NYMEX WTI

The Commodities Feed: Hawkish Fed comments weigh on the complex Hawkish comments from the US Federal Reserve – that it could potentially raise interest rates in July and September – have weighed on the commodity complex this morning. Meanwhile, the weekly crude oil report from the Energy Information Administration (EIA) yesterday was constructive for the oil market, with inventory falling at a rapid pace.   Energy – EIA reports sharp decline in crude oil inventory ICE Brent and NYMEX WTI jumped higher yesterday after the EIA reported a largely constructive crude oil market report with a sharp inventory decline. However, the market has been trading softer this morning on account of hawkish comments from the US Fed as inflationary concerns continue. The weekly report from the EIA shows that commercial crude oil inventories in the US fell by 9.6MMbbls (the largest weekly decline since 19 May) over the week to 453.7MMbbls (the lowest since 27 January). The decline was higher when compared to the market expectation of a drawdown of 1.3MMbbls and the decline of 2.4MMbbls reported by API for the week. When factoring in the Strategic Petroleum Reserve (SPR) releases, the decline was even sharper, with total US crude oil inventories falling by around 11MMbbls, as SPR stocks fell by 1.4MMbbls for the week. US crude oil exports increased to 5.3MMbbls/d for the week which has weighed on the inventory. Meanwhile, crude oil inventories at Cushing, Oklahoma, rose by 1.2MMbbls to 43.2MMbbls, the highest level since June 2021. The EIA reported that US crude oil production was unchanged at 12.2MMbbls/d last week. As for refined products, gasoline inventories rose by 0.6MMbbls, against a forecast for a marginal build of 0.1MMbbls. Meanwhile, distillate stockpiles rose by 0.1MMbbls last week, slightly lower than expectations for a build of 0.2MMbbls. Refinery utilisation rates dropped from 93.1% to 92.2% for the week.

The Commodities Feed: Specs reduce oil net long Oil finished last week on a strong footing, however, it has come under some pressure in early morning trading today. Trading is likely to be thinner than usual at the start of the week due to Independence Day in the US on Tuesday.   Energy - specs trim their net long Having had a relatively strong end to the week, which saw Brent settle back above the US$75/bbl level, the oil market is under some pressure in early morning trading today. We may have officially moved into the second half of the year, but the market still has the same concerns which plagued it over much of the first half of the year. And the biggest problem at the moment is the uncertain demand outlook. Speculators are clearly still hesitant about the outlook and this was reflected in the latest positioning data, which shows that speculators reduced their net long in ICE Brent by 30,586 lots to 159,800 lots over the last reporting week. This was driven by a combination of longs liquidating and fresh shorts entering the market. The gross short position increased by 18,331 lots. CFTC data also showed that speculators cut their net long in NYMEX WTI  by 35,257 lots over the last reporting week, leaving them with a net long of just 71,543 lots. This is the smallest net long speculators have held in WTI since March when we saw prices trading briefly below US$65/bbl. Given the strength in the domestic gasoline market, Russia is reportedly looking to take measures to increase domestic supply. The deputy prime minister has told oil companies to prioritise the domestic market over exports. If the situation requires it, the government will look into potentially imposing export quotas for the fuel. This is not the first time that there have been suggestions of export limits. There was noise back in May that the government could take such action. Bloomberg reports that this week, the US Department of Energy (DoE) will announce its intention for further purchases of crude oil for the Strategic Petroleum Reserve after the significant releases seen through 2022. So far this year, the DoE has tendered for around 6MMbbls of crude oil and there are suggestions that the DoE will look to buy in the region of 12MMbbls over the course of the year. As for the calendar this week, OPEC’s International Seminar kicks off on Wednesday and will run for 2 days. We can expect to hear further noise around OPEC+ policy during the event, with the Saudi energy minister set to give a speech. It is also expected that Saudi Aramco will announce its official selling prices for August loadings sometime this week, and there is also the potential for further news on whether Saudi Arabia will roll over its additional voluntary cut of 1MMbbls/f into August. The market is expecting that they will do so.

