Brent prices sank yesterday, posting a huge -2.8/b loss, almost -5%, the biggest daily drop since more than a month. WTI followed the same move and lost -$2.5/b intraday. Brent and WTI trade this morning around $50/b and $47.5/b respectively. A correction was expected after the strong rebound of last week but that magnitude is surprising and shows that volatility is back on markets after crude prices finally broke their thin trading range. The downward movement began early in the session but it was then fuelled by a bearish OPEC report and disappointing Chinese imports figures.
– The OPEC report published yesterday was the main market mover : after one year, it gave to the cartel the confirmation that its strategy was finally working and it therefore push its members not to move an inch from it. The organization forecasts the world would need 30.82 Mbd from its oil next year, up 510 kbd from the previous prediction. The OPEC now sees a 750 kpd supply surplus in the market next year if the group kept pumping at September’s rate, down from 1.23 Mbd last month.
This is due to a drastic reduction of non-OPEC supply (in the US but also in the former Soviet Union, Africa, the Middle East and much of Europe) and a stabilized demand. The report also says OPEC members continue to boost supplies and, according to secondary sources cited by the report, OPEC pumped 31.57 Mbd in September (+110 kbd from August), and almost 2 million bpd more than its prediction of the demand for its crude this year.
– The other bearish factor was the Chinese import figures that came out weaker than expected. Imports from the Middle Empire dropped for the 11th straight month, losing over 20% yoy, raising more doubts about Chinese economy. Talking about oil imports, numbers showed China’s September imports rose +1.3% from the same month last year thanks to weak oil prices.
– Yesterday, Iran’s parliament passed a bill supporting the government in implementing the nuclear deal with world powers. Next deadline in the process to sanctions lifting is the 15th of October (Thursday) when Tehran should have answered all the questions of the atomic energy agency (IAEA). Then, the agency will have two more months (until 15-Dec) to check that Iran is in full compliance with the deal and sanctions will be ready to be lifted…
The collapse yesterday was brutal but the OPEC report was just a pretext : it was not that bearish and could be considered as bullish knowing that it also shows that situation is tightening with the shale decline and the demand stabilization. Yesterday’s session shows that volatility is back and that markets remain deeply undecided but I believe bulls are still in control and yesterday was just a (strong) correction to the upward trend initiated for this winter. The next monthly IEA report is due out today and it should point to the same conclusions : less shale, stable demand and growing “call for OPEC” that is rather good news for the global oil markets. For today, we see a technical rebound for Brent first nearby.
An oversupplied system in the UK triggered a sharp drop in NBP spot prices on Monday despite an increase in gas demand following the drop in temperatures below seasonal norms across Europe. On the supply side, both UKCS production and UK LNG send outs increased sharply compared to Friday, dragging the British system into oversupply. On the continent, Dutch residential consumption almost doubled compared to Friday, providing support to TTF day-ahead prices. Nevertheless, curve contracts moved downwards. A comfortable LNG outlook for the remainder of the month in the UK pressured near-curve contracts at the NBP. The resumption in Russian gas exports to Ukraine may have also fuelled the bearish sentiment yesterday.
NBP ICE November 2015 prices lost 0.93 p/th at the close (-2.21%), to 41.18 p/th. TTF ICE November 2015 prices were also lower at the close: -30.5 euro cents (-1.63%), to €18.449/MWh. Weakness in oil prices also weighed on far-curve maturities. TTF ICE Cal 2016 prices were assessed 25 euro cents lower at the close (-1.3%), to €18.632/MWh.
UK gas demand is expected to jump 24 mm cm higher than Monday today with residential demand 14% above seasonal norms and higher exports to Belgium through the Interconnector pipeline. An unplanned outage at the Heimdal platform in Norway triggered a drop in exports to the UK, dragging the British system into undersupply this morning. This could support NBP spot prices today. A gradual increase in temperatures from tomorrow on the continent could exert some bearish pressure on continental spot prices after yesterday’s gains. Brent prices traded at $51.67/bbl at 5:30 PM yesterday. They are trading just above $50/bbl this morning which could filter through curve prices at the opening. Nevertheless, a technical rebound cannot be ruled out today. All in all, we favour a stable to bearish outlook for curve contracts today.