With OPEC headlines driving every tick today (and machines seemingly going to sleep late on), we suspected tonight’s API inventory data would be a non-event and the reaction was indeed muted as crude inventories drewdown 717k barrels (against expectations of a 577k build). The bigger deal was much more than expected builds at Cushing (biggest build since March 2015) and also notable builds in Gasoline and Distillates.
Crude -717k (+577k exp)
Cushing +2.3mm (+26k exp) – biggest since Mar 2015
Gasoline +3.36mm (+1.19mm exp) – biggest since Jan 2016
Distillates +2.24mm (+1.45mm exp) – biggest since Sept 2016
The biggest Cushing build since March 2015 and despite a small crude draw, products also saw notable builds…
In an intraday update on the current status of pre-summit negotiations taking place Monday in Vienna, an OPEC delegate told Bloomberg that there have been “no big changes in the position of either Iran or Iraq” at the high-level committee talks, which began 8 hours ago, in Vienna. As a reminder, both Iran and Iraq have sought exemptions from cutting oil production and according to the Algiers agreement in late September, Iran had been granted just that, however since then Saudi Arabia appears to have reneged on its concession.
So with both Iran and Iraq refusing to yield to Saudi will, there is little else to report:
OPEC COMMITTEE MEETING HAS NO AGREEMENT SO FAR: DELEGATE: BBG
So as OPEC has so far failed to reach an internal agreement two days ahead of the big meeting, Iran and Russia now appear to be having side talks:
PUTIN, ROUHANI AGREED TO COORDINATE ACTIONS ON COMMODITY MKTS
PUTIN, ROUHANI STRESSED IMPORTANCE OF OPEC EFFORT TO CUT OUTPUT
PUTIN, ROUHANI SEE OPEC EFFORT AS `KEY FACTOR’ IN STEADYING MKT
There was some good news, however: suggesting that OPEC can agree on at least something, today the OPEC website released a tentative draft of the Program schedule of event for the November 30 meeting, presented below.
As deal hopes fade (amid Saudi abandoning tomorrow’s OPEC/NOPEC meeting and claiming the oil market can rebalance without a freeze/cut in supply), WTI crude has slipped notably below $46 handle and is trading at 2-week lows (down over 8% from Tuesday’s highs)…
After a three-week rally, the dollar bulls finally showed signs of tiring ahead of the weekend. Technical indicators have begun rolling over from over-extended conditions. Nevertheless, the dollar’s pullback is limited in time to the first part of the week ahead, and in scope to only modest retracement targets ahead of the US employment data, the Italian referendum, and the Austrian presidential election on December 4.
We have suggested that the dollar’s advance was fueled by the divergence that had little to do with the US election. It is clear from Fed comments and the minutes from the November FOMC meeting that officials were prepared to hike rates regardless of the election outcome. Moreover, subsequent data has been mostly better than expected.
Trump’s promise of significant fiscal stimulus with the world’s largest economy already grown near or above trend, the inflationary implications are clear. Nominal rate differentials have widened significantly in US favor. We are cautious are extrapolating too much from the inflation-linked securities as the liquidity premium tends to exaggerate the movement. Also, Fed funds futures strip has not fully priced in two hikes next year, suggesting potential room further adjustment.
Since November 4, a few days before the US election, the Dollar Index rose about 5.35% at last week’s peak just above 102.00. The RSI has rolled over, as has the Slow Stochastics. The MACDs may turn next week. Initial support is seen in the 101.00-101.20 and then 100.65.
Excess oil in the market is expected to total 1 million barrels per day before the end of the year, Russian Minister of Energy Alexander Novak said Thursday.
“Before the end of the year, it is expected that the market will be oversupplied by about 1 million barrels per day,” Novak said at the ENES 2016 International Energy Efficiency and Energy Development Forum in Moscow. Supply exceeded demand by 1.8 million barrels per day as of the start of 2016, the minister said, noting that there has been a slight balancing of the market since.
Weekly oil inventory and production data from the EIA:
Prior was +5274K
Gasoline +2317K vs +900K exp
Distillates +327K vs -1000K
Reminder, the OPEC decision goes down at this time next week.
What API reported:
Oil imports -845K
Production +0.1% w/w
Production -5.7% y/y
There were surprise draws on the gulf coast and west coast.
WTI has been catapulted higher by the Iraq comment and these headlines. WTI is now up 35-cents to $48.37 compared to $47.50 an hour ago. The rally in oil is giving stocks a lift and has taken the Dow to a third consecutive day of record highs