The Commodities Feed: Further US SPR purchases The oil market had a strong end to the week following the extension of Saudi voluntary cuts earlier in the week. For this week, markets will be focused on US CPI data on Wednesday, whilst specifically for the oil market, we have the IEA and OPEC oil market reports released later in the week.   The oil market managed to pull off a second consecutive week of gains with ICE Brent settling almost 4.8% higher last week. Cuts from both Saudi Arabia and Russia have provided some support, although the market will have to continue to contend with macro uncertainty, which has capped the market over the last couple of months. The recent action taken by Saudi Arabia will likely provide some comfort to longs as it sends the signal that the Saudis are committed to putting a floor under the market. The latest positioning data shows that speculators increased their net long in ICE Brent by 25,106 lots over the last reporting week to 184,906 lots as of last Tuesday. This move was predominantly driven by fresh longs entering the market, with the gross long increasing by 16,881 lots. Meanwhile, for NYMEX WTI, speculators increased their net long by 23,820 lots to 95,363 lots. This was driven almost exclusively by short covering. At 112,155 lots, the gross short in WTI is still sizeable and so with the right catalyst, there is the potential for a short-covering rally. Another factor which is providing some degree of support to the market is the refilling of the US Strategic Petroleum Reserve (SPR). On Friday the Department of Energy (DoE) announced that it will be looking to purchase around 6MMbbls of US sour crude oil for delivery in October/November.  Up until now, the DoE has successfully tendered for 6.3MMbbls, with this volume set to be delivered in August and September. There had been reports that the DoE was looking to buy roughly 12MMbbls this year, and if we see the total volume awarded in the latest announcement, that would get us to this 12MMbbls already. A large explosion at a Mexican platform, which was sadly deadly, saw Pemex reduce oil output by 700Mbbls/d. However, the bulk of these shut-ins appears to have been precautionary and 600Mbbls/d of this output has already returned, according to the company. Drilling activity in the US continues its decline with the latest data from Baker Hughes showing that the number of active US oil rigs fell by five over the week to 540. This is the lowest number since early April 2022. The number of active oil rigs in the US has fallen by 81 since the start of the year. Lower drilling activity suggests more limited supply growth. And this is a trend that we have seen in the EIA’s US crude oil supply forecasts with less than 200Mbbls/d of US supply growth expected in 2024. The EIA will release its latest Short-Term Energy Outlook on Tuesday, which will include US production forecasts for the remainder of 2023 and 2024. In addition to the EIA’s Short-Term Energy Outlook release on Tuesday, both OPEC and the IEA will release their latest monthly oil market reports on Thursday. Given the macro uncertainty, the market will likely be focused on any changes to demand forecasts in both reports. Away from energy markets, the big macro release this week will be US CPI numbers on Wednesday, which will likely further shape market expectations on how much more monetary tightening we could see from the US Federal Reserve in the months ahead.

The Commodities Feed: Supply tightness could support copper Codelco has lowered its copper production guidance for the year due to production disruptions that could tighten the market. Meanwhile, copper inventories at LME and SHFE remain low.   Energy: EU gas inventory continues to increase at a stable pace Crude oil prices continued positive momentum on Friday and ended the week on a high note with ICE Brent rising to around US$85/bbl while NYMEX WTI also strengthened to US$80.6/bbl. Market expectations of an extension of the supply cut by Saudi Arabia remain supportive of oil prices in the immediate term. The price discount for Western Canada Select (WCS) crude oil over the WTI increased to around US$15.3/bbl last week as an unplanned outage and advanced maintenance schedule at BP’s Whiting refinery fuelled pessimistic sentiment. BP had to shut the 100Mbbls/d cat feed hydrotreater plant on Friday, which could push the maintenance schedule for the refinery from September to August. The 435Mbbls/d Whiting refinery is one of the major refiners of Canadian crude and early maintenance at the plant could result in lower demand for Canadian crude in the short term. Higher discounts also reflect the additional cost of transportation as the crude travels further for refining. TTF gas prices retreated to below €26/MWh on Friday after increasing to €32.6/MWh earlier in the week. The supply side remains healthy, as reflected by inflows of gas into storage tanks. The EU gas inventory increased by another 22.6TWh over the week, taking the gas storage to 85.4% full as of 29 July. European gas storage currently is comfortably above the five-year average of around 70% for this point in the season. The gas injection has been consistent at around 20-23TWh per week for the last two months and at this rate, European gas storage could reach near-full capacity by the end of September 2023. Meanwhile, the discount of European gas prices compared to Asian LNG prices increased to an average of around US$2.1/MMBtu in July compared to an average of around US$0.3/MMBtu in June 2023. The higher discount in the European gas market could help divert more LNG cargoes towards Asia and reduce the supply glut in the European market.    

