence may not last:
FTSE bounces after soggy start for equities, oil choppy ahead of OPEC+ meeting, dollar breakdown
Crude markets are nervy ahead of the two-day OPEC+ meeting kicking off in Vienna today. Futures traded lower after an informal meeting on Sunday failed to reach an agreement ahead of the main ministerial event. Crude oil prices have risen sharply through November on vaccine hopes that have spurred equity markets to their best month ever. However, near-term demand concerns over the winter still have the potential to weigh on pricing.
OPEC and allies are still expected to agree a delay to the scheduled taper of production cuts, which are due to be reduced from 7.7m barrels per day to 5.7m in January, however there is always the potential for a surprise. In addition to delaying the taper for 3-4 months, OPEC+ members are also thought to be looking at a gradual scaling up of production from January.
If there is no agreement to extend the current level of production cuts, an extra 2m bpd will come on stream in January. Whilst there seems to be broad agreement on extending current level of cuts for some time beyond the start of the year, the United Arab Emirates and Kazakhstan are thought to be dissenting. Saudi Arabia will flex its muscles to get a deal to keep a lid on output. WTI (Jan) slipped under $44.50 before paring losses. Shell and BP both fell over 2% in early trade.
Stocks in Europe were broadly lower in early trade on Monday but still on course for one of the best months ever. Despite the soggy start the FTSE 100 reversed losses in the first hour to turn positive. The current trade seems to be about consolidating the rapid gains in November before looking for a potential Santa rally in December. Month-end rebalancing leading to negative flow for stocks may be a factor today, given the record runup in November. US futures point to a soft start on Wall Street after the four major indices all notched up gains on Friday. Again heading for close to best-ever month.
Brexit talks enter another ‘make or break’ week. Whilst we have heard it all before, we are encouraged that both sides are close to achieving a deal. GBPUSD was steady in the 1.33/34 range traded last week ready to break on any announcement. Remember it’s heading to 1.20 as kneejerk reaction to no deal, 1.40 on a comprehensive trade package. The asymmetry reflects the fact traders are leaning towards a deal being agreed.
The US dollar gapped lower and traded below 91.70, the September low which was the weakest since Feb 2018 as real yields moved deeper into negative territory. There is not a huge amount of support through to 88. That weaker dollar story continues, which is +ve for global equities. EURUSD is approaching 1.20 – the line in the sand where the ECB starts to get all jumpy.
Face-to-face Brexit talks resume, FTSE is the laggard
Face-to-face (or is that mask-to-mask?) Brexit talks are to resume in London this weekend, perhaps indicating a last drive to get a deal agreed.
EU chief negotiator Michel Barnier, who is travelling to Britain this evening, called for an ‘urgent’ meeting of European fisheries ministers today ahead of the resumption. Given that this has been one of the three main barriers to agreeing to a trade deal, a meeting of this kind so late in the day may indicate there is a broad framework agreed with the UK, at least on fishing rights.
Barnier is still playing it cool, with a flash this morning saying he told EU national envoys he cannot say at this stage whether a deal is possible. One senior diplomat said Barnier’s presentation was ‘not a particularly bright picture’. I take all this with a pinch of salt – a usual underplaying of the hand as the real work is progressing behind closed doors.
Although it may be a little early to call this, with the fisheries meeting and resumption of in-person talks, there could be a statement over the weekend when markets are closed that is material, which may lead to gapping on Sunday night when FX markets reopen down under.
Cable was steady in the middle of the 1.33-34 region this morning. The exact timing of any announcement is still a question, but GBP support thus far indicates the market has a positive view – big downside risks if it’s no deal. Upside to 1.40 perhaps on a comprehensive trade deal. It’s crunch time for GBP, while USD is starting to bite. DXY retains a bearish bias under 92 as it grinds towards the key horizontal support at 91.70.
European stocks edged a little higher though the FTSE 100 dropped again ahead of Black Friday curtailed session in the US later. European bourses moved tentatively higher but the UK market was the laggard in early trade, sliding almost 1%. The NYSE closes at 1pm eastern time, with the bond market shutting an hour later. Largely we are in a holding pattern until we get greater direction on the pace and durability of a reopening next year. AstraZeneca says it will carry out further global trials after doubts were raised about the results of its clinical trials announced this week.
Economic data is light today, but China’s industrial profits rose 28% in October, rising at the fastest clip in nine years. Black Friday might get some attention for the likes of Amazon, Asos, AO World etc, but it’s all a swizz. Most of the so-called deals are not real deals. Hats off to Next, M&S, Wilko and B&M for not taking part in this dreadful US import.
