Quick Draw
Oil prices saw a quick reaction after the Energy Information Agency (EIA) showed a draw in a surprise drop in crude oil but fell sharply as traders mulled an increase is U.S. crude oil production as well as a colonial pipeline inspired increase in distillate stocks.
Despite a big jump in Gulf Coast imports it was not enough to offset the previous week’s loss. With traders off balance because of Fed confusion and the upcoming Fed meeting it made it hard to get optimistic on the demand side when the Fed holds all the cards. Still with oil back in the low $40’s it is near key support and increases the odds of a production freeze in Algiers at the end of the month.
U.S. oil production jumped to 8.493 million barrels per day led by an increase in Alaskan production. In the lower 48 states we saw a slight increase as the Gulf of Mexico saw some production come back on line.
The incredible 4.619-million-barrel build in distillates most of which was on the East Coast which was enhanced because of the shuttering of the Colonial Pipeline. We may have also seen some supply diverted to the East Coast because of the Hurricane Hermine aftermath. Yet despite those justifications it added to the negative sentiment.
We also saw Venezuelan crude sales to the United States declined almost 13 percent last month to 712,870 barrels per day. The collapse of the Venezuela socialist experiment is crumbling before our eyes and it could mean a collapse in Venezuelan oil output that could last years.
The Venezuelan Socialist system instituted the late Hugo Chavez and continued with his handpicked successor Nicolás Maduro not only stole from the Venezuelan people but squandered their future.
Refinery runs while historically strong still came in lower than expectations at 92.9% of capacity. Who would have ever thought that a reading of 92.9% of capacity on September 15th would be considered disappointing. Gasoline inventory rose by 567,00 barrels after the API had traders looking for a drop. Gas production was down as well as demand by 189,000 barrels a day.
Still Gas demand is still humming along. The EIA says that over the last four weeks gasoline demand is averaging over 9.5 million barrels per day which is up by 4.2% from the same period last year. Distillate fuel product demand is averaging 3.6 million barrels per day up by 1.3% from last year.
Overall we can’t wait for the Fed meeting to put traders and the markets out of their misery. I doubt that the Fed can act in raisng rates next week but they may lay the groundwork for a December hike.
I am not sure if the Fed is superstitious or not but the rare interest rate hike that they did a year ago in December helped the global stock markets in their worst beginning of the year in history. We feel that if the Fed won’t act and that we will see OPEC then move to freeze output ahead of the resumption of exports out of Libya.
The Wall Street Journal is reporting that:
“Libyan officials said they plan on Wednesday night to load the first crude-oil cargo in nearly two years from an important port that changed hands in violence over the weekend”.
Libya’s National Oil Co. is planning to load a tanker full of 600,000 barrels of crude from the port, Ras Lanuf, said oil officials, whose account was supported by ship-tracking websites. The company has yet to decide if the oil will be exported or refined domestically at another port, the officials said. A Journal must read. OPEC crude production fell to 33,237,000 barrels per day in August on falling output from Libya and Nigeria.
Natural Gas will take center stage as its performance as of late has been helped by endless summer. Today we are hearing an average injection guess of 65 bcf which we think may be high. While the weather demand should drop in the coming weeks added pressure to prices a much smaller than expected injection could set the tone for the next few weeks. Then Winter comes and we will see if we will have adequate storage.