Syria/Turkey dispute reverses crude trend

Long-term supply situation still bearish

I am expecting a modest draw in crude oil stocks in Cushing, Ok. as the Seaway pipeline is now pumping and refinery run rates are continuing at high levels in that region of the US. This would normally be bearish for the Brent/WTI spread in the short term but the spread is currently trading at the highest premium to Brent in over a year. The slow return from maintenance in the North Sea has been the main driver that has resulted in the Nov Brent/WTI spread now trading over the $22.50/bbl level as of this writing. The widening of the spread should begin to ease once the North Sea returns to a more normal production level over the next month or two.

With refinery runs expected to increase by 0.3%,  I expect a build in gasoline stocks. Gasoline stocks are expected to increase by 1 million barrels which would result in the gasoline year over year deficit coming in around 12.7 million barrels while the deficit versus the five-year average for the same week will come in around 7.8 million barrels.  

Distillate fuel is projected to increase by 1 million barrels. If the actual EIA data is in sync with my distillate fuel projection inventories versus last year will likely now be about 28.9 million barrels below last year while the deficit versus the five year average will come in around 26.1 million barrels.

The above table compares my projections for this week's report (for the categories I am making projections) with the change in inventories for the same period last year. As you can see from the table last year's inventories are not in directional sync with this week's projections. As such if the actual data is in line with the projections there will be a significant change in the year over year inventory comparisons. 

The oil complex has breached all of its current support levels and as such I am keeping my view at neutral for today as crude oil continues to trade within a wide trading range (see above for more comments). The battle continues between the negativity from the slowing of the global economy compared to what global stimulus programs might do to the economy going forward while geopolitics has continued to remain an issue for market participants.

I am keeping my Nat Gas price view at neutral with a neutral bias. Even though current prices favor coal over Nat Gas (based on a macroeconomic comparison) the market is now more focused on the  upcoming winter heating season and what it may due to Nat Gas demand.

Markets are mostly mixed to start the US trading session as shown in the following table.

 

 

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Dominick A. Chirichella

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