The Commodities Feed: Tight supplies lift oil prices OPEC oil output dropped by around 0.9MMbbls/d in July due to production cuts from Saudi Arabia and Nigeria. Meanwhile, the American Petroleum Institute (API) reported the biggest weekly drop in oil inventory in years.   Energy – OPEC crude output falls The oil market edged higher this morning with prices of both ICE Brent and NYMEX WTI gaining more than 1% day-on-day, following a bullish inventory report from the API and lower OPEC output in July. The API reported that US crude oil inventories decreased by 15.4MMbbls over the last week, significantly higher than the market expectations of around 1.4MMbbls. If confirmed by the Energy Information Administration's (EIA) report later today, this will be the largest weekly inventory drawdown since 1982. Cushing crude oil stocks are reported to have decreased by 1.8MMbbls. On the products side, API reported that gasoline and distillates inventories fell by 1.7MMbbls and 0.5MMbbls respectively, over the week ending 28 July. Meanwhile, preliminary OPEC production numbers for July are starting to come through and it is no surprise that the group reduced output over the month as some members agreed to implement voluntary production cuts. According to a Bloomberg survey, OPEC output declined by 0.9MMbbls/d month-on-month to 27.8MMbbls/d last month, the lowest since 2020. Saudi Arabia led the decline with its production falling by 810Mbbls/d to 9.15MMbbls/d followed by Nigeria trimming the output by 130Mbbls/d to 1.26MMbbls/d. Production in Libya also declined by 50Mbbls/d to 1.1MMbbls/d as a protest briefly disrupted production at its Sharara oil field. The output cuts were partially offset by recovering production in Iraq (+70Mbbls/d), Angola (+40Mbbls/d) and the UAE (+20Mbbls/d). On the products side, recent reports suggest that Petroleos Mexicanos shut down the nation’s largest oil-exporting terminal following an operational issue. Bloomberg reported that the FPSO Yúum K’ak’ Náab in the Gulf of Mexico was shut on Sunday because of a crude leak in one of its hose trains. Prior to this, Pemex halted its Salina Cruz terminal last month following a fire incident and unfavourable weather conditions. The export disruptions from Mexico could help increase demand for the US refined products in the domestic market in the short term.

The Commodities Feed: Russia-Ukraine tensions add to oil supply risks The Ukrainian drone attacks on Russian oil tankers in the Black Sea region have added to supply risks for the crude oil market. Meanwhile, the Joint Ministerial Monitoring Committee (JMMC) meeting of OPEC+ countries ended without any recommendation to change oil output levels for now.   Energy – Ukrainian drone attacks on Russian oil tankers ICE Brent settled above US$86/bbl on Friday as tensions in the Black Sea region increased further after Ukraine declared Russian ports in the Black Sea as ‘war risk’ areas and cautioned ships against using them. Ukrainian drones also attacked a Russian oil tanker over the weekend reflecting heightened tension within the region. The Black Sea route accounts for nearly 15-20% of the oil that Russia sells daily on global markets and is also a major transit corridor for Kazakh crude. In the recent JMMC meeting, the OPEC+ group noted its satisfaction regarding the compliance with the output levels by member countries and made no recommendation for any change in production strategy at this stage. The committee recognised the additional voluntary cuts from Saudi Arabia and Russia to balance the oil market. The group has changed the frequency of meetings from once a month to once every two months, with the next meeting scheduled for the first week of October. Saudi Arabia increased its official selling price for Asia and Europe for September deliveries following its decision to also extend the output cuts for the month. Saudi Aramco has increased the premium of Arab Light crude for Asian buyers by US$0.30/bbl to US$3.5/bbl for September deliveries. The increment was much steeper for European buyers with the new premium set at US$5.8/bbl compared to US$3.8/bbl for August deliveries. The premium for US buyers was left unchanged at US$7.25/bbl. The latest data from Baker Hughes shows that the US oil rig count declined by four for an eighth consecutive week to 525 over the last week. This is the lowest number of active rigs seen since 18 March 2022. The recent strength in oil prices should have seen higher capital expenditure and increasing rig count in the country, however, the oil exploration companies appear to still be assessing the stability of the current market strength. Lastly, the latest positioning data from CFTC show that speculators increased their net long position in NYMEX WTI for a fifth consecutive week by 13,855 lots over the last week, leaving them with net longs of 205,959 lots as of 1 August 2023, the highest since the week ending on 18 April 2023. Meanwhile, money managers increased their net longs in ICE Brent by 18,728 lots over the last week for a second consecutive week, leaving them with 215,368 lots as of last Tuesday.    