Oil moved lower ahead of next week’s key OPEC+ meeting in Vienna. WTI (Jan) eased back to take a $44 handle, having risen above $46 earlier this week after EIA inventories on Wednesday showed a surprise draw. The rally through November has closely matched that of the equity market recovery and rotation, which suggests it is largely being driven sentiment and an improving economic outlook next year.
OPEC and allies are expected to delay the planned 2m bpd taper in January for three months. With prices having stabilised, the requirement to do more than that has diminished: 2.2m less production over three months buys time and allows optionality to extend if required. As ever, there is uncertainty over the decision that may affect prices near-term. Beyond OPEC+, watch those gasoline inventory builds and possible move towards tighter restrictions in the US as Covid cases keep rising.
Could oil prices continue their upward trend?
More vaccine hope appears to be having a positive influence on oil movements.
On Monday 23rd November, WTI prices teased $43 per barrel, apparently due to further progress on vaccination is injecting optimism into oil markets.
There is fresh, positive vaccine news from the UK. AstraZeneca reports its Covid-19 vaccine is 70% effective, helping instil confidence that an uptick in oil demand will come on mass vaccination.
While the 70% efficacy rate is lower than say Pfizer BioN Tech’s 95% successful product, AstraZeneca’s solution is thought to be much more scalable. It could be rolled out much quicker, and take effect faster, which in turn could play into higher oil demand next year.
Away from vaccines, it looks like armed strikes on oil production facilities in both Saudi Arabia and Libya have helped put a bid under oil.
Yemeni Houthi rebels are claiming responsibility for a missile attack on a Saudi Aramco facility in Jeddah. While Aramco has stated it plans to continue operations at the facility with no major disruption, this was still enough to give WTI and Crude a positive bump.
Traders also got word of an attack by militants on Libya’s National Oil Corporation headquarters in Tripoli on Monday. The attack was quickly repulsed, but oil did show signs of strength opening slightly higher that day, following the news.
So, is the outlook optimistic? It’s possible. WTI is already trading above $43 as of Tuesday 24th November, so it appears the markets are looking positive.
On Monday 30th November, OPEC and allies will sit down for a fresh round of talks. As we’ve previously reported, the organisation is considering extending its production cuts to help stabilise oil prices.
Currently, OPEC plans to taper production by 2m barrels per day in January. Now, it is discussing no taper until the spring, with an extended production cut timeframe of 3-6 months.
Natural gas appears to be on a small rebound.
After a warmer November, December is forecast to be colder. Total U.S. consumption of natural gas rose by 22.8% compared with the previous report week, according to data from the EIA.
That suggests higher demand via heating buildings, which should have a solid impact on prices.
A storm is brewing in the Atlantic, with a 10% chance it could turn into a tropical cyclone, but it is believed that it will not affect any US East Coast LNG infrastructure.
Markets climb as US political dust settles, AO World plunges
European stocks rose as global risk appetite got a fillip from the US political front as Donald Trump formally began the transition of power to Joe Biden’s camp, whilst news of ex-Fed chair Janet Yellen being the top pick for the US Treasury was also greeted with approval.
Trump’s decision to effectively acknowledge Biden as the president-elect (though he will keep fighting the result) removes any last vestiges of a constitutional tail-risk for markets. Clearing the way for an orderly transition may also allow for a more effective policy response – dare we talk about stimulus again?
Meanwhile, Janet Yellen is also seen as a market-friendly Treasury Secretary after her dovish stint at the Fed. Positive vaccine news continues to underpin confidence in reopening trades. This will be a fascinating comeback for a very able Fed chair who was ditched by Donald Trump.
Having closed marginally lower in the previous session, the FTSE 100 climbed back to yesterday’s peaks – starting to knock on that important 6,400 level enough times to break through, or will too many failures deter the bulls?
The daily chart indicates a bullish break out of the flag formation beginning to form, but we need to take out last week’s high at 6,463. US stock futures rose after a positive session on Monday as we head into a Thanksgiving-curtailed back end of the week. The S&P 500 is set to open back above 3,600. WTI crude moved to the top of the long-term range at $43.75.
Deutsche Boerse announced it will increase the number of stocks listed on the blue-chip DAX index from 30 to 40 next year. Expansion will take place in September 2021 with the mid-cap MDAX to shrink from 60 to 50 members to facilitate the change.
