Energy Prospectus

I am catching up on my reading after the EPG Cruise.
IMO the price of WTI oil will probably remain in the low $50s until (a) it becomes clear that the OPEC+ cuts are reducing crude oil inventories and (b) there is a resolution of the "Tariff War" between the U.S. and China. Another "concern" is the increase in Ultra-Light crude on the global oil market (from shales) and the decline in heavy oil from Venezuela and Canada. This has caused the price of diesel to spike. Home heating oil is also made from heavy oil.
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Dated February 6, 2019
Morgan Stanley
The Oil Manual: Surge in Light Oil Supply Puts Ceiling on Benchmark Oil Prices
by Martijn Rats, CFA – Morgan Stanley

OPEC reduced exports in January sharply, tightening the physical oil market. Yet, underlying the current equilibrium lies an important imbalance: too much light oil. This weighs disproportionately on Brent and WTI, gasoline cracks and refining margins. For now, Brent can rally only so much.

The crude oil market has slowly tightened...: After a period of weakness late last year, OPEC reduced seaborne exports by 1.3 mb/d m/m in January, which tightened physical oil markets. Although oil-in-transit is still high by historical standards, it has started to fall, floating storage is no longer rising, and high-frequency data on onshore storage has started to roll over as well, showing modest declines in recent weeks. Oil markets have come back into balance....and this is reflected in prices; 'partial recovery' still ongoing: These factors, as well as a broader rally in risk assets, drove front-month Brent futures 15% higher in January - the strongest start in the 31 year history of the Brent contract. Other indicators that reflect conditions in the physical market improved too: the forward curve is back in shallow backwardation, the DFL has strengthened since the start of the year and West African differentials have improved. Yet, a major imbalance has emerged - too much light oil: We highlighted that the global crude slate is getting lighter last year. This is now clearly visible in the data: over the last three months, seaborne loading increased 500 kb/d y/y. However, this was due to a very large increase of 2.2 mb/d in light-sweet grades, offset by a similarly large 1.7 mb/d decline in medium/heavy crudes.
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If you want to read the full report, send me an email and I will forward it to you ( dmsteffens@comcast.net )

Tanker rates confirm OPEC curtailment.

Today is the 40th anniversary of the ousting of the Shah and the Iranian revolution. Hundreds of thousands of Iranians held nationwide rallies chanting, "Death to America." I expect the sanctions against Iran to tighten in May as several sanction waivers will not be renewed and those which are will be reduced. If Trump is successful in his goal of regime change in Iran it will (IMO) be a major accomplishment. The civilized world has put up with their crap long enough.

BMO Capital Markets 2/11/2019:

"WTI was able to bounce off the $51 level twice today and finish very close to its intraday high of $52.63, which would have happened were it not for a 25 cent slip in the last 3 minutes before settlement. The market would still like to see some progress in U.S.-China trade talks, especially before the next round of tariffs kicks in on March 1st. Thus far a resolution appears as a small speck of dim light in a very long, dark tunnel. That leaves supply cuts as a major hope for anybody bullish crude, and the supply fundamentals might suggest that crude could be and should be higher, but the demand side of the equation is likely what worries the market. Not only that, but the supply crunch is disproportionately in the heavy sour grades which has the Brent/Dubai spread about flat now. So one could say the decrease in supply is having its effect on price, but it is affecting heavy sours far more than lighter, sweeter grades. Back to China, Treasury Secretary Mnuchin and Trade Representative Lighthizer are heading to China to try and make some progress on the trade dispute. Look for rumors and headlines regarding those talks to push the oil market around a bit."