On the other side of the fence the IEA released their monthly oil assessment. The IEA consists of the 27 major consuming nations (US a member). The IEA (as the EIA reported in its Tuesday report) reduced global oil demand growth figures once again. It lowered its 2008 number by another 100,000 bpd to 690,000 bpd of growth in 08 while also decreasing its 2009 demand projections by another 40,000 bpd. It also indicated that it was seeing signs that some of the demand reduction in the US may be more of a result of a structural change rather than just reactionary to high price. Overall we view both the EIA and IEA reports as bearish for oil prices. Following are some of the main highlights from the IEA report:
· August global oil supply fell by 1.0 mb/d to 86.8 mb/d on North Sea maintenance, the BTC pipeline outage and lower OPEC supply. Non-OPEC output is revised by -180 kb/d for 2008 and by -85 kb/d for 2009, with hurricane outages impeding 2H08 supply. Non-OPEC growth including OPEC NGL is now 580 kb/d in 2008 and 1.56 mb/d in 2009.
· OPEC crude supply in August fell by 195 kb/d to 32.5 mb/d on field and pipeline outages in Iraq, Angola, Libya and Nigeria, while effective spare capacity rose from 1.5 mb/d to 1.9 mb/d. The 'call' on OPEC is revised up to 32.2 mb/d for 3Q08 and 31.7 mb/d for 4Q08. This report went to press ahead of the OPEC 9 September meeting in Vienna.
· Hurricane activity in the US Gulf of Mexico results in a 1.4 mb/d downward revision to US refinery crude throughput in September, to an average of 13.9 mb/d. Global September crude runs could decline by 1.3 mb/d from August. OECD crude runs are forecast to average 37.4 mb/d in September, their lowest level since October 2002.
· OECD stocks rose by 47 mb in July to 2,646 mb. A large, unseasonal crude build from a revised June base and weaker demand leave end-July OECD cover at 54.5 days. Higher OECD end-June stocks now imply a 380 kb/d OECD stock build in 2Q08 versus last month's estimate of flat second-quarter stocks, and a seasonal 2Q average build of 0.9 mb/d.
· Forecast global oil demand has been lowered for both 2008 and 2009, following weaker deliveries in the OECD. World demand averages 86.8 mb/d in 2008 (+0.8% or +0.7 mb/d versus 2007 and 100 kb/d lower than previously estimated) and 87.6 mb/d in 2009 (+1.0% or +0.9 mb/d year-on-year and 140 kb/d lower than in our last report).
Ike is still in the picture albeit on a different path than it was in the beginning of the week. For the last day or so its projected path has it heading for the Corpus Christi area of Texas. An area that has several refineries but not the concentration of refineries that exists in the area where Rita hit nor does it have the large concentration of offshore oil & NG producing operations. Yes some oil flow will be interrupted but the exposure to oil & NG flow (as of now) is not nearly as great as it was when Ike was on a path for the Texas/Louisiana border. Landfall should be late Friday or early Saturday. Overall we view Ike as neutral for oil & NG prices at the moment.
Finally the dollar continues to strengthen as we have been predicting for weeks. This is simply bearish for oil and commodity prices in general. It was also likely a factor in yesterday's OPEC meeting as a stronger dollar has offset some of the sting associated with the 30% declines in the dollar value of oil prices since peaking on July 11th.
Where do we go from here? At the moment the market is a bit firmer as some light short covering enters the market after the OPEC decision. So far the response has been as expected. After inventories are released this morning we will get a better feel as to how many participants head to the sidelines and the impact they make on price. For the next few days we see prices remaining within the current trading ranges (shown in the table at the end of the report). The market sentiment is still bearish as demand remains on the defensive, the dollar continues to firm and supply is comfortable. The next few days will likely be volatile as many adjust their position after they review the inventories and ahead of Ike.
I continue to recommend that both the spec community and the buy side hedgers remain on the sidelines until a bit more clarity emerges. Currently prices are firm for oil as well as the US dollar.
| Current Expected Trading Range | Expected Trading Range | |||
| 9/10/08 | Change | Low | High End | |
| From | End Support | Resistance | ||
| 8:09 AM | Yesterday | |||
| Oct WTI | $103.58 | $0.32 | $100.00 | $112.00 |
| Oct HO | $2.9356 | $0.0109 | $2.8300 | $3.0700 |
| Oct RBOB | $2.6810 | $0.0284 | $2.5000 | $2.8100 |
| Oct NG | $7.545 | $0.010 | $6.920 | $8.000 |
| Euro/$ | 1.4081 | (0.0083) | 1.4000 | 1.4300 |
| Yen/$ | 0.9371 | 0.0024 | 0.9000 | 0.9300 |
Best regards,
Dominick A. Chirichella
Energy Management Institute
The Energy Management Institute operates a fleet of daily, weekly and biweekly energy publications covering various angles of the energy market, including over a decade of natural gas and power price indexing. In addition, EMI provides higher learning for energy professionals with comprehensive, fully accredited, energy education programs from basic to advanced level. It also provides critical business information services and thought leadership in the energy segments of Oil, Gas, Power, Alternative Fuels, soft commodities and metals.
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Dominick A. Chirichella
Energy Management Institute
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