November ULSD and RBOB futures expire Friday October 29. We ask current positions be liquidated/rolled Thursday or before.
Outlook: Some OPEC+ members, including kingpin Saudi Arabia have been expressing caution about adding more barrels to the market than currently scheduled even as crude timespreads rise sharply. They say caution is warranted due to continued threat from Covid, but I would also suggest a message is being sent to policymakers that petroleum has to treated as necessary within an energy transition to more “green” sources. Crude moved to fresh seven year highs and is maintaining a firm tone as the morning progresses. Trade is getting geared up for the next OPEC+ meeting set for next week and outside of fresh inputs up to then the current trend higher looks to maintain.
Crude
- Nigeria has joined Saudi Arabia to throw caution to OPEC+ adding additional barrels to the market beyond their current schedule until coronavirus abates. Saudi's Energy Minister said oil producers should not take recent price increases for granted as the pandemic can still impact demand. Azerbaijan says it is correct to be cautious on raising oil output. OPEC+ next meets on November 4 to decide on December production, which is currently scheduled to be increased by 400,000 bpd.
- Saudi Aramco’s CEO says global spare oil production capacity is falling.
- Saudi Arabia has pledged to become carbon-neutral by 2060 but has made no plans to wind down oil production.
- WTI’s Dec21/Dec21 spread hit $12.48 with current trade $12.01 while Brent’s Dec/Dec spread moved close to $10.00, their widest since 2013. Today’s gains in the WTI curve suggest we may see another sizeable drawdown out of Cushing, OK crude stockpiles.
- Baker Hughes showed US oil rig counts fell by 2 last week to 443. Permian rigs rose by 1 to 267.
- Iraq’s oil minister thinks oil prices could hit $100 in the first half of 2022.
- Cushing, OK crude inventories are at 3-year lows near 31 million barrels and are about half of year-ago levels as backwardation discourages storing. Total US crude stocks are more than 27 million barrels below the 5-year average.
- On Friday Fed Chairman Powell the Fed is closely watching inflation but that its premature to raise rates now.
- As of 10:21 am CDT: Brent crude oil up $1.07 to $86.60, US dollar index up 0.153 at 93.796, while the nearby e-mini S&P 500 futures contract is up 13.75 at 4,550.25.
Diesel
- Although up more than 3 cents today, ULSD has been trading relatively flat over the last week and a half likely as market participants buy crude considering tightness in Cushing and sell ULSD as a hedge. However diesel remains tight seasonally and crack spreads may start to rebound from here. The nearby 3-2-1 crack is $20.20, up 89 cents on the day but off its recent peak of $23.58 ten days ago.
Gasoline
- Rbob is up more than 5 cents in the nearby which is assisting crack spreads higher. Reduced utilization rates particularly in the Gulf prompt concern about supply.
- Hertz Rental ordered 10,000 Tesla Model 3 cars for its rental fleet.
Propane
- Propane is taking a different approach than the rest of the energy complex with some slight weakness this morning.
Natural Gas
- A cooler weather outlook for next week along the East Coast and into November in the US prompts concern that supply may not be able to meet demand this winter due to a flat production profile and the difficulty of coal to act as a substitute due to reduced coal generation capacity and coal supply constraints.
- Nearby natural gas futures are 48.3 cents higher to 5.763 and the winter/winter and winter/spring curves are stronger.
- Natural gas in storage is expected to be reported up 86 bcf when the EIA reports Thursday, which would reduce the deficit considering the 5-year average is a 62 bcf injection and last year was an injection of 32 bcf. An injection between 80 bcf and 90 bcf may already be priced in.
Continuous Daily Natural Gas: The 50-day moving average has acted as support since April and last week another test failed.
