Energy Prospectus

Crude prices moved lower on Wednesday, after EIA estimates showed a sizable gain in U.S. gasoline stockpiles.

The U.S. Energy Information Administration's weekly report showed that crude oil inventories fell by 5.6 million barrels last week. That compared with analysts' expectations for a decline of 3.4 million barrels, while the American Petroleum Institute late Tuesday reported a crude oil supply-drop of around 5.5 million barrels.

Oil traders however sold crude oil futures contracts because the EIA also reported that gasoline inventories increased by 6.8 million barrels in the week ended Dec. 1., much higher than expectations for a gain of 1.7 million barrels. For distillate inventories including diesel, the EIA reported a gain of 1.7 million barrels.

Supplies at Cushing, Oklahoma, the key delivery point for Nymex crude, decreased by 2.75 million barrels last week, the EIA said.

Total U.S. crude oil inventories stood at 448.1 million barrels as of last week, which the EIA considered to be in the middle of the average range for this time of year.

U.S. crude oil imports averaged 7.2 million barrels per day last week, down by 127,000 barrels per day from the previous week.

MY TAKE: As I pointed out in my recent podcast, U.S. gasoline and distillate inventories are now below the 5-year average for this time of year because of the impact Hurricane Harvey had on the refiners. There is also significant demand for U.S. refined products in both Europe and South America. Therefore, it is understandable that refiners are drawing a lot of crude oil from storage to rebuild refined product inventories. IMO this is bullish for oil demand and today's dip in the price of crude oil is an over-reaction.
Keep this in mind: A lot of the speculators had large long positions in crude on which they had set tight stop loss orders.
Supply/Demand fundamentals all point to a tightening of the global oil markets. - Dan

PS: The U.S. Dollar Index (DXY) has turned higher on the increased likelihood that the GOP Tax Plan will pass. A stronger U.S. dollar puts pressure on oil prices.
-------------------------------------------------
You all need to read this because the WTI price at the Houston Hub is much closer to the Brent price, which is now $6/bbl higher than the WTI price you see quoted each day. Most of our model portfolio companies do not send their oil to Cushing, OK. - Dan

By Alison Sider for The Wall Street Journal
Dec. 6, 2017 7:00 a.m. ET

Houston has long been the capital of the U.S. energy industry. Now it is vying to be the center of global oil trading, too.

For decades, a small town in central Oklahoma has served as a crossroads for oil markets thanks to its confluence of pipelines and millions of barrels worth of storage space. Cushing, a town of 7,800 people, is the delivery point for one of the world’s most liquid oil futures contract and where prices for U.S. crude are set.

But that may be changing. A surge in output from U.S. shale fields and the lifting of restrictions in late 2015 that kept crude from being exported have upended the way oil flows around the world. Much of the crude from shale is converging at the Gulf Coast on its way to Asia, Latin America, and Europe—sometimes bypassing the Cushing hub altogether.

“Cushing is becoming irrelevant,” said Philip Verleger, an energy economist who helped develop the Nymex oil futures contract in the early 1980s.

Full Article Here: https://www.wsj.com/articles/move-over- ... mail_share

Oil Struggling Amid Global Economic Doubt
By Phil Flynn (Dec 06, 2017 08:57AM ET)

Conflicted

Oil prices are struggling today as there are many conflicting things that are raising doubts about the health and safety of the global economy and the globe in general. The American Petroleum Institute (API) seems to have a conflict with reality after reporting an almost unbelievable increase in gasoline supply. The Texas Railroad Commission reports that oil production in Texas is way below what the Energy Information Agency (EIA) is reporting. Donald Trump may raise tensions in the Middle East as he looks to announce the move of the U.S. embassy in Israel to Jerusalem.

The Saudi lead coalition continues to hammer the Yemen capital after the leader in Yemen seemed to change sides. A drop in copper, after a build in supply, is also raising fear that the Chinese economy may be slowing down. With so many conflicts I am conflicted about where I should start first.

So, let us start with the API report that is raising many questions in trading rooms around the globe about the reliability and accuracy of their data. As expected the API reported a draw in crude not far from the whisper number of down 5.481 million barrels led by a 1.951 million barrel drop in crude supply.

Yet, a reported 9.196-million-barrel increase in gasoline supply shocked and awed the trade and seemed to suggest that no one traveled on Thanksgiving. Somehow the holiday must have skewed the data and the API once again are either adjusting for a past error or will have to adjust for this error later. For traders and hedgers, it is very disturbing that week after week we have to continue to question the accuracy of these weekly figures, especially because both the EIA and API are supposed to be reporting on the same thing and yet come up with different numbers week after week. They also reported a questionable 4.259-million-barrel build in distillate supply.

That brings us back to the MIT report that shows that the EIA is probably over estimating shale oil production by close to 10%. That assumption is backed up by a report by the Texas Railroad Commission released earlier this week. They reported that Hurricane Harvey was the culprit that caused a 15% drop in crude production in September compared to last year. Yet, Texas oil producers claim the drop-in supply is not just about the hurricane but declining production at the well head. Regardless of the reason the number is way below EIA estimates. The EIA reported that Texas production saw a 13.4% increase from a year earlier.

Fox News reports that President Trump, on Wednesday, will order the State Department to begin moving the U.S. Embassy in Israel to Jerusalem from Tel Aviv, senior administration officials said, a move that fulfills a campaign promise made to religious conservatives but one that could inflame tensions across the Middle East. In his announcement, Trump will say that the U.S. government recognizes Jerusalem as the capital of Israel. One official described it as an "honest" acknowledgement of a "seven-decade old fact."

“While President Trump recognizes that the status of Jerusalem is a highly sensitive issue, he does not think it will be resolved by ignoring the truth that Jerusalem is home to Israel’s legislature, its Supreme Court, the prime minister and is such the capital of Israel,” one official said. Some are calling for a “day of rage” in response. Stay tuned.

Reuters reports a Saudi-led coalition intensified air strikes on Yemen early on Wednesday as the armed Houthi movement tightened its grip on the capital after it killed former president Ali Abdullah Saleh, who switched sides in the civil war. This could add to risk.

The worst copper drop in three years is raising fears about a global slowdown!

What a difference a day makes. Risk off and blinders up!

Oil and gas prices expected to rise more, but increases in supply will check growth. Denver Post.

Foreign buyers are in a bidding war with U.S. consumers for the nation’s oil and gas, and that could push up gasoline prices at the pump and home heating bills next year. But a combination of forces, including more production, could help keep future price increases in check, industry experts predicted Tuesday in Denver. The country’s once-glutted natural gas market, for example, is coming into balance as more supply heads to Mexico and overseas. Over the past 12 months, the U.S., long an importer of natural gas, became a net exporter. “It is a real thing that consumers need to be concerned about,” Jack Weixel, a vice president with PointLogic Energy, told a Denver gathering of clients of Bernstein Private Wealth Management on Tuesday. Producers, responding to higher prices and increased pipeline capacity, have boosted output by 6.2 billion cubic feet a day, although exports have pushed up demand even more, by around 7.3 billion cubic feet a day, Weixel said. Much of the increased gas production is coming out of the Marcellus Basin in Pennsylvania and Ohio, leaving Colorado’s Western Slope less able to benefit.

Demand for U.S. natural gas is expected to increase by 6 Bcf per day year-over-year in 2018, primarily driving by increased exports.