Energy Markets Commentary - Nov. 15

Energy futures are trading mostly lower today on strength in the dollar, lowered world oil demand growth expectations by OPEC and comments by the Kuwait oil minister that his country will spend $60 billion over the next five years to expand production capacity.

As first reported yesterday by Dow Jones, OPEC lowered its Q4 world oil demand growth forecast today by 100K b/d to 1.2M b/d but left its Q1 view unchanged at 1.5M b/d. The cartel said that it expected a modest downturn in the U.S. economy and that costly fuel is denting transport demand. Additionally, OPEC reiterated that it does not see signs of alarming tightness in OECD stocks with Q3 stocks at 52.8 days of forward cover, though it did say that it sees slighter tightness in world oil inventories in Q4 and Q1. OPEC blamed speculation on high prices, driven by supply fears. Also regarding OPEC, Iran’s oil.minister, Nozari, said today, according to Reuters, that “All evidence suggests that there is enough oil in global markets, and an increase in OPEC’s share of production would not have an impact on prices.” He repeated that Iran aims for an output capacity increase to 4.5M b/d in two years.

Separately, the Kuwaiti oil minister, al-Aleem, said today that his country will spend $60 billion over the next five years to expand its production capacity. Kuwait is the 7th largest oil exporter in the world at 2.15M b/d.

In other energy news, the Nigerian militant group, MEND, said late yesterday that “war is imminent in the region” and warned all oil workers to leave. The group claimed responsibility for an attack on Exxon’s Qua Iboe terminal two days ago. Today Reuters reported that unknown attackers blew up a Nigerian crude oil pipeline at the Forcados oil terminal operated by Royal Dutch Shell. WTI crude futures spiked to $94.60 on the news, but retraced after reports that less than 50K b/d of supplies were affected. Before the latest attack, Forcados was producing 70K b/d with a total capacity of 380K b/d. Shell has struggled to restore production at the facility since Feb. 2006 because of a string of attacks.

The head of the EIA, Caruso, said yesterday that OPEC still needs to raise crude output by 400K b/d. He maintained that average gasoline prices could climb as high as $3.26 a gallon in the next two weeks. He also said that demand erosion in the U.S. has been minimal due to high prices. Last week, total petroleum demand in the U.S. was 20.66M b/d, below the EIA’s forecast for 2007 of 20.8M b/d. Before rebounding 249K b/d last week, demand was 1M b/d or 5% lower yoy two weeks ago.

On the weather front, Accuweather wrote today that the mild weather in the east will be forced out Thursday by a cold front that will bring gusty winds, rain and lake-effect snow to the Great Lakes. Snow showers will spread into the Northeast interior by Friday, while a snow storm will pound northern Maine.

Today at 10:30 a.m. EST the EIA releases its weekly petroleum and natural gas inventory data. According to a major wire survey, crude inventories are expected at -750K barrels, gasoline inventories are expected at -400K barrels and distillate inventories are expected at -250K barrels. The refinery utilization rate is expected at +0.5%. Also, natural gas inventories are expected at -10 Bcf. A Platt’s survey sees crude inventories down 700K barrels, gasoline inventories down 90K barrels and distillate inventories down 700K barrels.

At 12:15 p.m. BST WTI crude futures are down $0.25 at $93.84. RBOB gasoline futures are lower by 1.34 cents at 235.70 and heating oil futures off $0.50 at 256.85. Natural gas futures are down $0.018 at $7.817.

The above commentary is provided to subscribers of Ransquawk's recently launched energy channel. The energy channel is a real-time audio news service covering U.S. energy markets and major NYMEX products. To sign up for a free 1 week trial, e-mail us at info@ransquawk.com with your contact details.

Why Subscribe?

Ransquawk’s Energy Channel is the first real-time audio news service specifically catered toward energy traders. We offer unmatched content from top energy sources and technical information in real-time, giving traders an edge from a fundamental and technical perspective.