Why did oil prices go higher on October 27?

[dan_s]

Simple answer: Speculators are finally noticing that the global oil market is much tighter than people think and shorting oil is HIGH RISK.

Fundamentals do matter.

From one of our many smart member. Sent to me on 10/28 morning.
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This poster (romm) is widely followed on a message board (Energy Investing) I read. Here is his thinking on 10/26 re tightness of energy markets. Plus, I just read that within the last day or two that Cushing inventory was down slightly at last report:
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Brent/WTI spread rose to $6.7 for December

Persistence of this elevated spread and even rising suggests that oil tightness has come to Asia/Europe. But not to USA just yet.

U.S. Exports of crude oil should hold at about 2 mm bpd steady at such spread.

Seems like the entire medium/heavy oil producers are eyeing the US market with its refineries well equipped for processing lower quality oil.

Two things are important to watch: imports and Cushing. Both are equally important.
So far there's no shortage in import supplies. All refineries can substitute any disruption fast and easy. That keeps WTI even if it is priced for light oil low, much lower than Brent.

Saudi Arabia, Iraq, Venezuela, Mexico, Brazil, some central America countries with heavy crude are fighting for US market share since there are not so many other places in the world where their low quality crude can be processed. Plunging Venezuelan imports are being substituted by Iraq and others. At some point it will end as the endless supply will stop.

Refineries do not want to be purchasing light oil from Cushing because they want lower priced oil to be competitive, but at some point, I believe in 3-4 weeks - they will be forced.

Refinery utilization in the U.S.dropped to the lowest level of 84-85% in the last 2 weeks. I believe it has marked the bottom rates this year, and utilization should rise back to 90-91% in coming weeks. As a result refinery input will rise by 1 mm bpd, and unless imports rise by such a huge amount from last week elevated number (I believe they will not), refiners will be forced to purchase from Cushing and other inventories.

Their own inventories are pretty much depleted, I strongly believe due to Harvey impact. Other commercial inventories came done materially, and only Cushing basically hasn't even started to fall. While total US commercial crude stocks fell by 80 mm bls from the peak, Cushing stocks fell by a mere 5 mm bls only, it is basically at highs.

US inventories are the last resort worldwide, but Cushing is the last resort in the US. Watch Cushing and imports. When Cushing starts falling, it will mean other resources are pretty depleted and WTI will spike up IMHO.

We are awfully close to this situation, closer than many expect. In 3-4 weeks US crude stocks should fall below the very important 440 mm bls level IMHO, and Cushing should start dropping at a very fast pace. Then we can say: oil tightness has come to US. Welcome!

Best wishes,
romm

MY TAKE: I believe Friday's peak was an important indications that big oil traders see a tight oil market just ahead. This morning (10/28) I watched a video from the CME Group. They have been forecasting a breach of $53/bbl for several weeks and they now predict a breach of $56/bbl for WTI just ahead. They said that if WTI closes above $56 that there is very little resistance until $65. If WTI moves close to $60, we will see a massive amount of money rotate into the high quality upstream oil & gas companies' stock since they are oversold even if oil stays at $50.
I also believe that the big spread between WTI and Brent is significant. It tells me that Europe is under-supplied and forced to pay a premium for crude and refined products. I have seen several reports that heating oil supplies in Europe are dangerously low.

CME video here on right side of page: http://www.cmegroup.com/trading/energy/ ... crude.html