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Distillate Dreams. The Energy Report 11/16/17


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The Energy Information Administration (EIA) reported a more supportive snapshot of petroleum supply and demand than the American Petroleum Institute (API) reported, and while the report was not as bullish as pre-API report expectations from a seasonal standpoint it was supportive.

The EIA reported that total commercial petroleum stocks increased 2.75MB and while that might have been more than expected, it pales in comparison to the 7-million-barrel increase in supply a year ago. In fact, commercial inventories now stand at a whopping 81 million barrels below a year ago, and one of the biggest year over year declines in history.

Crude supply reportedly increased by 1.854 million barrels, the third increase in supply out of the last four but that was offset somewhat by a 1.5 million barrel drop in the Cushing Oklahoma delivery point. The overall crude supply number was enhanced by a 0.7-million-barrel release of oil from the U.S. Strategic Petroleum Reserve. Yet, crude demand will remain strong as refiners run at near record rates at 91% of capacity to try to catch up with distillate supply that are at this time well below normal for this time of year. The EIA reported that distillate supply increased by 700,000 barrels as domestic demand fell 1.5million barrels a day.

Still many distillate users are under hedged as they were caught in the lower for longer hype that kept many from locking in at better prices. Many farmers already reeling from low corn prices are getting hit with rising diesel costs as U.S. refiners are trying to satisfy strong global distillate demand.

U.S. diesel exports are surging increasing by 28,000 barrels a day last week. Laura Blewitt and Amy Stillman of Bloomberg news report that “Mexico is scouring the earth to stock up on diesel fuel before market-liberalization measures take effect. Petroleos Mexicanos, the country’s state-run oil company, has been on a buying spree of about a tanker load of diesel a day from the U.S. alone this year and recently purchased it as far afield as the United Arab Emirates and China. Mexico is set to lift price limits on the fuel used to run heavy trucks and generate electricity, making 2018 prices uncertain.”

They report that the end of the price limits come as Mexico’s appetite for foreign diesel has surged this year as domestic production plummeted after the country’s biggest oil refinery went offline. Mexican refineries operated at less than 33 percent of total capacity in September, the last date for which figures, and crude processing is at the lowest level since 1990, according to Mexico’s energy information agency. U.S. diesel exports to Mexico increased to a record high of 272,000 barrels a day in September, according to the latest data from the U.S. Census Bureau.

Ready to use ‘gasoline’ stocks did increase by 1.6MB which is the first gasoline supply increase in 4 weeks. Demand eased off from records to about 9.2 million barrels a day. While oil works off some of its overbought conditions there are many factors that could move us.

Reports that Russian Oil companies are complaining that their cuts and pain is benefitting others like US shale. The Venezuela default that could lead to a total collapse of Venezuela’s oil production.

Ongoing tensions with Saudi Ariba, Iran and whether they will strike Hezbollah in Lebanon.  Reuters reports that France said  that Lebanese Prime Minister Saad al-Hariri, who Lebanon’s president says is being held hostage by Saudi Arabia, will visit France with his family in coming days.

Hariri travelled to Riyadh on Nov. 3 before abruptly resigning in a televised statement a day later. He has stayed in Riyadh and top Lebanese officials and senior politicians close to Hariri have told Reuters he was forced to quit. Hariri and Saudi Arabia have both denied he is being held in Riyadh or was coerced to resign. Hariri has said he will return to Lebanon in the next few days to formally submit his resignation. Stay tuned

Natural gas is in a flux as weather models continue to differ about how cold the next weather cycle is going to get. As Nat gas is at a low-level a possible price spike could happen if we come on the colder end. Most of the trade has been leaning toward the warmer forecast but based on some models, that could be wrong. If they are, then we could see a 20-cent spike. If it stays then we should go fill the gap on the downside and target about 2.980.
Thanks,
Phil Flynn
Questions? Ask Phil Flynn today at 312-264-4364

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About the author


Mr. Flynn is one of the world's leading energy market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.

Phil Flynn's accurate and timely forecasts have come to be in great demand by industry and media worldwide. His impressive career goes back almost three decades, gaining attention with his market calls as writer of “The Energy Report”.

He is a daily contributor to Fox Business Network where he provides daily market updates and analysis. Phil’s daily commentary is also featured in Futures Magazine, International Business Times, Inside Futures, 312 Energy, Enercast, among many others.

Phil is a lifelong resident of Illinois. He attended Daley College in Chicago before beginning his career on the trading floor of the Chicago Mercantile Exchange which eventually led him and his team to The PRICE Futures Group.

Media highlights include: The President of the United States, Bloomberg, ABC, CBS, NBC´s "Today Show" and "Nightly News with Tom Brokaw", CNBC, CNN/CNNfn, FOX´s "O´Reilly Factor", PBS´s "The Newshour with Jim Lehrer" and "Nightly Business Report", MSNBC´s "The News with Brian Williams", The Wall Street Journal, Business Week, Investor´s Business Daily, The New York Times, The Los Angeles Times, Chicago Tribune, Associated Press, The Toronto Globe & Mail, Houston Chronicle, Futures Magazine, Inside Futures, and National Public Radio.

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