OPEC Barkindo: Could see sharp supply fall in 2020 from US shale output

OPEC Secretary-General Barkindo

OPEC Secretary-General Barkindo is on the news wires:
  • likely C# downward revisions of supply going into 2020 especially from United States shale output
  • fundamentally global economy range strong
  • there is no sign of global economic recession
  • Demand numbers for 2020 has potential for an upside swing
  • confident OPEC+ members will continue with their agreement in 2020
  • some US oil companies see shale output growth in 2020 only up by around 300,000-400,000 BPD. That it is not as high as OPEC optimistic estimates
  • Saudi authorities have reassured US that Aramco IPO won’t affect kingdom’s role within OPEC as the biggest producer
  • no one in OPEC+ wants to return to where we came from during oil prices downturn
  • The Aramco IPO won’t affect Saudi Arabia’s participation in supply adjustments to ensure oil market stability

OPEC’s Barkindo: Too early to say if there is a need for further output cuts

Comments by OPEC secretary general, Mohammed Barkindo

  • Premature to discuss OPEC+ decision in December
  • OPEC still to hold five technical meetings before December meeting in Vienna
  • OPEC is following progress in US-China trade talks closely
They don’t sound too committed to deeper cuts next month. As such, I think expectations will be low going into the decision so oil prices may have little to cheer about in the build up. However, a surprise decision could yet give oil a decent boost in such a case.

Crude oil inventories for Nov 1 week 7929K versus 2000K estimate

Crude oil inventories for November 1, 2019 week

A much larger build crude oil inventories
  • crude oil inventories 7929K vs 2000K estimate
  • gasoline inventories -2828K vs -2000K estimate
  • distillates inventories -622K vs -1250K estimate
  • Cushing OK crude inventories 1714K vs 1572K last week
  • US refinery utilization -1.7% versus 0.73% estimate
  • crude oil implied demand 17544 vs 18482 last week
  • gasoline implied demand 10153.3 versus 10435.9 last week
  • distillates implied demand 5269.9 versus 5275.4 last week
The big surprises the crude oil inventory which came in much higher than expectations and even above the better-than-expected private data last night.

Oil sinks but natural gas jumps for the second day

Oil under pressure

Oil is lower for the second day after Genscape reported that inventories at Cushing rose last week. API data is due late today and EIA data tomorrow.
There is talk about swelling inventories globally along with modest demand growth. Along with that comes with speculation that OPEC may need to cut production further in December. That’s a longshot. Instead, OPEC may try to squeeze a few of the members that are overproducing into complying with quotas.
Technically, the rally in oil stalled right around the 50% retracement of the Saudi spike.
Oil under pressure
Meanwhile, forecasts for colder weather in the US continue to boost natural gas prices. The front month surged yesterday and is up another 4.5% today.
I highlighted an inverted head-and-shoulders pattern yesterday with a target of $2.60. We’re almost there.

Natural gas

Russia’s Novak: No official proposals from OPEC+ members to change deal

Comments by Russian energy minister, Alexander Novak

  • Says all OPEC+ members need to comply with the current deal in full
Yesterday, we saw headlines of potential deeper output cuts by OPEC and that helped to give oil prices a lift in overnight trading.
As much as I want to be optimistic about that, I’d reserve judgment as it is still early days before we get to the next OPEC+ meeting in December.
Then, there is the issue of compliance as Novak noted above as well. Deeper cuts are pointless if they cannot get every contributing nation on board with 100% compliance.

Oil rallies to the highs of the week

WTI crude at the best levels since Friday

WTI crude at the best levels since Friday
There was a huge build in US oil supplies in data released today but the market has shaken it off. That’s a great sign for the bulls and it comes — in part — due to draws in products.
I think this could lead to some short-term upside but WTI needs to get above $56 to really make any headway.

US weekly EIA energy inventories +9281K vs +3000K expected

Weekly US oil inventory data from the EIA:

  • Prior was +2927K
  • Gasoline -2562K vs -1500K exp
  • Distillates -3823K vs -2500K exp
  • Cushing +1276K
  • Refinery utilization -2.6%
The headlines aren’t as bad as they look because the API numbers from late yesterday were so bearish. The drop in refinery runs and draws in products takes the sting out of the report:
  • Crude +10500K
  • Cushing +1600K
  • Gasoline -934K
  • Distillates -2900K

OPEC’s Barkindo: Demand is what drives the oil market, not supply

Comments by OPEC secretary general, Mohammed Barkindo

  • Volatility, geopolitical tensions hurt oil market
  • Cautious in projecting demand for 2019, 2020
  • Says that producers are committed to maintain stability beyond 2020
Yeah, I don’t think that’s how it works. In an efficient market, the dynamics of supply and demand are what drives prices to where they are.
So, it is either he is saying that the market is manipulated or he doesn’t understand the proper dynamics of a functioning market.