Elsewhere, IEA warned the markets that Opec and its allies face a major challenge next year as demand falls sharply in response to accelerating production from rivals. The much-anticipated initial public offering of Saudi Arabia’s state oil giant, expected the week after the meeting of ministers, will be one reason why Saudi Arabia has every incentive to keep oil prices higher. Saudi Arabia set a valuation target for Aramco’s initial public offering well below Crown Prince Mohammed bin Salman’s goal of $2 trillion and pared back the size of the sale to ensure the world’s largest oil producer successfully lists on the Riyadh stock exchange next month.
Saudi central bank also relaxed lending limits to boost demand from local investors after bankers were unable to convince many international money managers of the merits of the deal. Aramco will sell just 1.5 per cent of its shares on the local stock exchange, about half the amount that had been considered, and seek a valuation of between $1.6 trillion and $1.71 trillion.
Inventories and rigs
EIA reported a nearly 2.2 Mbpd weekly climb in US crude oil supplies against forecast for relatively modest increases of 1.5 million barrels. API revealed a 5,41,000 barrel build.
Gasoline stockpiles saw a build of 1.9 Mbpd against an expectation for a draw of 2.8 million barrels. Distillates inventories fell 2.5 mbpd compared with forecasts for a drop of about 600,000.
Total crude oil stored at 449 million barrels, or 3 per cent higher than the five-year average for this time of year
Crude production rose by 200,000 bpd to a weekly record of 12.8 mbpd.
Both imports and exports of crude oil were quite low on week, but the rise in domestic production shows that there is no slowdown in the oil patch, despite the falling rig count
Stocks at Cushing, Oklahoma, delivery hub for US crude futures fell 1.2 million barrels, their first fall after five weeks of builds, the EIA said, after the main artery for Canadian crude imports, the Keystone pipeline, was forced to shut due to an oil spill.
Refinery crude runs rose by 155,000 bpd and utilisation rates increased by 1.8 per cent to 87.8 per cent of total capacity.
The number of operating oil and gas drilling rigs in the US fell by 10, bringing the total number of operating rigs to 806, more than 276 fewer rigs than the same week a year ago.
Monthly report from IEA reported that global oil demand in the third quarter of 2019 grew by 1.1 Mbpd, more than double the 435,000 bpd in the previous quarter. China demand increased by 640,000 bpd YoY, and IEA is projected acceleration in global growth of 1.9 mbpd for the final quarter of 2019. IEA pointed to sluggish refining activity in the first three quarters of 2019 as contributing to a decline in crude oil demand of 300,000 barrels a day YoY, and the agency expects crude demand in 2019 as a whole to decline for the first time since 2009.
Global oil supply rose 1.5 mbpd in October as Saudi Arabian production returned to normal and on increases from Norway, Canada and the US. Opec crude oil production was 29.9 mbpd. At 101 mbpd, world oil supply was 1.2 mbpd below year-ago levels with Opec down 2.5 mppd. Non-Opec output growth is set to increase from 1.8 mbpd this year to 2.3 mbpd in 2020. The call on Opec crude in 2020 is estimated at 28.9 mbpd, 1 mbpd below current production.
Prices saw a gap down opening on account of warmer weather forecast on Sunday by GFMS stating that most of cold weather is passed on and warmer weather is expected to hit next week. Furthermore, weekly government storage data showed another injection with further delayed the start of demand season. EIA reported a 3 Bcf injection, extending the refill season. The 3 Bcf build was on the higher side of the consensus, but bullish versus the historical comparisons, as last year the EIA recorded a 42 Bcf injection for the period, and the five-year average is a 30 Bcf build.
Prices can remain sideways to slight positive for the coming weeks on account of expectations toward the “Phase One” of partial trade agreement.
Oil market players are looking toward next month’s Opec+ meeting where the cartel and its associates are expected to agree to maintain current output levels through 2020 as reports state that Opec will extend its production cuts through the end of 2020 at the upcoming meeting in Vienna, rather than deepening the cuts.
Recent trade chatter relates to difficulties in agreeing to monthly targets for Chinese agricultural purchases. China’s recent agricultural purchases were mainly an expedient way of dealing with the impacts of African swine fever, not really a trade concession at all.
China won’t want to be boxed in if it doesn’t suit them. But we have heard that many times before and without further detail, the market seems to be largely ignoring that. Reports suggest that the process of getting a Phase One trade deal would be full of uncertainty. It is unfortunate that we are correct. Chinese companies will continue to defer investments if they are in the export business.
However, if Chinese companies are involved in building and producing 5G infrastructure, equipment, parts, and final goods and services, they are highly likely to enjoy decent growth, even though they may not be able to export their products to some parts of the world.and with a bunch of contingencies to meet first.
Volatility will continue even after a Phase One deal is agreed because the market will then start to question the likelihood of a more comprehensive follow-up agreement.
(Investors are advised to consult financial advisers before taking an investment calls based on these observations)