Oil drops as geopolitical tensions ease despite U.S. standoff

On the other side of the equation, the U.S. dollar turned higher overnight on news that that Janet Yellen will be announced as the next U.S. Fed Chairperson. Yellen is viewed as a dovish member of the Fed and one who has continued to support the massive QE programs. For today the rising U.S. dollar is also a negative price driver for the oil complex.

On the tropical weather front there is now only one event in the Atlantic. Currently there is a medium probability weather event about 400 hundred miles southeast of the Cape Verde Islands. At the moment this system has a medium chance (30%) of further development over the next several days. In the short term this event is not a threat to the Gulf Coast but will remain on the radar for the time being.

The EIA released their latest Short Term Energy Outlook (STEO) yesterday. Following are the main oil related highlights.

  • EIA projects average U.S. household expenditures for natural gas and propane will increase by 13% and 9%, respectively, this winter heating season (October 1 through March 31) compared with last winter. Projected U.S. household expenditures are 2% higher for electricity and 2% lower for heating oil this winter. Although EIA expects average expenditures for households that heat with natural gas will be significantly higher than last winter, they are still lower than the previous 5-year average.
  • EIA expects households heating primarily with heating oil to spend an average of about $46 (2%) less this winter than last winter, reflecting a 5% decrease in prices and a 3% increase in consumption. Although winter temperatures are expected to be similar to last winter nationally, weather in the Northeast is expected to be 3% colder than last winter. Reliance on heating oil is highest in the Northeast, where about 25% of households depend on heating oil for space heating, compared with 6% of households nationally. The state of New York, which accounts for about one-third of the region's heating oil market, has required the use of ultra-low sulfur heating oil since July 2012. A number of other states will begin to move away from higher-sulfur heating oil in the coming years.
  • Estimated global liquid fuels supply disruptions in September averaged 3.0 million barrels per day (bbl/d), which is unchanged from the revised August estimate and remains at the highest level since at least January 2011. However, some of Libya's production restarted in the second half of September after coming to a near-halt earlier in the month. EIA expects Libya's production to remain at its current level for October, although output still remains considerably below the precrisis level. EIA expects total unplanned outages from both OPEC and non-OPEC countries to decline in October.
  • EIA projects global consumption to grow by 1.0 million bbl/d in 2013 and by another 1.2 million bbl/d in 2014, with China, the Middle East, Central & South America, and other countries outside of the Organization for Economic Cooperation and Development (OECD) accounting for essentially all consumption growth. Projected OECD liquid fuels consumption declines by 0.2 million bbl/d in 2013 and 0.1 million bbl/d in 2014. The declines in OECD consumption are largely due to lower consumption in Europe and Japan.
  • Non-OECD Asia, particularly China, is the leading contributor to projected global consumption growth. EIA estimates that liquid fuels consumption in China will increase by 420,000 bbl/d in 2013 and by a further 430,000 bbl/d in 2014, compared with average annual growth of about 510,000 bbl/d from 2003 through 2012. China's steady growth in oil demand has led it to become the world's largest net oil importer, exceeding the United States in September 2013. EIA forecasts this trend to continue through 2014.
  • EIA estimates that OECD commercial oil inventories at the end of 2012 totaled 2.65 billion barrels, equivalent to roughly 58 days of supply. OECD oil inventories are projected to end 2013 at 2.58 billion barrels and end 2014 at 2.57 billion barrels (56 days of supply).
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