Ineos may have just put solid resistance in oil prices. The pipeline operator said yesterday it is expected to complete repairs at the end of this month on the Forties pipeline in the North Sea. It will begin a gradual restart to the 450,000 barrel per day crude oil pipeline and return it to normal shipping rates early next month.
As last minute shoppers scramble to find that awe inspiring gift for that special someone on their “nice list”, Kris Kringle appears to deliver a tight $2 range bound market for crude bulls till the end of the year. As of 12pm EST, WTI for January delivery is up $0.25 at $57.41, HO is up $0.0067 at $1.9319, and RBOB is up $0.0162 at $1.6887. For a month and a half WTI crude has been stuck in a range of around $56.00 – $58.00.
Refined products trade higher today as cold weather is forecasted to return, Nigerian oil workers strike, concerns linger about the Forties pipeline force majeure, and the U.S. oil rig count dropped.
The market is trying to find direction today after yesterday’s steep sell off in refined products caused by the DOE inventory and IEA reports; however the Forties pipeline force majeure leaves short-term price direction unclear for WTI.
The big story this week is North Sea Forties Pipeline System halt for maintenance. The pipeline supplies 40% of UK crude supply and supported the Brent/WTI price spread.
OPEC and non-OPEC members seem to be all on the same page about an exit strategy for the global production cuts come June of 2018. The only issue that has risen is that OPEC/non-OPEC members believe that it should not be discussed until the data is analyzed in the market. Alexander Novak, Russia’s Energy Minister, chimed in by saying that they believe an exit strategy should be implemented but in a gradual manner. Reuters reported “Russia, which this year reduced production significantly with OPEC for the first time, has been pushing for a clear message on how to exit the production cuts so the market doesn’t flip into a deficit too soon, prices don’t rally too fast and rival U.S. shale firms don’t boost output further.” Based off of this quote, it is clear to see that U.S. production is still a very real concern for OPEC and its nonmembers. Russia has said that the exit strategy should take roughly three to six months to implement and that this should not be discussed until the market shows significant progress.
Yesterday, WTI closed up $.015/bbl to $57.62, HO closed up $0.0194/gal to $1.9139, and RBOB finished up $0.0262/gal to $1.7184. After the release of the API statistics last night, those gains came right back off. The APIs reported a crude inventory draw of 5.5 million barrels and 2.0 million of that draw was in Cushing, the decrease in crude was expected because this week’s numbers still factor in issues with the pipeline. The bearish stats were on refined products; gasoline inventories build 9.2 million barrels, and distillates built 4.3 million barrels.
The OPEC rhetoric seems to be factored into oil prices by now and the market is reacting to the weekly inventory statistics. As of 11:00 a.m. ET, both HO and RBOB are down about $.0350/gal and WTI is down $1.00/bbl.
The DOE statistics pretty much mirror what the APIs reported. Crude inventories showed a draw of 5.6 million barrels, 2.7 of that coming from Cushing, OK. Both refined products still had builds, just not quite as substantial. Gasoline inventories built by 6.8 million barrels, and distillates by 1.7 million barrels.
Key support levels to start the day were WTI at $57.20, HO at $1.8975, and RBOB at $1.6916. The market is well below these values already.
While temperatures are going to remain above average for another week, we’re going to get hit with an “arctic blast” December 8th that could last until Christmas. From an operational perspective, truck fleets’ operability is at risk if their fuel is not additized before the cold weather approaches. From a market perspective, with distillate inventories already tight and relatively few heating oil shippers posting prices at petroleum terminals, demand could outweigh supply.
The oil market is anxiously awaiting news from Vienna, Austria regarding OPEC / Non-OPEC oil cut extensions, the Energy Information Association released its weekly data yesterday. After digesting the numbers, the market settles down in refined products as well as crude. RBOB saw a drop of over four cents closing at $1.7309 / gallon, while distillates dropped almost three cents to close at $1.9221 / gallon. Crude finished the session at $57.30 per barrel. EIA data released yesterday showed domestic gas stockpiles increasing for the third week in a row with the most recent week having a build at 3.6 million barrels. When compared to inventories from last year, current levels remain down. Distillate inventories also showed a build of 2.7 million barrels. Similar trends over the last three years, distillate stocks have increased from November to December.