INSIDE U.S. OIL

INSIDE U.S. OIL
Monday, October 13, 2014
Futures (Front Month)
NYMEX light crude
Close
Net Change Pct Change U.S. Cash Crude
$85.82
$0.05
0.06
$88.72
Poseidon
Thunder Horse
$2.26
-$0.02
0.77
$2.56
$0.02
0.92
$90.21
$0.16
0.18
$763.75
-$2.50
0.33
NYH RBOB
Brent/WTI spread
-$4.39
-$0.11
2.51
USG ULSD
Reuters 321 Crack Spread
$13.23
-$0.21
1.59
USG Prompt Gasoline
NYMEX RBOB gasoline
NYMEX heating oil
ICE Brent crude
ICE gas oil
CHART OF THE DAY
Click on the chart for full-size image
Price
Light Louisiana Sweet
U.S. Cash Crude Products
(Values in Cents/Gal)
NYH Prompt Heating oil
Net Change Differential Diff Change
$0.08
2.95
$0.07
$83.82
$0.06
1.70
$0.30
$86.42
-$0.02
0.85
$0.17
Price
247.67
230.81
252.92
229.56
Net Change Differential Diff Change
4.25
-0.17
3.75
1.96
-8.00
5.75
-2.75
-5.00
0.50
0.63
0.00
9.50
JOHN KEMP ON MARKETS
COLUMN– Oil producers enter supercycle's dark side
Oil producers are getting another brutal reminder that theirs is a business characterised by long, deep price cycles.
John Kemp is a Reuters market analyst. The views expressed are his own.
Click here to read the rest of his column
TODAY’S MARKETS
OIL: Brent crude oil fell below $88 a barrel, its lowest in almost four
years, after key Middle East producers signalled they would keep output high even if that meant lower prices. "In light of these comments,
one should not expect any OPEC output cuts before the Nov. 27 meeting," said Bjarne Schieldrop, chief commodity analyst at SEB in Oslo.
MARKET NEWS
 China trade data eases slowdown fears, more stimulus
may still be needed
 EXCLUSIVE-Privately, Saudis tell oil market: get used to
lower prices
FOREX: The yen rose to a one-month high against the dollar and
traded near 11-month peaks against the euro, as investors turned cautious on concerns about the health of the global economy. "We look for
further yen upside against the dollar in coming weeks, as U.S. (interest)
rates are likely to adjust near-term lower," said Petr Krpata, currency
strategist at ING. "For dollar/yen, 107 yen could be tested again today."
 INTERVIEW-BoA oil analyst who predicted downturn
now sees floor
 Kuwait says OPEC unlikely to cut output to support
prices -KUNA
 For chart watchers, oil in 'technical graveyard' facing
deeper rout
 EXCLUSIVE-Oil trader hall avoids big loss, expects market to struggle
 Statoil exits Shah Deniz with $2.25 bln sale to Petronas
 Colombian farmers sue BP over pipeline's environmental impact -FT
GLOBAL MARKETS: Stocks started the week on a negative note and
crude oil prices fell to near-four-year lows with forecast-beating Chinese
trade data unable to lighten investors' mood about the health of the
global economy. "We're still looking quite poorly, on the markets. The
nervousness is still there," said Terry Torrison, managing director at
Monaco-based McLaren Securities.
