Distillate stocks

The Commodities Feed: Stronger middle distillates Oil prices strengthened on the back of stronger buying in the physical market. However, a more hawkish tone from the US Federal Reserve will likely provide some resistance to the market.   Energy: Middle distillate strength The oil market strengthened yesterday with ICE Brent settling a little more than 1.6% higher on the day. Stronger buying from Asian refiners more recently has been supportive, whilst Chinese monetary easing earlier in the week has also been helpful. The move has seen Brent trade back above the 50-day moving average. However, hawkish comments from the US Fed chairman overnight suggest that oil might struggle to hold onto this momentum in the immediate term. API numbers released overnight show that US crude oil inventories fell by 1.2MMbbls over the last week, whilst the market was expecting a small build of around 450Mbbls. Meanwhile, gasoline inventories increased by 2.9MMbbls, whilst distillate stocks fell by 301Mbbls. The more widely followed EIA numbers will be released later today.   Middle distillates continue to enjoy some strength with the prompt ICE gasoil crack trading above US$20/bbl, whilst the prompt ICE gasoil timespread has also traded into deeper backwardation, almost hitting US$20/t earlier this week. Gasoil inventories in the ARA region continue to trend lower (after the strong build late last year/earlier this year), which has seen levels fall below the five-year average for this time of year. Refinery maintenance in the Mediterranean and some unplanned outages in Europe recently have provided some support to middle distillates. This support may persist in the short term, however, the eventual return of disrupted capacity and the ramping up of new capacity in the Middle East should help ease this short-term tightness.

Broader market concerns have weighed on the complex, whilst a stronger dollar has only provided further headwinds. However, for oil at least, the fundamentals remain constructive   Energy: Large US crude draws The oil market continues to come under pressure, with Brent falling 1.7% yesterday, following a raft of weaker-than-expected Chinese macro data this week. The latest Fed minutes will not be helping sentiment, with them suggesting that the US Fed may have some more work to do when it comes to monetary tightening. The strength in the USD over much of the week will also be providing further headwinds to the market. As for WTI, it settled below US$80/bbl for the first time since early August. However, whilst there are broader market concerns, oil fundamentals remain largely constructive as continued OPEC+ supply cuts should ensure that we see sizeable inventory draws for the remainder of the year.  The EIA’s weekly inventory report was largely constructive, showing that US commercial crude oil inventories fell by 5.96MMbbls over the last week.  This leaves crude oil inventories at a little under 440MMbbls, which is the lowest level since the start of the year. Crude oil inventories at Cushing fell by 837Mbbls, leaving them at 33.8MMbbls- levels last seen back in April. The large draw in commercial inventories was largely driven by a rebound in crude oil exports, increasing 2.24MMbbls/d WoW. Refiners also increased their run rates by 0.9pp over the week to 94.7%. Although despite stronger refinery activity, gasoline inventories still fell by 262Mbbls, whilst distillate stocks grew by 296Mbbls. Labour talks in Australia look as though they will roll into next week in an attempt to avoid strike action at several LNG facilities after there was no breakthrough in negotiations earlier this week. Reports suggest that talks will continue next Wednesday. The fact that talks are expected to continue next week has provided some comfort to the market, with TTF settling  2.65% lower yesterday. For Europe, given the comfortable storage situation (90% full), we would need to see a large amount of the roughly 41mtpa LNG capacity at risk, disrupted for a prolonged period, in order to be overly bullish for prices.

The Commodities Feed: Iranian oil flows edge higher The oil market continues to face headwinds, both on the macro front and on the back of expectations of supply increases. Meanwhile, the natural gas market could see further volatility over the coming days with a deadline for labour talks at some LNG facilities approaching.   Energy - Deadline Day for some Australian LNG talks The rally in oil appears to have run out of steam for now. China's macro issues, along with a growing expectation that maybe the US Fed is not done with its tightening cycle have weighed on oil more recently. In addition, the broader strength in the USD will be providing some headwinds. Fundamentally, the outlook for the market is still constructive with large deficits to persist for the remainder of the year. However, there is some noise around growing supply, specifically from Iran. Iran has quietly increased its output by around 400Mbbls/d over the last year to a little over 2.9MMbbls/d, which is the highest level since late 2018. Iran has said that it will look to increase output to around 3.4MMbbl/d by the end of summer, which would leave it close to pre-sanction levels of 3.8MMbbls/d. Given much of the focus has been on Russian flows since the war, Iran has taken advantage of this to increase oil exports. This comes against the backdrop of apparently greater willingness between the US and Iran to improve diplomacy, evident with a recent deal for a prisoner swap and the release of frozen Iranian funds. There is also further noise around the potential restart of Iraqi oil flows via the Ceyhan export terminal in Turkey. The flows were halted back in March after a court ruled in favour of the Iraqi government, which claimed that these oil flows from the Kurdish region were happening without its consent. Iraqi and Turkish officials have been meeting this week with the hope of resuming the roughly 500Mbbls/d of crude oil that flows via this route. API numbers released overnight show that US crude oil inventories fell by 2.4MMbbls, slightly less than the roughly 3MMbbls draw the market was expecting. Crude oil stocks at Cushing continue to decline, having fallen by 2.1MMbbls over the week. For refined products, gasoline inventories grew by 1.9MMbbls, while distillate stocks edged lower by 153Mbbls. The more widely followed EIA report will be released later today. Natural gas markets should get more clarity around Australian LNG supply over the next 24 hours, given that end-of-day Wednesday is the deadline that workers at Woodside’s North West Shelf gave to come to a deal. As a result, we could see further volatility in natural gas prices for the remainder of the week. We should also get more clarity on how negotiations at Chevron’s Gorgon and Wheatstone are developing later this week.  

