Tuesday, March 1, 2016

pbgenergyShale Is Falling Fast and Other Outages Help, But ex-US Supply Is Robust and Producer Hedging May Cap Gains for Now

       Energy Weekly: US Declines Are Not Enough to Make the Oil Market Great Again. The oil market has seemingly found its footing, both cause and effect of broader asset price stabilization. Brent April futures rose $2.09/bbl last week (+6.3%) as Brent spreads rallied. WTI spreads remain weak capping WTI’s gains at $1.03/bbl (+3.2%). Prices are now well off their lows, but US declines alone are not enough to push prices sustainably back over $40/bbl, as that would prompt shale producers to reverse many of the production cuts that are supporting the rally.
Producer hedging is furthermore capping 2017 futures in the mid-$40s. IEA data are painting a picture of widespread ex-US declines in January, which would indeed be very bullish if true, but loadings and weekly import data seem to largely contradict the IEA data which are still only forecasts for January. The Brent spread rally bolstered the notion of ex-US declines, yet a spate of supply disruptions offers an alternative explanation.


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