Major crude consumers intensified pressure on OPEC and its allies to boost supplies

Market Insights
Heating Oil
November 4, 2021

RecapOil futures fell by the most in nearly two months as major crude consumers intensified pressure on OPEC and its allies to boost supplies and after U.S. crude oil inventories reached their highest level since August. U.S. President, Joe Biden has taken a strong stance on requesting that OPEC+ increase output in an effort to help lower oil prices. Despite the pressure from the U.S. and other importers, the cartel is expected to stick to a plan to raise output by a modest 400,000 barrels a day. Azerbaijan on Wednesday joined a roster of OPEC+ nations that have said a modest increase would be enough. December WTI fell $3.05, or 3.6%, to settle at $80.86 a barrel, while December Brent lost $2.73, or 3.2%, to settle at $80.86 a barrel. Petroleum products also slipped, with December RBOB losing 0.1116 cents, to settle at $2.3385 a gallon and December heating oil dropped .0737 cents, to settle at $2.4350 a gallon.

Technical Analysis: Crude oil markets remain volatile, as the near-term momentum has shifted to the downside. We would like to see a settlement in WTI below $80 to confirm this move and then would consider unloading length. A push below this psychological support could push WTI down toward the 50-day moving average, which is currently set at $77.55. Below that, additional support is seen at $75. Resistance is of course at $85 and above that at $88. 

Fundamental News: Bank of America is forecasting Brent crude prices will increase to $120/barrel by June 2022, up 45% from current levels.  Bank of America’s head of global commodities, Francisco Blanch, said “it’s very easy for prices to shoot up when demand conditions are tight like they are now.”

U.S. shale producers' decision this year to resist producing more oil even as prices surge could be nearing an end.  Several major oil companies, including BP Plc, Chevron Corp and Exxon Mobil Corp, are planning to increase output or shale spending next year, undercutting OPEC's tight supply management.  The planned increase in shale will come from larger companies and particularly from the Permian Basin, the top U.S. shale field. The change follows pressure from the White House for more production as retail fuel prices rise. Permian output is forecast to reach 4.89 million bpd in November, just below the peak 4.91 million bpd of March 2020 before the pandemic hit. The remaining shale regions, however, have lagged, producing a quarter less oil than at their peak in early 2020. On Tuesday, BP said it would increase spending on its U.S. shale holdings next year by $500 million. Exxon last quarter increased its shale output by 30% to about 500,000 bpd and could add two more drilling rigs ahead. Chevron this quarter will add two rigs and well-completion crews, adding to output in early 2021. Hess Corp plans to increase its shale output by up to 8% this quarter over last after adding a rig in North Dakota's Bakken shale field.

IIR Energy reported that U.S. oil refiners are expected to have shut in 1.3 million bpd of capacity in the week ending November 5th, increasing available refining capacity by 155,000 bpd.  Offline capacity is expected to decline to 761,000 bpd in the week ending November 12th.

The Federal Reserve on Wednesday said it will begin trimming its monthly bond purchases in November with plans to end them in 2022, but held to its belief that high inflation would prove "transitory" and likely not require a fast increase in interest rates.

Early Market Call - as of 8:20 AM EDT

WTI - Dec $82.47, up $1.62

RBOB - Dec $2.3866, up 4.8 cents

HO - Dec $2.4886, up 5.39 cents

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