Crude prices remained almost stable yesterday close to close despite strong intraday moves. Brent prices signed a new 7.5-year low at $39.81/b (same for WTI at $36.64/b) but finally edged up above the $40 mark and currently trades at $40.8/b this morning. In the wake of OPEC’s decision, crude prices were still on a very bearish trend heading towards their 2008 lows yesterday morning but they finally found some support in some good Japanese machinery orders and in a surprising -1.9 Mb fall in US crude oil according to API data (and to a lesser extent in a new Chinese tax reform aimed at encouraging imports).
– Indeed, according to the data from industry group the American Petroleum Institute released yesterday, US crude stocks fell -1.9 Mb last week and that would be the first time in 16 weeks. Gasoline and distillate inventories are seen building respectively +0.9 Mb and +2.7 Mb.
– Nevertheless, this news is just a relief in the endless fight against oversupply and the situation did not really improve recently to say the least (OPEC). PIRA Energy added to concerns yesterday by saying that it expects onshore crude oil storage to run out in the first quarter of 2016. Filling the stocks was one of the main factor of demand resilience in 2015, especially for China, and REUTERS announced yesterday it expects 70 to 90 Mb extra SPR volumes to be bought next year. Studies of REUTERS and PIRA appear as contradictory and it is difficult to have a clear view on this issue but it will clearly be a hot topic for next year.
– Mexico’s Finance Ministry on Tuesday said it received a record 6.284 B¤ from its oil hedge program to help the government offset a drop in income from crude oil sales by state-run Pemex. Options were bought last year with an average price of $76.40/b.
Today, we could see prices resisting a little bit more ahead of the EIA stocks report at 4:30 pm this afternoon. We expect Brent prices to stay above their lower Bollinger band at $40.6/b and even rise above $41/b later today if the report is bullish. We keep a downward vision for the end of the week.
A slight increase in gas demand in the UK provided support to NBP spot prices on Tuesday, although residential gas demand remained 20% below seasonal norms. A further drop of the pound against the euro lifted the NBP curve after previous sessions’ losses. NBP ICE January 2016 prices gained 0.28 p/th at the close (+0.76%), to 37.25 p/th. On the continent, weak gas demand due to mild weather conditions continued to drive the bearish sentiment on the prompt. TTF curve prices remained stable despite a further drop in Brent prices and a stronger euro as technical supports halted the bearish trend temporarily. TTF ICE January 2016 prices were unchanged at the close to €16.84/MWh. TTF ICE Cal 2016 prices were also unchanged at the close to €16.801/MWh.
The UK system is oversupplied this morning, which could continue to weigh on NBP spot prices today. Nevertheless, UKCS flows at the Bacton Seal terminal dropped to zero overnight, which could provide some support to NBP spot prices if the outage is not quickly resolved. Monthly weather forecasts were revised higher for the remainder of December at the beginning of the week. This could continue to weigh on European curve prices in the absence of a significant supply issue in the coming days as oil prices could remain weak in the short-term. Consequently, curve prices could hit new record lows today.