The morning is starting out mixed ahead of this morning oil inventory report and as the market digests the latest IEA monthly oil report just released. The most noteworthy highlight of the report is the IEA reducing their projection of oil demand growth for 2008 from 1.98 million bpd to 1.7 million bpd. The majority of the decline in demand growth is from Japan, South Korea & Germany. Other highlights from the report follow:
· Crude oil prices are little changed from mid-January at just over $90/bbl. Weaker projections for global economic growth are offset by low stocks, forecast cold weather in the US and parts of Asia, supply disruptions (Nigeria/North Sea) and concern about Venezuelan supplies. Products have underperformed crude, leading to weak refining margins.
· Global oil product demand has been revised down by roughly 200 kb/d to 87.6 mb/d in 2008, following weaker GDP growth figures in an interim report by the IMF. Weaker OECD growth, however, stands against still-robust projections for GDP growth in China and the Middle East, the key oil demand growth centers.
· January world oil supply rose 745 kb/d to 87.2 mb/d on new output from Brazil, and recovering non-OPEC output elsewhere. However, a reassessment of 2008 prospects lowers OPEC gas liquids growth by 250 kb/d to 365 kb/d. Rising FSU, Asia-Pacific, Brazil and biofuels supplies generate 2008 non-OPEC growth of 0.97 mb/d.
· January OPEC crude supply remained close to 32.0 mb/d, on higher output from Angola, UAE, Saudi Arabia and Kuwait, offset by lower Iraq, Nigeria and Qatar volumes. Effective spare capacity increased to 2.4 mb/d in January but revisions to both supply and demand lift the 2008 call on OPEC crude and stock change by 0.1 mb/d.
· Economic refinery run cuts in January and February were the most extensive for five years. Coupled with seasonal maintenance, February global refinery crude throughput should average 74.0 mb/d, down by 0.6 mb/d from January. However, higher runs in China, Other Asia and Russia underpin year-on-year throughput growth of 0.9 mb/d in 1Q08.
· OECD industry stocks fell by 39.5 mb in December, driven by constrained crude supplies and peak seasonal refinery runs. The 4Q07 stock draw of 1.15 mb/d was substantially higher than the 750 kb/d 10 year average and reduces OECD industry stock forward cover to 50.7 days its lowest since December 2004. Preliminary data for the US, Japan, the EU-15 and Norway indicate a 22.1 mb stock build in January.
Today we also get a snapshot of US oil fundamentals. As shown in the following table we expect another report that will have a downside bias if the actuals come in as projected.
| Projections | | 2/13/08 | |
| | | | |
| | Current | Change from | Change from |
| | Projections | Last Year | 5 Year |
| mmbls | | vs. Proj. | vs. Proj. |
| Crude Oil | 2.5 | (21.4) | 5.6 |
| Gasoline | 1.5 | 3.8 | 11.1 |
| Distillate | (1.4) | (7.6) | 5.3 |
| Ref. Runs% | 0.0% | -2.3% | -3.5% |
| Change Level | 84.3% | 86.6% | 87.8% |
| | BCF | BCF | BCF |
| NG, BCF | (150) | (176) | 85 |
Overall the fundamentals are still suggesting further downside potential along with a struggling US economy minimal Geopolitical disruption potential. The only top of the news item is Venezuela cutting off supplies to Exxon (as expected) which will have no major impact to the US or elsewhere as Exxon will just rebalance its system and make up the supply from other locations. In fact, this situation will likely be more of a negative to Venezuela rather than to Exxon.
Currently prices are mixed as the industry awaits this morning’s oil report.
| Current Expected Trading Range | | | ||
| | 2/13/08 | Change | Upper | Lower |
| | | From | Resistance | Support |
| | 7:34 AM | Yesterday | | |
| Mar WTI | $92.75 | ($0.03) | $94.62 | $85.25 |
| Mar HO | $2.6015 | $0.0104 | $2.6600 | $2.4000 |
| Mar RBOB | $2.3670 | ($0.0010) | $2.4900 | $2.2000 |
| Mar NG | $8.350 | ($0.086) | $8.690 | $7.500 |
| | | | | |
Dominick A. Chirichella
Energy Management Institute
tel 646.202.1433
fax 801.383.7510
dchirichella@emimail.org
www.energyinstitution.org
www.advancedenergycommerce.com
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