Written Commentary
CRUDE OIL
IEA, OPEC Lower Demand Expectations
December Crude Oil sold off overnight following a media report suggesting that Israel would strike Iranian military targets and not nuclear or oil targets. Of course, this mood could quickly reverse. With the move overnight, the market has now given back more than 60% of its gains off the September low. The IEA said today that it expects a sizeable surplus in the world oil market next year, provided there is no interruption to supply. They added that public stocks were more than 1.2 billion barrels and that spare capacity in OPEC+ stood at historic high, which provides a substantial cushion. IEA and OPEC continue to revised their 2024 demand forecasts down. IEA said they expect world oil demand to rise by 860,000 barrels per day this year, 40,000 below their previous estimate and for demand to increase by 1 million bpd in 2025, 50,000 bpd higher than their previous forecast. China’s demand is expected to increase by 150,000 bpd in 2024, down 30,000 from their previous forecast. Yesterday, OPEC cut its forecast for global oil demand growth in 2024 to 1.93 million barrels per day from 2.03 million in its September forecast. China accounted most of the reduction, cutting its growth forecast to 580,000 bpd from 650,000 last month. Despite the reassuring words from IEA, Citi research said yesterday that a shock from the Middle East conflict could send crude prices above $100 per barrel. For the inventory reports this week, an early Reuters poll has an average trade expectation for US crude oil stocks show an increase of 2.6 million barrels last week, with gasoline stocks expected to be down 2.2 million and distillates down 2.4 million. Refinery runs are expected to be down 0.5% to 86.2%. The reports will be delayed one day due to the holiday yesterday.
PRODUCT MARKETS
December RBOB gapped lower overnight on the reduced Mideast tensions and lower demand expectations from IEA and OPEC. The market found support at the 50% retracement of the September-October rally at 1.9792.
NATURAL GAS
December Natural Gas extended its selloff overnight and traded to its lowest level since July 2021. After seeing US supply surplus narrow for several months and US production to consistently come in below year ago levels, the market has been dealt a blow from a drop in power generation demand in the wake of power outages from the last two hurricanes. The 6-10 and 8-14 day forecasts call for above normal temperatures across the eastern two-thirds of the lower 48, which should keep heating demand down. For the inventory reports this week, a Reuters poll has an average trade expectation for US gas storage to show an increase of 63-87 bcf last week. The five year average increase for this week at 88 bcf. Last week’s report showed an increase of 82 bcf versus 84 bcf for the same week last year. This was the first time in seven weeks the increase came in anywhere close to year ago levels. The US supply surplus has continued to narrow, and more LNG export facilities will come on line next year.
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