FxWirePro: US EIA inventory updates and Brent/WTI spread trades on revised crude projections

The US EIA printed the monthly data for US crude oil last Friday. The US total crude production increased by 269 kbd M/M, which is twice the growth we had in our model at 113 kbd in July. The production growth was driven by offshore Gulf of Mexico (GoM) and Lower 48 (L48) states. Crude oil from GoM rose by 189kbd M/M in Jul'18. Oil production in Texas and New Mexico surged by 59 kbd M/M and 1.25 mbd Y/Y, and in North Dakota it was up by 41 kbd M/M and 221 kbd Y/Y. 

The US oil supply growth is forecasted of just over 100kbd, and in Sep’18 US total supply growth could be impacted by some small downward revisions to the US GoM supply due to tropical storm Gordon. 

As we see US production growth slowing down from its peak in mid 2018 and pipeline companies could bring forward some of the pipeline completion dates, we feel the WTI time spreads are under-priced and should strengthen from here onward.

Initiated longs in NYMEX WTI for January 2019 delivery and short February 2019 NYMEX WTI trades at 0.17/bbl on 19 Sep. 

Initiated longs in ICE Brent spread for Dec’19-Jan’20 delivery at $0.34/bbl. 

The price forecasts are upgraded for 2019 Brent by $20.5/bbl to $83.5/bbl. The bullish stance is sturdily driven by tighter supply due to Iranian sanctions and declining spare capacity that we think markets are not pricing in completely along the curve yet. 

We also think back end is suppressed due to hedging activity, but as we move closer to the end of 2019, we will see increased hedging from consumers rather than producers but also increased demand for Brent-based benchmark crude to meet the IMO spec Marine Gasoil demand from 1 Jan 2020 (see Oil Market Quarterly, Deshpande, 24 Sep). This should be supportive of the time spreads at the back end of the curve 

Long in December 2019 ICE Brent and short January 2020 ICE Brent traded at $0.34/bbl as of 24 Sep. Courtesy: JPM

Currency Strength Index: FxWirePro's hourly EUR spot index is flashing at -86 (which is bearish), hourly USD spot index was at -13 (bearish) and GBP spot index is flashing at 80 (bullish), while articulating at 12:08 GMT. 

For more details on the index, please refer below weblink:

http://www.fxwirepro.com/currencyindex