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 32 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. https://schachterenergyreport.ca/subscriptions/?utm_source=EnergyNow&utm_medium=article&utm_campaign=EyeonEnergy
Crude oil remained above US$60/b on Friday as the positive halo of the China/US phase one trade deal and the success of the ARAMCO deal held prices up. While we are sceptical of the phase one trade deal having meaningful impact outside of saving face for Presidents Xi and Trump; the change in Saudi Arabia from market share player to a price hawk is a game changer for crude pricing going forward. We see crude ranging between US$54/b and US$63.40/b over the coming weeks.
- Commercial crude inventories fell by 1.1Mb versus the estimate of a decline of 1.75Mb. This decline was all due to inventory changes of which imports fell 308Kb/d or lowered inventories by 2.2Mb on the week and exports rose 233Kb/d to a near record 3.63Mb/d and impacted storage by 1.6Mb on the week. Overall storage declined 3.8Mb so we would have seen an increase in commercial stocks without these items. This was a bearish item for crude price.
- Gasoline inventories rose by 2.5Mb and distillate inventories by 1.5Mb on the week. These were bearish items for crude price.
- US production remained at 12.8Mb/d again this week and are just below record production of 12.9Mb/d. Refinery utilization was flat at 90.6% versus last week.
- Product supplied rose by 3.4Mb to 21.8Mb reversing the decline last week that seemed out of line (down 2.7Mb/d to 18.4Mb/d). It seems either weather related each of these weeks or some part of the country data was missed last week.
Saudi Arabia is showing its major change in approach to the sector with the data that came out in the December OPEC Monthly Oil Market Report that highlighted in November Saudi Arabia cut production by 151Kb/d to 9.85Mb/d. This even before the OPEC meeting and the announcement of the 500Kb/d cut of which Saudi Arabia plans to lower their production by 400Kb/d.
CONCLUSION: If we get some more reports of drawdowns in the coming weeks in the US, see some negative comments about the China/US trade deal or the impeachment issue depresses the US stock market then we may see crude back off to the US$54/b area. On the other hand if the OPEC cuts kick in during January and are seen to be fully removing the 500Kb/d and cold winter weather starts to show meaningful non-inventory move declines, then crude could take off above US$63.38/b which was the intra-day high on the day that the Saudi oil infrastructure was attacked by Iran. A breach of that high would be impactful. The all out bull signal would arise if we see a breach above the 2019 high of US$66.60 of April.
We are in the BULL camp and are now looking for low risk opportunities to add to our energy and energy service positions. We expect to send out Action Alert BUYS to our subscribers on a number of ideas before year end.