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Matt Smith

Matt Smith

Taking a voyage across the world of energy with ClipperData’s Director of Commodity Research. Follow on Twitter @ClipperData, @mattvsmith01

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Oil Markets Trying To Muster A Bounce Ahead Of OPEC Meeting

On the day that Tom Petty turns sixty-five, the crude complex is trying to rebound after yesterday’s bout of free fallin’. Things are pretty thin on the economic data front, the sum of which has been lower building permits and higher housing starts out in the U.S., while Germany saw weaker (and deflationary) producer prices.

Meanwhile, the crude complex is trying to muster a bounce ahead of tomorrow’s OPEC + 8 (Azerbaijan, Brazil, Colombia, Kazakhstan, Norway, Mexico, Oman, and Russia) meeting in Vienna, which really shouldn’t yield that much. At all.

WeatherPatternU.S.

8-14 day outlook to Nov 2 Related: Is Oil Trending? How Twitter Influences Oil Price Volatility

We are not only passing through the peak of maintenance season for U.S. refineries, but also through shoulder season (aka low demand period) for natural gas, where we see a slow-motion baton transfer from cooling to heating demand. Above-normal weather conditions are persisting on the weather outlooks, mean lingering storage injections in the coming weeks as heating demand is stymied.

An ongoing theme of strong supply, in combination with warmer weather, continues to keep a lid on natural gas in mid-two dollardom, as the prospect of a record storage level being achieved in the coming weeks is very much in the mix.

This warm start to winter is also providing a comfort blanket of hope that this winter’s El Niño weather pattern will mean these balmier conditions will continue.

So while the prospect of a warmer winter leans bearish for natural gas, it leans bullish for gasoline demand. We are in the throes of peak refinery maintenance season, with refinery utilization reaching the lowest point since mid-January at 86 percent. As maintenance ebbs in the coming weeks, we should see gasoline inventories starting to build as we head towards the end of the year. Related: Oil Prices Still Not Low Enough To Fix The Markets

While a milder winter should lead to more miles driven due to less inclement demand, lower retail gasoline price should too incentivize greater consumption. The national average for gasoline is still on track to retest the January lows of just above $2/gallon by year-end, while South Carolina is already averaging well below that level. California remains elevated (as usual), but is making progress, well below $3/gallon:

18MonthAvgRetailChart

(Click Image To Enlarge)

There is an interesting piece out today which highlights how OPEC’s battle for market share of the Asia-Pacific region (which accounts for over a third of global demand) is pitching cartel members against each other. The below chart illustrates this scrap; Kuwait is undercutting its crude versus Saudi Arabia by the most on record. Iraq is also undertaking a similar tactic, as is Qatar, who is pricing its oil at its biggest discount in twenty-seven months.

KuwaitSaudiOilAsia

(Click Image To Enlarge)

Taking a quick peek at our #ClipperData, it highlights that ~80 percent of Kuwait’s crude exports go into Asia. Of these, the vast majority are going to three countries: China, Japan, and South Korea. Looking ahead, the battle for market share in the Asia-Pacific market is likely to only get fiercer as congestion builds in the area. Related: How The Oil Price Crash Will Make Markets More Efficient

KuwaitCrudeExports

By Matt Smith

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