Meanwhile, as of Dec 2020, members will be required to have had positive earnings before interest, taxes, depreciation, and amortisation for the past two financial years. The move could have some implications for traders, but we will dig deeper into these changes and potential ramifications. Clearly, the Wirecard fiasco has rocked confidence in the system. Regulators are tightening up various aspects of index inclusion to make the process more robust and avoid a repeat of Wirecard.
Let’s go: AO World shares fell 12% despite blockbuster half-year results as the company failed to deliver any detailed guidance for the rest of the year in its half-year report. The stock has been the best performer on the FTSE 350 this year, rising 364.56% YTD by yesterday’s close. The numbers are undeniably impressive but with such stellar gains this year, it’s no surprise to see some selling on the news.
Revenues rose 53.9% in the UK, and by 85.2% in Germany. Total revenues were up 57.6%. Adjusted EBITDA for the UK +140% to £32.6m, whilst in Germany it was +61.6% though still a loss at –3.8m. Group operating profit rose 260% to £16.8m and pre-tax profits rose 417% to £18.3m.
Lockdowns created a unique selling opportunity for online retailers this year that AO World has exploited to the full, whilst there has been a structural shift in the electricals market to online. Today’s sharp move lower can be put down to profit-taking after this year’s run-up and the absence of any clear guidance for the rest of the year.
Indeed, if you subscribe to the reopening trade rotation back into value then with a PE multiple of 1,200 this is a very richly valued stock that may find it hard to sustain the level of growth seen in 2020.
GBPUSD retains its upside bias as sterling continues to track higher on hopes for a Brexit deal, though persistent dollar weakness is helping. Cable flirted with almost 3-month highs at 1.34 before paring gains but continues to hug the bullish channel.
EURGBP also dipped to test the area around 0.88670, the lows of Jun and Sep. The outline of a deal is likely to emerge in the next few days. There are several permutations – a skinny deal, an incomplete deal with partial extension of the transition to allow finer details to be worked out next year, or a complete and comprehensive trade package.
The last of those would be the most positive for the pound, however, I fear it will be a more nuanced package and one that still leaves the UK with a number of non-tariff type barriers that weighs on demand for sterling. Remember no deal is not an end state, though of course, it would entail significant disruption in the New Year. Michel Barnier has warned that significant divergences remain, but the Irish leader says he’s hopeful of a deal being announced as early as the end of the week. I would be prepared for a material announcement towards the end of the week.
Cometh the vaccine, cometh inflation?
There were some big swings in the dollar and gold after a surprise rise in US economic output in November signalled by the flash composite PMI. The divergence between the world’s largest economy and the situation in Europe, where lockdowns have been in place for the month of November, is stark.
▪ Flash U.S. Composite Output Index rose to 57.9 (56.3 in October), a 68-month high.
▪ Flash U.S. Services Business Activity Index rose 57.7 (56.9 in October), also a 68-month high.
▪ Flash U.S. Manufacturing PMI rose to 56.7 (53.4 in October), a 74-month high.
▪ Flash U.S. Manufacturing Output Index jumped to 58.7 (53.3 in October), again a 68-month high.
Note this important paragraph from the report: “The improving demand environment allowed increasing numbers of firms to raise their selling prices, with November consequently seeing the quickest rise in prices yet recorded by the survey. The rate of inflation hit a record high in the service sector and a 25-month high in manufacturing.”
I’ve talked before about how the pandemic will be initially deflationary but ultimately likely to spur a bout of inflation. The pent-up demand, glut of savings, supply chain disruption and vast amount of monetary and fiscal stimulus creates a powerful environment for inflationary pressures to take hold. On the supply chain side, the trend towards greater resilience over ‘lowest-cost-is-best’ will be an important upward pressure on prices. Add to that cocktail a vaccine regime that gets life back to normal relatively quickly next year and inflation expectations may start to become unanchored.
Paraphrasing Paul Tudor Jones in May, the question of whether the current bout of money printing will ultimately prove inflationary comes down to how reasonable is it to expect that in the recovery phase the Fed will be able to deliver an increase in interest rates of a magnitude sufficient to suck back the money it so easily printed during the downswing? Most agree it won’t be easy – in fact the new average inflation targeting policy shift would effectively kick the can down the road for many years. The Fed is not even thinking about thinking about sucking the money back in.
