It is rather an interesting watch to see how oil is being somewhat left behind by the buying jamboree seen yesterday in other recognised investment suites. Our market has definitely been reported for a small collapse-like overreaction to buyers overreacting in the nightmarish scenes witnessed in the Middle East, but those in investment authority seem not to want to take the matter further and buy it, yet. WTI, Brent and Heating Oil futures all settled nigh on unchanged which probably offers a clue as to why. Gasoil aside, excused after the recent expiry, these three would ordinarily feel gyrations caused by US inventory reports at this seasonally important time of the year when oil stocks are pored over with a fine-tooth comb. However, offering obstructions to free study has been the 2-week delay from EIA reporting and the only data available has been the 12-million draw in the APIs last week and that the US is likely at peak production for crude. Last night, APIs have done little to assuage that air of reluctance as Crude inventories built by 1.3m/b, Gasoline by 0.2m/b and Distillates drew by 1m/b. Alongside the Crude build is a Cushing increase of 1.1m/b which is below the TankWatch call of +1.8m/b but suggests that the increase in overall production and that the recent freight rate hikes stopping some US crude from getting to water is allowing the idea of a Cushing ‘bottoming’ to dissipate. 

Not even a collapsing US Dollar is enough to get the oil ball rolling. There is not a G10 currency that has not benefited from quite the slide in the global currency marker. With localised currencies now given greater commodity buying power it is curious as to why oil is not skipping away. Yesterday, the US Dollar Index (DXY) printed 105.75 but has fallen off a mini cliff to 104.11 this morning which represents a 2 and half month low. This repricing comes after US CPI registered at flat against being called to increase by 0.1% and the buyers that have been primed and looking for data that will stay the hand of future interest rate hikes by the FED, rushed in with abandon. As always the main winners are those bourses represented by technology such as the NASDAQ. In early trading yesterday its price was 15,511 today it is at 15,864 because tech-stocks are much more reliant on debt gearing and an improved interest rate scenario is overtly beneficial. 

Lastly, and importantly for China watchers, is an improved set of data this morning. Although the unemployment rate for October remained sticky at 5% and investments were down, perceived demand markers improved. Industrial production was forecast to improve by 4.4% but came in at 4.6% and retail sales beat predictions by registering 7.6% against a 7% call. With China being a scapegoat for much of the world’s lack of industrial demand, this glimmer of light ought to aid oil’s progress but the reluctance is so far winning out. The trouble with China data is there always seems to be a counter-point. According to Bloomberg research, refinery run rates fell in October to 15.12mbpd against September’s 15.54mbpd and thus numbs any positive effect that better overall data may offer. Therefore, it is not difficult to conclude that oil’s fraternity sits and awaits what the EIA/DOE Inventory Report beholds later and whether bulls will be comfortable enough to let loose their shackles.

 

Monthly reports do not offer clarity

In society we are warned on a regular basis to not view the world through a lens of stereotypes, but can our fraternity be censured in thinking that whenever monthly oil reports cross our media from the EIA, IEA and OPEC that their forecasts usually resort to form? The EIA seems to always adopt a conservative assessment, while OPEC’s unsurprising bullishness would have that there’s not a drop of the black stuff to be had on the planet, leaving the IEA to occupy the space somewhere in between. There is an acceptance that our market has been levered into place by supply-side management, which is why demand data is even more poignant.

Running true to this shaping of the reporting trio are seen in their November breakdowns of global demand and for convenience Q4/2023, calendar 2023 and calendar 2024 are all respectively listed in million barrels per day and the change versus October. The EIA’s are Q4 101.85 +0.23m, Y23 101.04 +0.10m and Y24 102.44; the IEA’s are Q4 102.80 +0.20m, Y23 101.95 +0.08m and Y24 102.88 +0.15m; lastly, OPEC’s are Q4 103.28 +0.15m, Y23 102.11 +0.05m and Y24 104.35 +0.05. Therefore, all the reports find accord in seeing greater demand albeit some smaller than others and obviously started from a differing baseline.

What is likely to be galling for OPEC+ and particularly Saudi Arabia that endures most of the sacrifice in the quest for stability, is the reduction in the call on OPEC supply. Even though the cartel envisages some reductions recorded in its own publication with a call of -0.05m for both 2023 and 2024, the EIA sweeps the board with reductions for OPEC oil calls of -0.15m Q4/23, -0.12m calendar 2023, and -0.12m calendar 2024 which it replaces with predictions of increased non-OPEC supply. The IEA offer an even greater difference by reducing its Q4/23 OPEC call by -0.20m where OPEC sees an increase of +0.11m. In fact, and worthy of note is how the EIA has steadily increased its predictions of non-OPEC supply over and above the other 2 in every quarter from Q2/23 and for both calendars 2023 and 2024. Bias then, along with stereotypes are in the eye of the beholder.

The IEA report yesterday will probably find itself free of the criticism it has endured from Saudi Arabia in recent times such as in September when Saudi Energy Minister Prince Abdulaziz bin Salman said of the IEA, ‘they have moved from being a forecaster and assessors of market to one for political advocacy’, in light of the IEA’s stance on fossil fuels and renewables. The Paris-based agency finds its 2023 demand figure not so very different from OPEC’s and its report talks on climbing global demand, at least in the short term.

It attributes the growth to a narrow field with particular focus on China and the record 17.1 million barrels per day consumed in September which has been largely inspired by the massive investment in petrochemical plants. With a continued thirst from chemicals into 2024, the IEA predicts much of next year’s demand into Southeast Asia will emanate from here. China leads non-OECD countries that as a whole, saw year-on-year Q3 growth of 2.9 million barrels per day. The other cheer leader for growth is the OECD Americas which in the same time frame increased consumption by 430,000 barrels per day.

However, with such a narrow band of success, warnings from economical laggards are never far away. Despite the showing from the Americas, OECD demand in Q3 y-o-y declined by 130,000 b/d with the fall much caused by the sick man of the world, namely Europe which saw contraction of 460,000 b/d for the quarter. Germany is particularly singled out as Naphtha and Gasoil use dives along with industrial output leaving Germany to record a very sobering -120,000 b/d for 2023.

The sometimes aligned, sometimes diverged prediction in oil demand of the EIA/IEA/OPEC triumvirate lend themselves as confirmation of how so very disjointed the economies of the world fare. Agreement appears to be found in short-term predictions of decent demand carrying into the Northern Hemisphere’s winter. However, the IEA’s report with observations that growth is confined to a narrow band of outperformers does not imbue great confidence for the future, particularly with its call for 2024 growth to slow by 930,000 b/d. These writings somewhat paint Saudi Arabia into a corner in that reversing its voluntary cut in the near future might just overwhelm the current positive demand scenario depicted. The all-important OPEC meeting on Sunday 26th November just gained many more notches of importance.

Overnight Pricing