The Commodities Feed: LNG strike action looms We should get more clarity on potential strike action at Australian LNG facilities later this week, with workers giving a deadline for talks. Gold prices remain under pressure, but Jackson Hole could bring increased volatility later in the week.   Energy - Moving closer to LNG strike action The global natural gas market should get more clarity around potential strike action at Australian LNG facilities this week. Over the weekend, workers at Woodside said they will give the company until the end of Wednesday to come to a deal - otherwise they will call industrial action. Workers said that they would give 7 working days notice if strike action is to be taken. Woodside’s North West Shelf (NWS) facilities have a capacity of around 16.7mtpa, equivalent to a little over 4% of global supply. We should also get more clarity on what workers at Chevron’s Gorgon and Wheatstone facilities decide by 24 August. These two facilities have a combined capacity of 24.5mtpa. Given that European gas storage is now around 91% full, we believe any strength in prices should be short-lived. We would need to see a large amount of the at-risk capacity (41.2mtpa) offline for a prolonged period in order to lead to a significant change in European fundamentals, at least over the next month or two. Chinese trade data released last week shows that LNG imports in July totalled 5.86mt, down from 5.96mt the previous month, although, still up 24.3% YoY. This leaves cumulative LNG imports at 39.24mt, up 9.3% YoY. These stronger YoY flows are to be expected, given the impact of covid-related lockdowns last year. It is important to point out that cumulative imports are still down more than 13% from 2021 levels.   Trade data also showed that Chinese diesel exports grew significantly, with 910kt exported over July, up from 290kt in June and a 153% increase YoY. This leaves cumulative exports at 8.4mt - an almost 250% increase YoY. Stronger run rates and larger export quotas have supported these stronger flows, whilst a strong global middle distillate market more recently will also be supportive of these flows. The latest rig data from Baker Hughes shows that the number of active oil rigs in the US fell by 5 over the week to 520 - the lowest level since March last year. The US has lost 107 oil rigs since early December and it is not too surprising that this reduced drilling activity means that oil production growth forecasts for later this year and through 2024 are looking relatively modest. Primary Vision’s frac spread count shows that it is not just drilling activity which is falling - US completion activity is also trending lower, with the frac spread count falling by 6 over the last week to 256. The latest positioning data shows that speculators increased their net long in ICE Brent by 19,748 lots to 230,735 lots. This is despite oil prices edging lower over the reporting period. The move was driven by fresh longs, suggesting that some speculators took advantage of more recent price weakness to enter the market from the long side. Positioning data for NYMEX WTI shows that speculators liquidated longs over the week, with the net long declining by 31,338 lots to 178,820 lots. Finally, speculators remain constructive towards middle distillates, increasing their net long in ICE gasoil by 5,703 lots to 93,941 lots - the largest position since March 2022. The market appears to be concerned about the fact that ARA gasoil inventories are still looking quite tight and we are yet to start seeing a build in inventories as we edge closer towards the start of winter.

