Oil: Close to close at $44.18bbl for Brent ICE (This morning at $ 44.21/bbl)

oil prices had stable to slightly bearish direction yesterday with Brent prices holding around $44/b while WTI posted losses and stayed close to the three-month lows mark at $40/b ahead of December delivery contract expiration today. The environment is clearly bearish at the moment with more and more analysts talking about a possible drop in prices in the near term. If prices are moving range bound at the moment on a lack of fundamentals change, we are heading to decisive decision for supply in December with OPEC meeting and Iran normalization process while the winter is said to be warm, leading to low demand forecast… Things should be moving before Christmas and the risk is greater on the downside.
Main events:
– According to Goldman Sachs, “Mild winter weather over the coming months could see weak heating demand in the US and Europe”. This “would likely be the trigger for adjustments through the physical market, pushing oil prices down to cash costs, which we estimate are likely around $20 per barrel,” the bank added.
– Iraq’s output in 2015 has jumped almost +500 kbd (+13%), according to the International Energy Agency. That has made Iraq the world’s fastest source of supply growth and a key driver of surging OPEC production. Nevertheless, the battle for market share between OPEC members and non-OPEC rivals has forced Baghdad to sell some crude grades for as little as $30/b recently.
Today, we see no reason for huge move on prices as no real market movers are awaited : on the economic side, speakers from Fed and the ECB (Draghi) could lead to some move the Forex and for the oil fundamentals, the Baker Hughes rig count will be the milestone today at the end of the session before WTI contract expiration. We expect prices to end the week on their current marks with Brent holding around $44/b. OPEC meeting on Dec-4 is in focus and should be the main topic next week before Iranian sanctions lifting after Mid December.

• Gas: Close to close at 17.56EUR /MWh for TTF CAL 16 (This morning at 17.70EUR /MWh)

Colder weather and the associated rise in consumption pushed European spot prices significantly higher yesterday. Lower Dutch production added to the bullish pressure. However, this rise in spot prices did not fully spread to the near curve as temperatures are expected to rise again next week.

At the close, NBP ICE December 2015 prices increased by 0.19 p/th (+0.51%), to 37.300 p/th. The rise was more moderate for TTF ICE December 2015 prices as they only earned 2 euro cents (+0.09%) at the close, to €17.360/MWh. TTF ICE Cal 2016 prices were stronger: +5 euro cents (+0.30%) at the close, to €17.559/MWh.

Despite higher demand, the UK system is oversupplied this morning thanks to higher supply, which could pull European spot prices down today. Near curve prices should be weaker as well given the expected rise in temperatures next week and the comfortable LNG supply outlook.

On the far curve, we favour a slightly bearish outlook for cal 2016 prices as the weakness in gas spot prices could be partly offset by neutral oil prices.