Oil: close at $48.79bbl for Brent ICE (This morning at $ 48.58/bbl)
Crude prices are still oscillating within their thin trading range and, after hitting $50/b on Friday, Brent prices are now starting a new decline move. Crude oil futures are still pressured by oversupply (Iran, OPEC, Russia) and worries the Federal Reserve eventually raises interest rates in December but, at the same time, they seek support in US output and upstream investment decline.
– Russia reported that its October oil production hit a new post-Soviet record of 10.78 Mbd, +0.4 % month on month. Despite low prices, Russia rose its output lately in order to try to protect its market share from rivals but also to keep oil revenue high as it contributes mainly to national budget (more than 50%). Nevertheless, investments cut, abandoned projects and postponed maintenance or field development should have a strong impact on production in the medium to long term on Russian output. Russian oil industry is struck both by low prices and international sanctions after the Ukrainian war.
– As well, according to REUTERS, Gulf oil producers are currently delaying some field maintenance until next year to keep production high and reduce costs as they forecast weaker oil prices in 2016 and they need to cut spending.
– Things are moving in the US with two recent decisions about Strategic Reserves and XL Keystone pipeline: first, president Obama signed yesterday the two-year budget deal struck late last month between the White House and congressional leaders: this deal will raise an estimated $5 billion through the sales of 58 Mb from the Strategic Petroleum Reserve (SPR) from 2018 to 2025 if oil prices rise above $80/b. In addition, the deal allows the Energy Department to sell another $2 billion worth of oil from the reserve, or another 25 to 40 Mb, and raise money to upgrade the reserve’s capacity to respond to any emergency oil disruption. About the Keystone XL pipeline, TransCanada Corp asked yesterday the US government to suspend review of the $8 billion project, a move that could put its fate in the hands of the next US president. Democratic front-runner Hillary Clinton has said she opposes the pipeline while many Republican candidates support the project. We see low prices and environment issues are shaking US oil industry and the US context could change deeply in the coming years.
“Nothing to declare” on the economic markets today so the crude traders will focus on API figures tonight as the only concrete market mover. The same bearish mood should continue until prices approach the lower boarder of the trading range : then, as it was the case last Tuesday, the market will have to wonder if it jumps the cliff to yearly lows or if it rebounded. We have some time to think about that as Brent prices are still $1.7/b above $47/b. We have bearish views for today with a first support at $48.1/b.
Gas: close at 17.76EUR /MWh for TTF CAL 16 (This morning at 17.75EUR /MWh)
European curve prices continued to lose value on Monday, pressured by mild weather forecasts for the coming days and a comfortable supply outlook with strong Norwegian production and a flurry of LNG deliveries expected this week. Weakness in oil prices provided additional bearish pressure to far-curve maturities. A stronger pound against the euro and a resumption in imports from the Netherlands to the UK through the BBL pipeline fuelled the bearish sentiment on the British market. NBP ICE December 2015 prices lost 0.46 p/th at the close (-1.17%), to 38.99 p/th. TTF ICE December 2015 prices were also lower at the close: – 16 euro cents (-0.88%), to €17.831/MWh. TTF ICE Cal 2016 prices hit a new all-time low at the close: -16 euro cents (-0.91%), to €17.764/MWh.
Spot prices were more resilient as temperatures dropped on Monday before expectations of a gradual increase throughout the week. In the UK, residential demand jumped 21 mm cm above Friday’s level but remained 13 mm cm below seasonal norms. Residential demand also increased by 17% compared to Friday in the Netherlands. On the supply side, Russian flows dropped by 40 mm cm/day compared to Friday but Dutch production increased by 15 mm cm/day. A 12-hour planned corrective maintenance on the Vesterled pipeline connecting Norwegian production to the UK at St-Fergus on Tuesday provided additional support to NBP day-ahead prices which rebounded slightly after heavy losses recorded over previous sessions. A short system in the North of France gave a boost to PEG NORD day-ahead prices towards the close yesterday, bucking the bearish trend at neighbouring hubs.
Spot prices are likely to remain under bearish pressure today as temperature forecasts are still very mild for this time of year, progressively dampening gas demand. In the UK, residential demand is expected to drop by 4 mm cm compared to Monday. Supply fundamentals are strong this morning. With four LNG cargoes expected to berth in the UK this week, British LNG send outs jumped by 10 mm cm/day compared to Monday, ensuring comfortable supply to the UK system despite lower Norwegian supply due to maintenance. All in all, we favour a bearish outlook for spot and near-curve contracts today. Far-curve contracts could continue to weaken on the back of depressed spot contracts and softer Brent prices.