Supply vs. Demand Concerns Temper Early Gains
The markets were initially up somewhat today on EIA inventory reporting and projected slowdowns in US Shale production through 2020.
However, ongoing positive hopes regarding a trade deal between China and the US, as well as some unexpectedly positive demand numbers from China allayed some concerns on the demand side of the equation and prevented supply related spiking on the NYMEX today, and we ended up closing down on Crude & RBOB, and up slightly on ULSD.
Official numbers at the close: Crude $56.77 (from $57.12), ULSD $1.9179 (+.0054) and RBOB $1.6158 (-.0207)
On the OPEC front, no "major changes" are anticipated on current supply curbing measures and member adherence. There is some question though if going forward there will be further cuts to prop prices, which seems important both for Aramco valuation and to compensate for continually dwindling demand. On the other hand, the ongoing concerns for the cartel regarding the portion of demand loss that has been taken by non-OPEC producers, including the US, makes further supply cuts anything but a sure thing.
As we've discussed, OPEC nations, particularly the Saudi's have the lowest oil production costs globally, so while they can withstand "cheap" oil, producers of Shale who are looking at both higher production costs and high overhead and financing debt on newer exploration projects cannot. Thus far, obviously, the multi-year campaign to push higher cost producers out has not worked - and some analysts think that should OPEC decide to pursue further cuts to prop pricing, (rather than continuing to ride it out), it could signal an acceptance of this fact and potentially signal a major shift in their approach going forward.
The next meeting is scheduled for December 5-6. The way the news has been going, it's probably a good assumption that we will see enough volatility from other issues that it will sneak up on us again.
Either way, stay tuned!