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November 12, 2017

What to expect from EIA reports in coming weeks

What to expect from EIA reports in coming weeks

Oil output in the United States hit new record, rising above the last by 10K barrels. Oil market pretends the output rally doesn’t bother it.

According to the US Energy Department the average daily output advanced to 9,62M barrels. The last record was set in June 2015 when the «Great» advent of shale oil brought production to whopping 9,61M barrels per day.

Nevertheless, repeated increase in US oil production was dismissed by the oil prices because of support from OPEC cuts:

Shale oil firms shrugged off rapidly after the hurricanes recouping drawdown in production for a mere three weeks. Recall that because of the severe weather which arrested refinery operation in the US, oil firms were forced to pare down production by 1M barrels. As the weather in Atlantic Ocean has settled and there is no material threats for production producers are likely to push more co catch up with rising prices.

In our view, this news won’t probably stop the current upward march of the oil prices. It may take some time for traders to price in new fundamentals retracing from the highs of the last week.

While we’d recommend to shift attention back to crude inventories. Recent reports show they are not declining and it is OK what can be referred to recovery after Harvey and Irma. But markets will soon bet on the US inventories to decrease as the OPEC and Saudi Arabia’s primary target was to clear some reserves from US oil hubs. If the picture doesn’t change this can be a clear SELL signal for commercials.

Plus, recent oil gains was really «easy” gains it has to retreat at least to $60 for Brent before OPEC Vienna meeting on November 25.

Interesting chart to think about:

How changed market structure caught some investors wrong https://www.cnbc.com/2016/08/25/snake-oil-why-the-3-billion-dollar-uso-etf-is-down-this-year-even-as-crude-has-surged.html

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