The great oil market rebalancing will continue as low oil prices have sparked demand and global oil and shale oil production is failing to keep pace. Underinvestment due to the crash in oil prices is keeping the market in a tight situation. More pressure on shale by activist investors that are worried that they are not getting the bang for ther buck may further hamper an industry where already investor have pulled back because of the lack of good returns in the shale patch.
While the oil market stalled on the first day of the quarter the global rebalancing of the oil market is still under way. We should see more evidence of that in tonight’s American Petroleum Institute supply report that will be released today after last week’s surprise drop in U.S. crude oil supply. Libya oil output was at a 5-month low as their biggest oilfield was shut down and the market is going to react when they hear that the field may come back on line. But in the bigger picture oil is looking to see if it can hold $50 as we enter what is rationally weak demand period for oil. Yet the traditional shoulder season for oil is off as Hurricane Harvey, Irma have made it necessary for many refineries to put off maintenance to replace lost supply and to keep up with growing global demand.
The distillates fell hard after the market recorded record long positions. Still the long distillate short RBOB gasoline spread did well. The market knows that diesel is very tight globally so any signs of winter arriving early could make this market soar.
Nat Gas is in a weird situation. New rule to support Coal and Nuclear could reduce demand for natural gas this winter. Yet globally natural gas demand could be stronger. Reuters on a report by Wood Mackenzie said that China will add 10 billion cubic meters of gas demand this winter. That’s about 5 percent of China’s consumption last year or the equivalent of Vietnam’s total annual use. As the country tries to move Northern Cities off of dirty coal, the project will also need heavy investment in infrastructure such as pipelines and storage tanks according to the report.