U.S. EVENTS TO WATCH TODAY (EST)
 NO EVENTS SCHEDULED FOR TODAY
OIL ANALYTICS: ASIA SWAPS FORWARD CURVE
INSIDE U.S. OIL
October 13, 2014
OIL ANALYTICS: ASIA SWAPS FORWARD CURVE (0830 GMT)
ICE BRENT FUTURES FORWARD
DUBAI SWAPS FORWARD CURVE
ICE Brent Fut. Fwd Curve
Dubai Swaps Fwd Curve
93.00
92.94
1M - 1Y 1M
Yield
91.00
90.87
92.00
90.00
1M - 1M
Yield
90.50
89.50
91.00
89.00
88.50
90.00
88.00
87.50
89.00
.12
.12
1M
1M
2M
3M
4M
5M
6M
7M
8M
9M
10M
11M 1Y 1M
FO180 FOB CARGO SG FWD CURVE
FO3.5% BARGES ARA FORWARD CURVE
FO180 FOB Cargo SG Fwd Curve
FO3.5% Barges ARA Fwd Curve
1M - 1M
Yield
522.00
521.00
1M - 1Y 1M
Yield
492.00
492.00
519.00
488.00
516.00
484.00
513.00
480.00
510.00
476.00
.12
.12
1M
1M
FO380 FOB CARGO SG FORWARD CURVE
FO380 FOB Cargo SG Fwd Curve
2M
3M
4M
5M
6M
7M
8M
9M
10M
11M 1Y 1M
NAPHTHA CFR JAPAN FORWARD CURVE
Naphtha CFR Japan Fwd Curve
1M - 1Y 1M
Yield
593.00
592.00
591.00
590.00
1M - 1M
Yield
770.00
767.50
765.00
760.00
589.00
755.00
588.00
587.00
750.00
586.00
586.00
.12
1M
2M
3M
4M
5M
6M
7M
8M
9M
10M
.12
11M 1Y 1M
1M
2
INSIDE U.S. OIL
October 13, 2014
OIL ANALYTICS: ASIA SWAPS FORWARD CURVE (0830 GMT)
NAPHTHA CIF NWE FORWARD CURVE
Naphtha CIF NWE Fwd Curve
NAPHTHA FOB SG FWD CURVE
Naphtha FOB SG Fwd Curve
1M - 1Y 1M
Yield
1M - 1Y 1M
Yield
746.00
745.00
740.00
83.00
82.85
82.50
735.00
82.00
730.00
81.50
725.00
81.00
720.00
80.50
.12
.12
1M
2M
3M
4M
5M
6M
7M
8M
9M
10M
1M
11M 1Y 1M
ICE GO FUT. FWD CURVE
ICE GO Fut. Fwd Curve
2M
3M
4M
5M
6M
7M
8M
9M
10M
11M 1Y 1M
GO FOB CARGO SG FORWARD CURVE
GO FOB Cargo SG Fwd Curve
1M - 1M
Yield
768.00
767.75
1M - 1Y 1M
Yield
105.61
105.00
767.00
766.00
104.00
765.00
103.00
764.00
102.00
763.00
101.00
.12
762.00
1M
.12
1M
JET FUEL FOB CARGO SG FWD
Jet Fuel FOB Cargo SG Fwd Curve
1M - 1M
Yield
106.11
106.00
105.00
104.00
103.00
102.00
.12
1M
3
2M
3M
4M
5M
6M
7M
8M
9M
10M
11M 1Y 1M
INSIDE U.S. OIL
October 13, 2014
MARKET NEWS
China trade data eases slowdown fears, more stimulus may
still be needed
EXCLUSIVE-Privately, Saudis tell oil market: get used to
lower prices
BEIJING, Oct 13 (Reuters) - China's surprisingly strong trade
performance in September may reduce the chances of aggressive policy action such as an interest rate cut, but the prospects
of a prolonged property slump suggests more measures are still
needed to shore up the economy. With the euro zone and Japanese economies floundering, a bounce in China's exports and
imports would be welcome news for the world economy and
investors increasingly worried about flagging global growth. But
economists said it was too early to tell if China's trade sector
has turned the corner, noting that its unexpectedly buoyant imports last month could be due to one-off factors, such as factories taking advantage of sliding global commodity prices to replenish inventories of iron ore, copper and oil.
Exports rose 15.3 percent in September from a year earlier,
beating a median forecast in a Reuters poll for a rise of 11.8
percent and quickening from August's 9.4 percent rise, data
showed on Monday.
LONDON/NEW YORK, Oct 12 (Reuters) - Saudi Arabia is quietly telling oil market participants that Riyadh is comfortable with
markedly lower oil prices for an extended period, a sharp shift in
policy that may be aimed at slowing the expansion of rival producers including those in the U.S. shale patch.
Some OPEC members including Venezuela are clamoring for
urgent production cuts to push global oil prices back up above
$100 a barrel. But Saudi officials have telegraphed a different
message in private meetings with oil market investors and analysts recently: the kingdom, OPEC’s largest producer, is ready
to accept oil prices below $90 per barrel, and perhaps down to
$80, for as long as a year or two, according to people who have
been briefed on the recent conversations.
The discussions, some of which took place in New York over
the past week, offer the clearest sign yet that the kingdom is
setting aside its longstanding de facto strategy of holding prices
at around $100 a barrel for Brent crude in favor of retaining market share in years to come.