Gold broke down at the key $1,850 support yesterday as the dollar roared back to life on those positive PMI numbers. The 38.2% retracement briefly offered support but this too has failed, and the move lower now opens the path to the 200-day line at $1,793.
Is a major oil price rally coming?
More vaccine news and lighter US lockdowns could help oil stage a major rally in the coming months.
WTI and Brent is already holding steady at above $40 per barrel. Oil futures have risen 8% on their January levels so far.
Further price increases could be coming, primarily driven by major progress on finding a Covid-19 vaccine.
Monday 16th November saw American firm Moderna announce its vaccine is 95% successful in preliminary trials. And, unlike Pfizer’s, Moderna says its vaccine can be stored in regular refrigeration temperatures too.
A number of other pharmaceutical companies, including GlaxoSmithKline, Sanofi, CureVac, and Johnson & Johnson, are making headway on their own vaccines.
With mass vaccination, the pandemic, it is hoped, can be halted. Broad-market vaccination is forecast for mid-2021.
All the above could be good news for oil demand as long as progress remains constant.
OPEC predictions will be potentially validated by this news. According to the group’s predictions dating from July, demand could spike 25% by 2021.
That would mean oil demand would hit 29.8m barrels per day – higher than 2019’s volumes.
Speaking of OPEC, it is considering extending its production cuts to help stabilise oil prices. Currently, OPEC plans to taper production by 2m barrels per day in January. Now, it is considering no taper until the spring, with an extended timeframe of 3-6 months.
However, with the last round of OPEC cut compliance standing at 96%, commentators believe lower compliance for its proposed three-month production cut extension could happen.
The US is also looking at lighter lockdown measures as it battles its second Covid-19 wave.
Latest US oil inventory data says stocks stand at 488m barrels as of November 12th. New data will be published on Wednesday 18th November.
US natural gas storage rose by 8m cubic feet last week as reports of a bearish market roll in.
Warmer November temperatures in the coming two weeks are expected to keep reserves high and demand middling.
US citizens are using less gas-based heating as temperatures continue to stay warm this month, which in turn is keeping prices low.
The EIA forecasts that U.S. dry natural gas production will average 91.0 Bcf per day in 2020, down from an average of 93.1 Bcf per day in 2019.
Markets navigate the Ro-Rotation trade, Sterling heads higher
The risk-on rotation trade continues to have legs for the time being but we could see this suffer a bit of payback before long.
Yesterday it still very much the driving force as the Nasdaq 100 fell almost 2% and the Russell 2000 small cap index rallied over 1.7%.
That left the S&P 500 almost flat for the session, closing a shade lower at 3,545. US Treasury yields rose, with 10s approaching the psychologically important 1% barrier.
US bond markets are closed today for the Veterans Day holiday and there is an empty data roster ahead, though we will be watching Christine Lagarde’s speech later.
Donald Trump continues to refuse to concede the election and Republicans are closing ranks around the president as they eye two Senate runoff races in Georgia. They know they need the Trump appeal to get the vote. Have markets been too sanguine about an impending constitutional crisis?
European markets were firmer again in early trade on Wednesday, with the FTSE 100 clearing 6,300 to hit its highest since the middle of June and it now trades above its 200-day simple moving for the first time since late February. A close above the 6,340 brings 6,500 and the post-selloff peak into view.
However it’s a bit more complex today than being all about the reopening trade – this week’s big gainers like Rolls-Royce and Compass Group are down, whilst Ocado, Kingfisher and Just Eat have risen. Rotation is not going to be a straight line – this reopening move is taking a bit of a hit this morning.
After the initial kneejerk, investors will need to work out now which ‘value’ stocks remain value traps and which have some growth in them. Expect pullbacks along the way but the overall landscape remains much more positive than it was a week ago for these sectors worst affected by the pandemic.
FTSE breaking free, eyes post-trough highs:
Sterling is making solid gains as Brexit talks continue and head towards, we hope, some conclusion. GBPUSD trades with a bullish bias towards 1.33, its highest since September.
EURGBP broke below 0.89 and trades under its 200-day simple and exponential moving averages – a key area of support. Sterling is thought to be among the biggest beneficiaries of a vaccine since the UK economy seems to have been hit hardest by the lockdown among the G10.
What’s less clear is whether sterling bulls get caught offside by a breakdown in Brexit talks before ultimately a deal is sealed at the last minute. They might be right but their timing may be wrong.
EURGBP sows downside momentum after closing under 200-day EMA:
The Reserve Bank of New Zealand left rates on hold at 0.25% and signalled they would stay there until March 2021.
