Are Crude Oil Bulls Controlling the Bears?

PART 1 OF 5

Is Saudi Arabia Supporting the Crude Oil Bulls?

Crude oil futures  

December US crude oil (DWT) (SCO) futures contracts rose 1.1% to $52.47 per barrel on October 24, 2017. It’s the highest settlement since April 17, 2017. Brent oil (BNO) futures contracts rose 1.7% to $58.33 per barrel on October 24, 2017—near a four-week high.

On October 24, 2017, Saudi Arabia said that it would help reduce the global crude oil glut by extending the ongoing production cut deal, which supported oil (BNO) (USL) prices. Oil prices also rose due to the supply outages in Iraq following the Kurdish independence referendum. The expectation of a fall in US gasoline inventories also supported oil prices.

Saudi Arabia 

On October 24, 2017, Saudi Arabia’s energy minister said that the country focused on reducing OECD crude oil inventories below the five-year average. He also said that after the expiry of the ongoing production cut deal, OPEC might consider prolonged output caps, which is bullish for oil (BNO) (UCO) (DBO) prices. It benefits oil producers (XOP) (XLE) like Shell (RDS.A) and ExxonMobil (XOM).

API’s US crude oil inventory estimates

The API (American Petroleum Institute) released its crude oil inventory report on October 24, 2017. It estimates that US crude oil inventories rose by 519,000 barrels on October 13–20, 2017. A Reuters survey predicted that US crude oil inventories would have fallen by 2,600,000 barrels during the same period. US oil prices fell in post-settlement trade on October 24, 2017, due to the surprise build in US crude oil inventories.

The U.S. Energy Information Administration will release its weekly crude oil inventory report at 10:30 AM EST on October 25, 2017.

Wall Street 

The NASDAQ (QQQ) and S&P 500 (SPY) rose on October 24, 2017. They closed at record levels on October 20, 2017. The Dow Jones Industrial Average Index (DIA) closed at a new record on October 24, 2017. The possibility of the US tax reform’s success has been driving Wall Street. The strong 3Q17 earnings results have also been pushing Wall Street higher.

Series overview 

In this series, we’ll discuss the API’s gasoline and distillate inventory data. We’ll also discuss US gasoline demand and China and India’s crude oil imports.

Are Crude Oil Bulls Controlling the Bears? PART 2 OF 5

Gasoline and Distillate Inventories Could Support Oil Futures

Crude oil futures 

December US crude oil (UWT) (DWT) (DBO) futures contracts fell 0.25% to $52.35 per barrel in electronic exchange at 2:00 AM EST on Wednesday, October 25, 2017. Prices fell due to the surprise rise in US crude oil inventories reported by the API (American Petroleum Institute) the previous day. US crude oil prices are at a six-month high. Prices (USO) (UCO) could have also fallen due to profit-booking.

December E-Mini S&P 500 (SPY) futures contracts fell 0.15% to 2,563.5 in electronic exchange at 2:00 AM EST on October 25, 2017.

API’s gasoline and distillate inventories  

The API released its crude oil inventory report on October 24, 2017. It estimates that US gasoline and distillate inventories fell by 5.75 MMbbls (million barrels) and 4.95 MMbbls on October 13–20, 2017.

The market expected that US gasoline and distillate inventories would have fallen by 0.01 MMbbls and 0.86 MMbbls during the same period. Any fall in gasoline and distillate inventories is bullish for gasoline (UGA) and diesel prices. Higher gasoline and diesel prices are bullish for crude oil (USO) (UCO) (SCO) prices. Higher oil prices benefit oil producers (IEZ) (IYE) like Sanchez Energy (SN), Newfield Exploration (NFX), and Energen (EGN).

EIA’s US crude oil inventories  

The EIA (U.S. Energy Information Administration) will release its weekly crude oil inventory report at 10:30 AM EST on October 25, 2017. If the EIA reports a larger-than-expected fall in US crude oil inventories, it would benefit oil (OIL) (DTO) prices. For more on US crude oil inventories, read the previous part in this series.

If the EIA reports a larger-than-expected fall in US gasoline and distillate inventories, it would support gasoline and diesel prices. As a result, it would help crude oil prices.

In the next part, we’ll discuss how gasoline demand impacts crude oil prices.

Are Crude Oil Bulls Controlling the Bears? PART 3 OF 5

Is US Gasoline Demand Impacting Crude Oil Prices?

US gasoline demand 

The EIA (U.S. Energy Information Administration) estimates that the four-week average US gasoline demand fell by 76,000 bpd (barrels per day) to 9,345,000 bpd on October 6–13, 2017. The demand fell 0.8% week-over-week but rose by 262,000 bpd or 2.8% YoY (year-over-year). The YoY rise in the gasoline demand is bullish for gasoline (UGA) and crude oil (OIL) (USO) (DTO) prices.

