Market Summary: October 31, 2021

Petroleum prices fell for the first week in 10, easing minimally as Brent prices actually improved on the week. Persistent concerns regarding lower supplies, particularly in Cushing, continued sharp increases in speculative length in petroleum futures markets, ongoing shortfalls of coal and Natural Gas supplies in China, India and Europe, including the possible ban of Distillate exports from China and ongoing OPEC+ discipline provided price support. A sharp increase in overall US Crude stocks, prospects of a revival in Iranian nuclear discussions, a rise in the utilization of Natural Gas and oil production rigs in the US for a fifteenth consecutive month and a sharp reduction in US Natural Gas prices all served to temper market increases. Total commercial petroleum inventories in the US increased by 4.4 MB on the week. WTI prices fell 0.2%, Brent prices rose 0.1%, RBOB prices fell 0.8% and ULSD prices fell 1.7%.

Ongoing concerns regarding long-term inflation which reached its highest level since January 1991 and the slowing of economic growth as the third quarter GDP registered its slowest pace since the third quarter of 2020 when the economy was essentially shut down by the Covid pandemic served to temper small gains in US equity indexes. On the week, the Dow gained 0.4%, the S&P 1.3% and the NASDAQ 2.7%. The dollar index rose this week by 0.52 to settle at 94.13 while gold prices eased by $8.10 to settle at $1,785 per ounce.

Participants to the OPEC+ agreement are to meet virtually in Vienna on Thursday. No change in output is expected to occur at this meeting. The OPEC+ Joint Technical Committee convened this past Thursday and saw “no major changes in the supply demand picture.” The JTC sees a reduction in global Crude inventories of 300 KBPD in the fourth quarter. Their recommendation to all participants is to stay the course with output targets unchanged. A 150 KBPD force majeure was declared on Bonnie Light liftings in Nigeria on Monday, providing additional support for overall compliance to the agreement which now stands at 118%.


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Iranian diplomats confirmed that discussions will resume with European diplomats by the end of November in an effort to resuscitate failed negotiations regarding Iranian nuclear ambitions and ongoing economic sanctions against them.

Despite US Crude inventories increasing on the week, supplies at the Nymex delivery point of Cushing Oklahoma experienced their largest weekly decline since January, now stand at their lowest level since October 2018 and are below their five-year average for the first time in 2021. This contributed in large part to net speculative length in petroleum contracts increasing by 23,444 contracts to a level of 363,893 contracts.

US Crude inventories gained for the first week in five and seventh in the last 24, increasing by 4.268 MB. Crude stocks remain 6% below their five-year average and are 61.6 MB below levels of last year at this time. The price of WTI fell by $0.19 on the week. Inventories in the three PADDs affected by trans-Atlantic trade gained by 5.696 MB. Inventories increased by a disproportionately large amount in PADD 3, rising by 8.622 MB. The increase was fed in large part by a significant rise in the flow of imports which rose by 429 KBPD to a level of 6.254 MBPD. As stated earlier, inventories at the Nymex delivery point of Cushing Oklahoma fell by 3.899 MB, their largest weekly decline since January. Inventories are now below their five-year average for the first time in 2021 and at their lowest level since October 2018. Despite the reduction in Cushing inventories, US exports fell sharply for the first week in three, falling to 2.8 MBPD. Utilization rates improved very slightly on the week as refinery turnaround season appears to have finally peaked. Given expectations of a slight increase in utilization, a sharp reduction in imports and exports being near unchanged based on current shipping data, we expect Crude inventories in the US to fall by 1.5 to 2.0 MB in the coming week.

US Gasoline inventories fell for a third consecutive week and third week in six, dropping by 1.993 MB. Gasoline inventories remain 3% below their five-year average and are 10.4 MB below levels of last year at this time. Seasonal inventories are at their lowest level since 2017 and the Gasoline crack is at its highest seasonal level since 2017 as well. The price of Gasoline fell by 201 points on the week. Gasoline stocks in the three PADDs affected by trans-Atlantic trade fell by 1.703 MB. The drop was most pronounced in PADD 3, the US Gulf Coast, where stocks fell by 1.002 MB. Inventories in the PADD 1 subsection that encompasses New York Harbor, the Nymex delivery point, fell by 442 KB. This reduction was relatively small given the more significant reduced flow of imports of 113 KBPD to a level of 493 KBPD, a figure that is now below its five-year average. Shipping data does indicate a slight increase in the flow of imports in the week ahead as trans-Atlantic freight rates have improved significantly. We expect demand which fell by 311 KBPD to a level of 9.323 MBPD to remain flat in the week ahead. We further anticipate imports to improve slightly and production to remain near unchanged. As a consequence, we expect Gasoline inventories to remain within 500 KB of unchanged in the week ahead.

US Distillate inventories fell for a fourth consecutive week and eighth week in nine, dropping by 432 KB. US Distillate inventories are now 8% below their five-year average and are 30.8 MB below levels of last year at this time. National Distillate inventories are at their lowest level since April. The price of ULSD fell by 425 points on the week. Inventories in the three PADDs affected by trans-Atlantic trade fell by 809 KB. The drop was most pronounced in PADD 2, the US midcontinent, where stocks fell by 996 KB due to thermal demand and remnant agricultural needs. The flow of exports increased by just under 200 KBPD as expected. There has been a sharp increase in chartering activity and rates for fixing from the US Gulf in the past week. As a consequence, we maintain our view that Distillates export flows from the United States may well exceed 1.5 MBPD in the week ahead. This information, coupled with expectations of winter weather in the Northeast in the coming week, should serve to reduce inventories significantly. We expect Distillate inventories in the US to fall next week by 2.0 to 2.5 MB.

Commercial petroleum inventories in the OECD are 5.4% below their five-year average. As stated earlier, the OPEC+ Joint Technical Committee sees a reduction of global inventories by 300 KBPD for the balance of the fourth quarter. Increases in US rig activity have failed to address the ongoing sharp reduction in Cushing supplies. We expect prices to resume their march upward in the week ahead with WTI structure being the clearest bellwether for future price direction.

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