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A series of bearish news reports led to the price correction since 5thOctober. US oil price weakened on larger than expected US inventories build of 6 mn barrels, and the impact of hurricane Michael on oil supply in the GoM was assessed to be limited but could impact product demand instead. Additionally, UAE announced it would raise output in 4Q’18, prompting prices to pare gains after IEA warned of a “challenging 4Q’18” due to supply concerns.
In the latest monthly international oil agency reports, both OPEC and IEA acknowledged the uncertainty around global growth along with higher crude price is likely to impact the growth in oil demand in the near term. OPEC and IEA revised 2019 demand growth down by 80 kbd and 110 kbd, respectively, from their last monthly report.
On the supply side, IEA lowered 2019 non-OPEC supply growth by 50 kbd, while OPEC revised it down by 30 kbd vs. the previous month’s estimates. The 2018 non-OPEC supply growth was revised sharply to the upside by 180 kbd by IEA and 200 kbd by OPEC due to higher oil prices and OPEC- NOPEC agreement in Vienna in Jun'18.
The decline in demand growth and simultaneous increase in non-OPEC supply in 2018 is clearly evident in call-on-OPEC declining as printed by all three agencies (including EIA). On the contrary, OPEC supply has increased by 630 kbd since May’18, which has led the total OECD oil and crude oil products inventories to rise. It was solely driven by oil products as refineries processed at record levels.
Total oil inventory (oil and oil products) nevertheless was still 34 mn bbl below the five-year average in Aug'18.
Stay long NYMEX WTI for January’2019 and short February 2019 NYMEX WTI: As we see US production growth slowing down from its peak in mid 2018 and pipeline companies could bring forward some of the pipeline completion dates, we feel the WTI time spreads are under-priced and should strengthen from here onward.
Initiated long in NYMEX WTI for January’2019 and short in NYMEX WTI trade for February 2019 at 0.17/bbl in 19 Sep. Target of $0.4/bbl and stop loss of $0/bbl. Marked to market on 12 Oct at $0.09/bbl for a loss of $0.08/bbl or -0.11% of the underlying. Courtesy: JPM
Currency Strength Index: FxWirePro's hourly USD spot index is at shy above -143 levels (which is bearish), while hourly EUR spot index is edging higher at 59 levels (bullish), while articulating (at 12:29 GMT). For more details on the index, please refer below weblink:
