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Refined Products

Recap: A drop in Chinese oil production, combined with the sixth straight week of declining U.S. crude oil inventories, pushed WTI futures to its highest level in 15 months. After dipping slightly lower early in the session, oil futures proceeded to trade sideways, within a narrow range; mirroring activity from the prior day's trading. Upon the release of the EIA report, which reflected a draw of 5.2 million barrels of crude oil, spot futures jumped 3% higher on the day, topping out at $51.93. Gains were slightly pared, with December WTI settling at $51.82, up $1.20, or 2.37%. Brent for December delivery settled at $52.67, up 99 cents, or 1.92%.

November RBOB gained less than a cent to settle at $1.514 a gallon, while November heating oil rose 1.9 cents, or 1.2%, to $1.588 a gallon.

Fundamental News:  According to the EIA, US refinery rates fell to 85% in the week ending October 14th, the lowest level since April 2013.  US commercial imports fell to 6.9 million bpd last week, the lowest volume since June of last year.  US crude oil inventories fell last week as refineries continued to deplete inventories.  Crude inventories fell by 5.2 million barrels in the week ending October 14th while crude imports fell by 912,000 bpd.  Crude stocks in Cushing, Oklahoma fell by 1.6 million barrels, the most since April.  Analysts attributed this in part to an outage on Plains All American's Basin Pipeline last week.  The company advised customers on Thursday that it delayed a planned restart, which affected supply coming from Colorado City, Texas into the Oklahoma hub.   

Saudi Arabia's Energy Minister, Khalid al-Falih, said many countries are willing to join OPEC in cutting production to secure a continued improvement in oil prices.  He said negotiations will continue until the scheduled OPEC meeting on November 30th in Vienna.  So far, only Russia has stated that it is considering an output freeze or cut, while other non-OPEC producers that cooperated with past supply cuts, including Mexico and Norway, said they will not cut.  

Exxon Mobil's Chief Executive, Rex Tillerson, and Saudi Arabia's Energy Minister, Khalid al-Falih, took opposing views on declining investment in the oil sector setting the stage for a possible major supply crunch.  The head of Exxon Mobil said that shale oil producers' resilience in cutting costs to make some wells profitable at as low as $40/barrel means that North American production has effectively become a swing producer that will be able to respond rapidly to any global supply shortage.  He said the world is developing enough oil resources to avoid a supply crunch in the next few years.  Meanwhile, Saudi Arabia's Energy Minister warned that the sector faces challenges due to a decline in investment.  He said OPEC's plan to freeze or even cut production along with several leading producing countries, including Russia, will help reduce an overhang of supplies and stimulate new investments in the sector.  Separately, Saudi Arabia's Energy Minister said oil markets were at the end of a considerable downturn as fundamentals were improving and supply and demand were rebalancing.  He called on non-OPEC producers to help stabilize the market saying their role was as critical as the role of OPEC members.    

Russia's Energy Minister, Alexander Novak, is planning to meet his Saudi Arabian counterpart, Khalid al-Falih, this weekend to discuss the coordination of possible actions on the global oil market. 

Halliburton Co said oil prices have to stabilize at above $50/barrel for producers to significantly increase their oilfield activity.  It said it expected pricing pressure to continue globally and activity in the current quarter to be weak due to holiday and seasonal weather-related downtime. 

The first cargo of clean oil products from Iran since sanctions were lifted has landed in northwest Europe, with another cargo loading.

Early Market Call - as of 9:00 AM EDT

WTI - Nov $50.61 down 99 cents

RBOB - Nov $1.4904 down 2.32 cents

HO - Nov $1.5574 down 3.05 cents

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Natural Gas

Wednesday, October 19th, saw the front-month NYMEX Natural Gas Futures Contracts open at $3.173, nine cents below Tuesday’s closing price of $3.263, as short-term forecasts are showing above average temperatures for this time of year.  Sinking to the intraday low of $3.149 out of the gate, traders then drove prices to the intraday high of $3.190 by 9:30AM.  Trading within a narrow band near $3.175 over the subsequent two hours, the contract then withdrew to $3.160, finding stability through 2:00PM.  Mounting a final ascent to finish out the day, November closed lower on Wednesday at $3.170.

The EIA Natural Gas Storage Report is due out at 10:30AM today.  The report is expected to show a 75 BCF injection to storage for the week ended October 14th.  This compares to an 82 BCF injection at this time last year and a five-year average injection amount of 83 BCF.

This morning in Globex, WTI Crude was down 74 cents; Natural Gas was down two cents; Heating Oil was down two cents; and, Gasoline was two cents as well.  Additionally, cash prices were lower in New York and New England.

Natural Gas Glossary

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