Volatility in gasoline prices impacts US refining (CRAK) companies like Holly Frontier (HFC), Western Refining (WNR), Marathon Petroleum (MPC), and PBF Energy (PBF).

US gasoline consumption’s peak and low 

US gasoline consumption peaked at 9.8 MMbpd (million barrels per day) in July 2017. Consumption hit a record due to the record number of miles driven by US drivers in the summer. On the other hand, gasoline demand hit 8.0 MMbpd in January 2017—the lowest level since February 2014. The demand has risen 16.8% from the lows in January 2017.

US gasoline consumption estimates 

The EIA estimates that US gasoline consumption will average 9.32 MMbpd in 2017. It’s expected to rise by 0.5 MMbpd to 9.37 MMbpd in 2018. US gasoline consumption could hit an annual record in 2018. Consumption averaged a record 9.32 MMbpd in 2016.

Impact 

Record gasoline demand would likely benefit gasoline prices. Higher gasoline prices could support crude oil (DBO) (OIL) prices. Changes in oil (UCO) (UWT) prices impact energy producers (IXC) (FENY) like SM Energy (SM), ConocoPhillips (COP), and PDC Energy (PDCE).

In the next part, we’ll discuss how China’s crude oil imports impact oil prices.

Are Crude Oil Bulls Controlling the Bears? PART 4 OF 5

China’s Crude Oil Imports Are near a Record Level

China’s crude oil imports

China and the US are the top two crude oil consumers in the world. China’s General Administration of Customs reported that China’s crude oil imports rose by ~1,000,000 bpd (barrels per day) to ~9,000,000 bpd in September 2017—compared to August 2017. Imports rose 12.5% month-over-month and are at a four-month high. They hit record 9, 210,000 bpd in March 2017.

China’s crude oil imports rose due to the rise in imports from China’s teapot refiners. The imports also rose as refiners returned from seasonal maintenance. High crude oil imports from China (FXI) are bullish for crude oil (BNO) (DWT) (UCO) (USO) prices. High oil imports have a positive impact on tanker rates. Higher tanker rates benefit oil tankers like DHT Holdings (DHT) and Nordic American Tankers (NAT).

China’s Crude Oil Imports Are near a Record Level

 China’s crude oil imports in the first nine months

In the first nine months of 2017, the crude oil imports from China are at 8.5 MMbpd (million barrels per day)—12.2% more than the same period in 2016. China’s crude oil imports averaged 7.6 MMbpd in 2016 and 6.7 MMbpd in 2015.

China’s crude oil imports drivers

The imports are estimated to rise in 2017 and 2018 due to the fall in domestic crude oil production, a rise in imports from Chinese teapot refiners, and more strategic petroleum reserve.

Impact 

High Chinese crude oil imports would likely benefit crude oil (BNO) (DBO) prices.

In the next part, we’ll discuss how India’s crude oil imports impact oil prices.

Are Crude Oil Bulls Controlling the Bears? PART 5 OF 5

India’s Crude Oil Imports Hit a Record: Good for Oil Bulls

India’s crude oil imports

India is the second-largest crude oil consumer in Asia after China. It’s the third-largest consumer in the world. The Petroleum Planning and Analysis Cell of India reported that the country’s crude oil imports rose 19% to ~4,830,000 bpd (barrels per day) in September 2017—compared to August 2017. India’s crude oil imports rose 4.2% from the same period in 2016—the highest level ever. The imports rose due to more imports from refineries following the rise in domestic fuel demand. Refiners returned during July and August after the maintenance, which also supported crude oil imports.

High crude oil imports from India are bullish for crude oil (BNO) (DBO) prices. Changes in oil prices impact oil producers (VDE) (IXC) like National Iranian Oil, Denbury Resources (DNR), and Cobalt International Energy (CIE).

India’s crude oil imports

India’s crude oil imports averaged 4.4 MMbpd (million barrels per day) in the first nine months of 2017—1.8% higher than the same period in 2016. Imports averaged 4.0 MMbpd in 2016. They’re expected to rise 7.5% to 4.3 MMbpd in 2017—compared to 2016.

India’s crude oil demand

India’s crude oil demand averaged 4.4 MMbpd in 2016. It’s expected to rise 3% to 4.5 MMbpd in 2017—compared to 2016. OPEC estimates that India’s oil demand could rise 150% to 10.1 MMbpd by 2040 from ~4 MMbpd. Meanwhile, oil majors like Shell (RDS.A), Saudi Aramco, Rosneft, and BP (BP) are trying to tap India’s fuel oil markets.

Impact

High crude oil demand and imports from India could support crude oil (UCO) (USL) prices. Higher oil prices benefit oil tankers like Frontline (FRO) and Nordic American Tankers (NAT).

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