INTERVIEW-BoA oil analyst who predicted downturn now
sees floor
Kuwait says OPEC unlikely to cut output to support prices KUNA
NEW YORK, Oct 13 (Reuters) - As Iraqi militants advanced on
Baghdad with M-16s and stolen tanks in June, most investors
and traders in the jittery oil markets believed oil prices would
spike even higher.
But as oil prices crested at $115 in mid-June, there were clear
indications of the drop that has ensued and shocked markets in
the past weeks, according to Francisco Blanch, a Bank of America analyst who predicted that oil prices would moderate in the
fourth quarter.
Blanch told Reuters in an interview that graphs of the forward
price curve and signals from leaders of Saudi Arabia that they
were comfortable with lower prices pointed to increasing supplies and a decline in prices.
Still, even Blanch, who has been one of the most bearish analysts in the industry this year has been surprised by the size of
the recent rout that has wiped more than 20 percent off the oil
price since the start of September.
DUBAI/KUWAIT, Oct 12 (Reuters) - OPEC is unlikely to cut oil
production in an effort to prop up prices because such a move
would not necessarily be effective, Kuwait's oil minister Ali alOmair was quoted as saying by state news agency KUNA on
Sunday.
Brent crude oil settled at $90.21 a barrel on Friday after earlier
falling to $88.11, the lowest since December 2010, as Saudi
Arabia said it raised production last month, adding to perceptions that the kingdom is looking to defend market share, rather
than prices.
Oil ministers from the Organization of the Petroleum Exporting
Countries (OPEC) are scheduled to meet in Vienna on Nov. 27
to consider whether to adjust their output target of 30 million
barrels per day (bpd) for early 2015.
KUNA also quoted Omair as saying $76-77 a barrel might be
the level that would end the oil price slide, since that was the
cost of oil production in the United States and Russia.
For chart watchers, oil in 'technical graveyard' facing
deeper rout
Oil trader Hall avoids big loss, expects market to struggle
NEW YORK, Oct 10 (Reuters) - World oil prices are on the brink
of sliding another $10 or more, according to chart analysts who
say the over 20 percent drop since June has wiped out key support levels and left behind a "technical graveyard".
On Friday, Brent crude dropped to its lowest level in nearly four
years before ending near flat at $90.21 a barrel. A combination
of unrelenting supply from the U.S. shale oil boom and disappointing demand from Europe and China has walloped markets,
with Saudi Arabia reluctant to curtain output.
According to analysts who use historical chart patterns to anticipate price movements, the worst may not be over.
On a weekly chart, Brent futures had earlier closed in on $88.49
a barrel - the pivot support level representing a 76.4 percent
Fibonacci retracement of their most recent high and low from
February to June of 2012.
Oct 10 (Reuters) - Renowned oil trader Andy Hall said his $3
billion commodities hedge fund lost less than 1 percent in September, despite a tumble in global crude markets, which he said
will continue to struggle from huge supplies, a letter he wrote to
his investors showed.
It was a surprising outlook from a hedge fund manager who was
once one of the most outspoken bulls in oil, suggesting he had
turned short, or bearish, on the market, at least in the near-term.
Hall's Westport, Connecticut-based Astenbeck Capital Management, which manages approximately $3.2 billion, returned a
negative 0.7 percent last month, according to the letter seen by
Reuters on Friday.
It was the second month in a row that he had escaped a punishing rout in oil, after posting a gain of nearly 1 percent in August.
Year-to-date, Astenbeck is up 12 percent.
4
INSIDE U.S. OIL
October 13, 2014
MARKET NEWS (Continued)
Statoil exits Shah Deniz with $2.25 bln sale to Petronas
Colombian farmers sue BP over pipeline's environmental
impact -FT
OSLO, Oct 13 (Reuters) - Norway's Statoil has sold its remaining 15.5 percent stake in the Shah Deniz gas project in Azerbaijan to Malaysia's Petronas for $2.25 billion as part of asset sales
to shore up returns to shareholders.
Like other oil majors, Statoil has been selling assets to protect
margins eaten up by rising costs and, in recent weeks, falling oil
prices. It earlier sold a 10 percent stake in Shah Deniz.
Monday's deal also includes Statoil's stakes in a South Caucasus pipeline company and two other firms.
Its second-quarter production from the Shah Deniz field was
38,000 barrels oil equivalent per day, Statoil said.
The European Union sees the venture as a means of reducing
EU reliance on energy imports from Russia. It is expected to
supply 20 percent of the EU's needs in the long-term from
proven gas reserves estimated at 1.2 trillion cubic metres.