The Commodities Feed: Oil fundamentals remain supportive The oil market remains well supported on the back of constructive fundamentals, and Russia’s ban on diesel and gasoline exports also adds support. The calendar this week is looking fairly quiet.   Energy - Speculative appetite grows The oil market has held relatively steady in recent days with tightness in the physical market coupled with Russia’s recent export ban on diesel and gasoline offset by a fairly hawkish FOMC meeting last week. As a result, Brent continues to hold above US$93/bbl. Speculators continue to become more constructive towards the market with the speculative net long in ICE Brent growing by 17,904 lots over the last reporting week to 265,531 lots as of last Tuesday. This is the largest net long speculators have held since March, and the increase over the week was predominantly driven by short covering. Similarly, speculators increased their net long in NYMEX WTI by 15,084 lots over the reporting week to 294,396 lots - the largest position held since February last year. However, speculators cut their net long in ICE gasoil, which fell by 6,940 lots over the week to 59,359 lots as of last Tuesday. The current net long is likely somewhat larger than this, given the move seen in the gasoil market following Russia's ban on diesel and gasoline exports. As we mentioned in our note last week, while the ban only reinforces our supportive view on middle distillates, we do not believe it will remain in place for long, given the domestic storage constraints that will be soon faced by not allowing roughly 1MMbbls/d of diesel exports. The latest data from Baker Hughes shows that the US oil rig count fell by 8 over the last week to 507. This is the first weekly decline in 3 weeks and sees a resumption in the fall we have seen for much of this year. The number of active oil rigs has fallen by 114 rigs since the start of the year. The fall in rig count this year is what has given OPEC+ the confidence to cut output without having to worry too much about losing market share to non-OPEC producers. European natural gas prices managed to settle more than 9% higher over the course of last week. This is despite strike action at Australian LNG facilities coming to an end, along with Norwegian gas flows continuing to recover as capacity at the Troll field returns following maintenance. With EU storage almost 95% full and supply risks subsiding, we would expect to see some downward pressure on the front end of the curve.

Energy – OPEC crude oil production softens in November Sentiment in the oil market remains negative this morning, with both ICE and WTI futures trading almost 1% lower after the announcement from the OPEC+ meeting failed to convince the market about a tighter oil balance in the immediate term. Pessimism over compliance with the new deal remains one of the major concerns for the market for now. Initial data shows that OPEC crude oil production dropped to around 28.05MMbbls/d in November 2023 compared to 28.19MMbbls/d in October 2023, according to a Bloomberg survey. The BBG survey estimates that supply from Iraq and Nigeria dropped by 50Mbbls/d each, while Iran and Kuwait also lowered production by 40Mbbls/d each. Higher production from Saudi Arabia and Libya helped offset some of the production losses for the month. Weekly data from Baker Hughes shows that the US added five oil rigs over the last week, taking the total oil rig count to 505, whilst the gas rigs fell by 1, taking the total rig count (oil & and gas combined) to 625 for the week ended 1 December. US oil rigs have now increased to their highest level in nearly two months, although the recent weakness in oil prices could weigh on further rig additions over the coming weeks. The Al-Zour refinery in Kuwait is now fully operational as the third of the three mini refineries was brought online on Sunday. This will gradually increase the refining capacity of the facility to 615Mbbls/d from the current capacity of 410Mbbls/d. The plant halted its operational activities last month after a fuel gas feed was halted. Al-Zour is one of the largest oil-processing facilities in the Middle East and it is expected to boost the nation’s refining capacity to about 1.5MMbbl/d. The latest positioning data from CFTC shows that speculators decreased their net long position in NYMEX WTI by 6,408 lots for a ninth straight week over the last week, leaving them with net longs of 98,137 lots as of 28 November 2023, the lowest since the week ending on 4 July 2023. In contrast, money managers increased their net longs in ICE Brent by 11,630 lots over the last week after reporting five consecutive weeks of decline, leaving them with a net long position of 166,735 lots as of last Tuesday.

