Each week Josef Schachter will give you his insights into global events, price forecasts and the fundamentals of the energy sector. Josef offers a twice monthly Black Gold newsletter covering the general energy market and 34 energy and energy service companies with regular updates. He holds quarterly subscriber webinars and provides Action BUY and SELL Alerts for paid subscribers. Learn more and subscribe.
EIA DATA: Last week’s EIA Petroleum Balance Sheet was noticeably bearish with a third weekly build in inventory. The expectation was for a seasonal build of 2.9Mb but it came in at a large build of 9.3Mb. Product fell as expected with Gasoline stocks down 2.6Mb and Distillate inventories were down by 3.8Mb. Commercial crude stocks are now 18.4Mb or 4.4% above last year’s or at 416.4Mb. Net imports rose 223Kb/d and added 1.56Mb to the build number last week. US production remained flat last week at 12.6Mb/d. Consumption fell last week by 502Kb/d to 20.9Mb/d with gasoline demand falling 106Kb/d to 9.35Mb/d. Exports fell by 153Kb/d to 3.25Mb/d down from last week’s record 3.4Mb/d. Korea has become a big buyer of US crude oil, with imports up 140% to 395Kb/d as it cut imports from Iran to zero due to US sanctions. Cushing saw inventories build by 1.3Mb to 43Mb last week.
The price of WTI has jockeyed around US$53/b last Thursday with a range of US$52.69 at the low and US$53.41/b at the high. We expect prices to fall off in the coming days as Thursday had a positive stimulus from the potential of a Brexit deal with the EU.
The election day of Monday October 21, is of key importance to the energy sector. We hope that the progressive left (Liberals, NDP and Greens) split the vote (20-30% each) so that the Conservatives can squeak through (with 30-35% of votes cast) in sufficient ridings to get a majority government. We will be pleased if there is a result of a strong Conservative minority government with the next party much below in seats.
CONCLUSION: We are watching for a breach of US$50/b to set the stage for the final plunge in crude oil prior to the winter strong upsurge. If it occurs we should see during the next month or so the S&P Energy Bullish Percent Index signal a low risk BUY!