The central bank also met expectations for more stimulus by launching its Funding for Lending Programme, which will allow it to cut to negative should it require to – but a forecast upgrade for inflation to reach 0.9% in Dec 2021 vs the prior 0.3% expected signals the RBNZ is not about to go negative.
With broad USD weakness underpinning the risk-on crosses, the kiwi rallied as markets pared bets for negative rates. NZDUSD hit 0.69, nearing the March 2019 peaks around 0.6940.
Kiwi tests March 2019 highs:
Elsewhere, crude oil continues to make gains with WTI (Dec) breaking free of the $41.50 range to test the next big level at $42.50 with momentum going one way in the aftermath of the Nov 2nd outside day reversal. API data showed crude oil stocks fell by 5.1m barrels last week, much more than analysts had expected.
Whilst inventories are still muddied by the hurricane-affected shut-ins on the Gulf of Mexico, crude prices are riding the Pfizer-led risk rally.
Nevertheless, near term supply pressures and lockdowns ought to be weighing on demand in the next few months. Expect a significant amount of chatter around the OPEC+ deal ahead of the meeting starting Nov 30th.
Oil rallies on Biden victory & vaccine news
Two big factors have caused an oil price rally this week.
First: Joe Biden’s victory in the 2020 US elections.
Monday saw an initial 2% rise in WTI and Brent Crude prices after Biden was elected.
It’s thought that this jump was caused by the certainty and stability the announcement of an election winner has created.
It’s worth being cautious following the Biden-led rise.
One of Biden’s key presidential goals is to manoeuvre the US towards a zero-emissions future by 2050. It’s unlikely oil will play a big role in this.
However, WTI and Brent took an even bigger leap following Pfizer’s vaccine announcement.
Pfizer claims its Covid-19 vaccine is 90% effective after preliminary trials. We’re not out of the woods yet, but the news has been a massive positive.
Some light is peaking through the Covid clouds.
But for oil this was big news.
WTI shot up 11%, finally reaching over $40 per barrel, come Monday’s late-afternoon announcement. Brent rose 9% too.
Why? More oil demand is coming, according to forecasters. The success of the vaccine trials means lockdown could be easing sooner than expected.
More people will be moving about, manufacturing will be back, and oil production can begin again.
Another factor at play is OPEC’s decision to take production cuts to prevent a glut.
Essentially, it’s a good week for oil.
US crude oil stocks dropped 7.9 m barrels at the week commencing November 4th. That’s after stocks rose the previous week by over 4m barrels.
On the natural gas front, the picture is a little different from oil’s optimism.
Last week’s gas storage report shows consumption of up to 36bn cubic feet throughout the US, in-line with expected demand.
While this kept prices stable, November is being forecast as one of the hottest on record.
That may offset high LNG stocks, as there’ll be less demand due to low furnace and air conditioning usage throughout the United States.
Refineries earnings signal demand outlook
Oil outlooks continue to fluctuate but a few upcoming announcements may give some clarity.
Prices are holding around $38 per barrel for WTI while Brent crude is roughly $40 p/b.
Refineries are looking to announce their earnings this week, which may give indicators towards Q4 oil demand, specifically on gasoline, diesel and jet fuels.
Valero Energy reported an uptick in demand during Q3, up from Q2, but still way below 2019 volumes.
Q4 forecasts suggest 2.5mpd demand, which is 500,000 lower than Q4 2019’s numbers.
Inventories are thusly high while demand is low.
Majors ExxonMobil and Chevron will be reporting their quarterly earnings this week on October 20th. It will be interesting to see how the supermajors have coped. Exxon alone announced a first-quarter loss of $610m in May 2020. Its performance will be indicative of the industry as a whole.
40 North American oil & gas producers have declared bankruptcy this year. This may point towards a) further closures industry-wide or b) closer collaboration and mergers.
For instance, Conoco Phillips announced last week it was acquiring Concho Resources. Will this be an ongoing trend?
In Natural Gas, markets anticipate bullish natural gas prices in the short and mid. There are several factors at play here including:
- an unexpected jump in US LNG exports in the coming weekend
- Potential production drops
- A major temperature shift towards colder temperatures.
Resilience in natural gas prices is likely to emerge as we head into winter. Colder temperatures point towards stimulated demand for gas for heating and so on. Therefore, the coming months may prove beneficial for commodities traders – if a little cold.