The Commodities Feed: LNG strike action delayed The oil market has shrugged off the weakness seen in equity markets with strong fundamentals continuing to support prices. Meanwhile, European gas prices came under pressure yesterday with delayed strike action at Australian LNG facilities raising hopes that parties could come to a deal.   Energy - Saudis increase prices into most regions Sentiment in the oil market remains constructive after Saudi Arabia and Russia decided to extend their voluntary supply cuts by three months. ICE Brent managed to edge higher yesterday, settling at US$90.60/bbl, whilst the Brent Dec’23/Dec’24 spread continues to surge, settling at a backwardation of US$7.28/bbl, up from less than US$4/bbl in late August. The strength in time spreads is clearly indicating tightness in the oil market. Our balance sheet shows that the market remains in deep deficit through until year-end, before moving back into a small surplus in 1Q24. While this surplus may lead to some price weakness early next year, we believe that it will be short-lived with the market set to return to deficit over the latter part of 2024.   Following the extension of Saudi cuts and the tightness in the market, it was no surprise that Saudi Arabia increased its official selling prices (OSP) for most grades of its crude into most regions. The flagship Arab Light into Asia saw its OSP raised by US$0.10/bbl MoM to US$3.60/bbl over the benchmark for October - the highest level seen so far this year. All other grades into Asia also saw increases, while similar action was taken for grades into the US and Med. Europe was the only region which saw some relief, with OSP’s for all grades cut. API data released overnight was constructive, showing that US crude oil inventories fell by 5.5MMbbls, This is larger than the roughly 2MMbbls draw the market was expecting. In addition, crude oil inventories at the WTI delivery hub, Cushing, declined by 1.35MMbbls. On the product side, gasoline stocks fell by 5.1MMbbls, while distillate stocks increased by 300Mbbls. The increase in distillate stocks was marginal but will help ease some concern over low middle-distillate inventories as we head into the northern hemisphere winter. The more widely followed EIA inventory report will be released later today.   Natural gas prices came under significant pressure yesterday with TTF falling by almost 10%. This is after growing optimism that strike action at two of Chevron’s LNG facilities in Australia may be avoided. Partial strike action was meant to start at Gorgon and Wheatstone today. However, this has been delayed until tomorrow as the company and unions continue to work towards a deal. The two facilities make up around 6% of global LNG supply so the market continues to watch these developments closely. The European market will also have to deal with lower Norwegian gas flows for a little bit longer than originally anticipated. Field maintenance at several fields, including Troll has been extended by a couple of days. Total Norwegian flows are around 137mcm/day, compared to more than 300mcm/day in mid-August.

The Commodities Feed: Positive economic sentiment helps to boost prices The Fed’s decision to keep interest rate hikes on pause for a second consecutive time has bolstered economic sentiment and supported commodity prices, including energy and metals. Fresh mine closures have provided additional support to zinc, with prices climbing to around US$2,600/t yesterday.   Energy – OPEC oil output held stable ICE Brent has been trading firm this morning on positive economic sentiment after the US Fed continued to pause interest rate hikes. The hawkish tone remains in the accompanying statement. Lower crude oil inventory in the US and Europe also continued to be supportive of crude oil prices. Preliminary OPEC production numbers for October suggest a broadly stable output as the modest increases across most of its African members offset the declines elsewhere. According to a Bloomberg survey, OPEC output increased by 50Mbbls/d MoM to 28.1MMbbls/d last month. Nigeria led the gains, with their production rising by 60Mbbls/d to 1.5MMbbls/d followed by Venezuela (+30Mbbls/d), Congo (+20Mbbls/d) and Gabon (+20Mbbls/d). The output additions were partially offset by declining production in Iraq (-40Mbbls/d), Iran (-30Mbbls/d), Kuwait (-20Mbbls/d) and Libya (-20Mbbls/d). The latest numbers from the EIA weekly inventory report show that US commercial crude oil inventories increased by 0.8MMbbls over the last week. Earlier, API reported an inventory build of 1.35MMbbls while the market expected a build of around 1MMbbls. Total crude oil inventory (excluding SPR) at around 421.9MMbbls remains about 5% below the five-year average at this point in the season. US crude oil production remained unchanged at 13.2MMbbls/d. As for refined products, gasoline stocks rose by 0.1MMbbls, while distillate stocks fell by 0.8MMbbls. US refinery utilization softened further to around 85.4% as refineries aim to complete maintenance activity before winter demand kicks in.