Oil: Close to close at $40.73bbl for Brent ICE (This morning at $ 40.97/bbl)

Crude prices got closer to their 7-year lows yesterday with the market still under great pressure due to global oversupply following the unexpected OPEC position that opens an era of uncertainties. After posting more than 2 dollars loss, the barrel of Brent touched $40.6/b yesterday evening during the American session, that is just $4.4/b above the 7-year low of December 2008 at $36.2/b. As well, the American benchmark lost around 6% of its value yesterday, setting a new yearly minimum at $37.5/b (7-year low at $32.4/b on Dec-2008). In the aftermath of the OPEC meeting, crude prices nevertheless found some support in some Chinese data showing that its ongoing appetite for cheap oil made demand more resilient than expected there.
Main events:
– Indeed, China could be one of the key support of demand this year: first, weak prices will support oil consumption despite slowdown, inducing some opportunistic buying. Although economy is still on a slowing trend in the country, the worst is behind us now and some measures from the government could also support consumption in China in 2016. China’s crude oil imports for the first 11 months of the year rose +8.7% to 6.61 Mbd while its November crude imports grew +7.6% from the same month a year ago. China’s November new vehicle sales also jumped +17.6% over the same period.
In addition to that, China is seen as likely to double its strategic crude oil purchases in 2016 : according to a REUTERS study, China could be adding some 70-90 Mb to its strategic petroleum reserves (SPR) next year in order to get closer to the OECD-standards of 90 days’ worth of import demand.
– According to a US government forecast released yesterday, US shale oil production is expected to fall by more than 600 kbd in January from the March peak. Total output is set to decline by just over -115 kbd to 4.86 Mbd in January 2016 compared with December, according to the US EIA’s drilling productivity report.
The market is slowly starting to get used to the idea of a long period of low prices after OPEC decided to ditch any formal production ceiling. Next market movers will be the EIA monthly report today, then the stocks report tomorrow evening and finally a set of US data on Friday. For today, we see a small respite in crude prices fall after the strong losses of yesterday but the $36.2/b target is still the short term target for a very weak market.

• Gas: Close to close at 16.80EUR /MWh for TTF CAL 16 (This morning at 16.78EUR /MWh)

Mild weather and heavy losses in oil prices pushed European gas prices significantly lower yesterday.

At the close, NBP ICE January 2016 prices dropped by 1.43 p/th (-3.72%), to 36.970 p/th. TTF ICE January 2016 prices were also significantly lower, losing 62 euro cents (-3.54%) at the close, to €16.836/MWh. The same for TTF ICE Cal 2016 prices: – 59 euro cents (-3.37%) at the close, to €16.798/MWh.

Temperatures are expected to remain mild over the next five days, which should help maintain the bearish trend in European spot and near curve prices. However, after the yesterday’s sharp drop, a technical rebound cannot be excluded today.

On the far curve, despite the clear bearish trend, cal 2016 prices could benefit from a temporary technical rebound too.