The Commodities Feed: US natural gas prices spike higher Spot US natural gas prices spiked higher on Friday on the back of cold weather across large parts of the US. Meanwhile, tensions in the Middle East remain elevated following US and UK airstrikes in Yemen last  Energy- US natural gas prices spike higher The oil market saw a fairly choppy trading session on Friday with ICE Brent trading within a US$2.79/bbl range. Brent briefly broke above US$80/bbl amid ongoing tension in the Middle East, specifically the Red Sea, following US and UK airstrikes against the Houthis in Yemen. However, the market was unable to hold on to these earlier gains. While geopolitical risks are certainly building, we are still not seeing a reduction in oil supply as a result of developments in the region. But, the more escalation we see in the region, the more the market will have to start pricing in a larger risk of supply disruptions.   Speculators boosted their positions in ICE Brent over the last reporting week, increasing their net long by 38,905 lots, leaving them with a net long of 208,748 lots as of last Tuesday - the largest position they have held since October. The move was predominantly driven by fresh longs with the gross long increasing by 29,942 lots over the period. Speculators also increased their net long in NYMEX WTI, with the net long increasing by 21,799 lots to 111,129 lots as of last Tuesday. For WTI, the move was largely driven by short covering, with the gross short falling by 20,138 lots. European gas storage has now broken below 80% with colder weather over the last week seeing the largest daily withdrawals from storage so far this winter. However, storage remains above the 5-year average of 68% for this time of year. For now, we are still assuming that European storage will finish this heating season at around 52% full, which suggests limited upside for European gas prices. The US natural gas market has seen increased volatility in recent days and Friday saw a significant jump in spot prices. While front-month Henry Hub futures settled almost 7% higher on Friday, spot prices jumped more than 300% to over US$13/MMBtu due to freezing weather conditions across large parts of North America. Colder weather will lead to stronger heating demand. But there are also supply risks. Freezing conditions expected in Texas could lead to disruption to natural gas infrastructure. Front-month futures have given back a lot of Friday's gains in early morning trading today. There is plenty on the energy calendar this week. On Wednesday, China will release its industrial production numbers for December, which will include output data for crude oil and refinery activity. OPEC will also release its latest monthly market report on the same day, which will include its 2024 outlook for the oil market. On Thursday, the International Energy Agency will release its latest oil market report, while China will release its second batch of trade data, which will include more detailed energy trade numbers. Also, given today is a public holiday in the US, the usual weekly inventory numbers from the API and EIA will be delayed by a day.   Agriculture – larger US corn and soybean supplies The USDA revised up its 2023/24 US corn production estimates by 108m bushels to a record 15.34bn bushels on account of rising yields. As a result, ending stocks are now projected to hit 2.2bn bushels, up 31m bushels from previous estimates. For the global balance, 2023/24 ending stock projections were revised up from 315.2mt to 325.2mt primarily due to larger supplies. Global corn production was revised up by 13.7mt to 1,235.7mt, with supply increases from the US (+2.7mt), and China (+11.8mt). For soybeans, the USDA raised its 2023/24 US production estimate from 4,129m bushels to 4,165m bushels, on the back of stronger yields. Ending stock estimates were revised up by 35m bushels to 280m bushels as a result. Given marginal adjustments in global production and usage compared to last month, ending stock projections for 2023/24 increased by just 0.4mt to 114.6mt. The USDA decreased its US wheat ending stocks estimate for 2023/24 from 659m bushels to 648m bushels following a reduction in beginning stocks. For the global wheat market, the USDA increased 2023/24 ending stock estimates from 258.2mt to 260mt, largely on account of higher stocks at the start of the year. Global wheat production estimates were increased by around 1.9mt to 784.9mt. In addition to the WASDE monthly update, the USDA also released its quarterly grains stocks report which showed that US corn and soybean stocks stood above market expectations as of 1 December 2023. US corn stocks totalled 12.2bn bushels, up 12.5% YoY and above market expectations of 12bn bushels. Meanwhile, US soybean stocks came in at 2.99bn bushels, down 0.7% YoY, but higher than the average market expectation of 2.97bn bushels. Finally, for US wheat, stocks were up 7.5% YoY to total 1.4bn bushels, largely in line with market expectations of 1.39bn bushels.