Oct 12 (Reuters) - Seventy-three farmers from Colombia are
suing BP Plc the company negligently managed the construction of the Ocensa oil pipeline in Colombia during the mid1990s, which caused severe damage to their land, the Financial
Times reported.
The group of farmers, called "campesinos," claim pipeline construction activities by British company Equion Energia, formerly
BP Exploration (Colombia) Limited, severely reduced the productivity of their farms, and are seeking about 18 million pounds
($28.93 million) in compensation, the FT reported.
A number of Colombian farmers are scheduled to travel to London to provide evidence in the case, which will be argued with
reference to contractual and extra-contractual liability under
Colombian law, the paper said.
BEYOND THE HEADLINES
amount of economic and technological inertia. It takes many
years for a price change to start having a meaningful impact on
production and consumption, which is why many of the impacts
of the earlier rise in prices are only now beginning to be felt.
For the same reason, however, once those deep-cyclical
changes are under way, they are extremely difficult to arrest or
reverse. Like a supertanker, changes in supply and demand
wrought by price rises in 2002-2012 have developed a momentum of their own and cannot easily be stopped.
Just as oil prices had to overshoot in 2008 to overcome the
natural inertia in the system and force big increases in supply
and reductions in demand, prices will now probably need to
over correct on the downside to put the oil market on to a new
course. The existence of this long cycle is confirmed by the fact
that each temporary peak in prices since July 2008 has been
lower than the last, which indicates that a gradual shift in both
supply and demand have been under way, producing a gradual
price downward.
The same unwinding of the super-cycle is evident in other commodities, notably the thermal coal market. Benchmark coal
prices to Europe exhibit identical behaviour: a massive escalation between 2002 and 2008, followed by the recession, a partial recovery by 2011, and then a gradually falling trend in which
each temporary peak is lower than the last.
Broadly similar pricing patterns are evident in other major industrial commodities as diverse as aluminium and copper.
The best way to characterise the current fall in oil and other
commodity prices is that it is the downswing of a long price cycle that dates from around 2002.
During the upswing, the synchronised rise in the price of many
industrial and agricultural commodities was dubbed by analysts
as a “super-cycle”.
In their excitement, many investors and businesses focused on
the “super” and forgot about the “cycle”, ignoring the fact that at
least some of the increase in prices would eventually need to be
reversed.
COLUMN-Oil producers enter supercycle's dark side
By John Kemp
LONDON, Oct 10 (Reuters) - Oil producers are getting another
brutal reminder that theirs is a business characterised by long,
deep price cycles.
Benchmark Brent futures have dropped below $90 a barrel, the
lowest level since December 2010, but that actually understates
the extent of the damage.
The problem with using December 2010 as a baseline is that oil
prices at the time were hugely distorted by the cyclical downturn
in demand caused by the financial crisis and the ensuing recession. Most analysts would agree these effects were temporary
and give little insight into long-term oil-market trends.
If the period covered by the recession (late 2008 to early 2011)
is excluded to give a more representative picture, the price of
Brent has not been this low since February 2008, when price
increases were still accelerating towards their eventual peak five
months later.
And if prices are adjusted for inflation (using average U.S.
hourly earnings), Brent prices are at the lowest level in real
terms since October 2007, exactly seven years ago (http://
link.reuters.com/paj23w).
The oil industry has always experienced very long, slow and
deep cycles in supply, demand and prices: the current downturn
is no exception.
Both the surge in oil supplies and slowdown in demand are the
lagged response to the increase in prices which started in 2002
and lasted until 2012, albeit with a hiatus during the recession
between 2008 and 2011.
It was the stimulus of high and rising prices which made the
application of hydraulic fracturing and horizontal drilling possible
in the North American shale oil plays.
And it was the panic brought on by rising fuel bills which
prompted households, businesses and governments to conserve fuel by turning to energy efficiency and substitutes such
as ethanol and natural gas.
Fuel supply and demand are characterised by an enormous
5
INSIDE U.S. OIL
October 13, 2014
ANALYTIC CHARTS
Daily NYMEX Crude - 30 Min
Daily ICE Brent Crude - 30 Min
Daily ICE Gas Oil - 30 Min
Daily NYMEX RBOB Gasoline - 30 Min
Daily ICE Heating Oil - 30 Min
Daily NYMEX Heating Oil - 30 Min
(Inside U.S. Oil is compiled by Renuka Vijay Kumar in Bangalore)
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