The market was relatively quiet yesterday closing down $0.0070 to $1.8028/gal on November HO and closing up $0.0128/gal on November RBOB to $1.6429/gal. Much to everyone’s surprise, crude inventories fell for the 4th consecutive week yesterday by 5.7 million barrels. Analysts feel that the inventory draw and decrease in production were skewed by the effects of Hurricane Nate. Hurricane Nate certainly didn’t get the same headlines as Harvey or Irma, but it has crippled U.S. oil production in the Gulf of Mexico nonetheless.
Yesterday, WTI crude closed up $0.01/bbl to $51.88, RBOB closed up $0.0132/gal to $1.6301, and HO finished down $0.0031/gal to $1.8098. In afterhours trading yesterday, the crude oil markets initially received some support from the API statistics. The APIs showed a large draw in crude inventories of 7.1 million barrels. Of that draw, about 200,000 barrels came from Cushing, OK. Refined products were slightly bearish. Gasoline built 1.9 million barrels and distillates built 1.6 million barrels. This morning the market has been trading relatively flat to slightly higher, meaning the API statistics are being muted as everyone awaits the DOE statistics due out today at 10:30 a.m. EST.
As market participants in the most actively traded commodity in the world, crude oil, we must navigate commodity risk on a daily, weekly, monthly, quarterly, and yearly basis. Commodity risk refers to the uncertainties of future market values caused by the fluctuation in the prices of commodities that include: price risk, volume risk, cost risk, and geopolitical risk. Even though all of these are managed at any given time, the current geopolitical risk involving Iraqi forces taking Kurdish-held oil city of Kirkuk and the U.S.-Iran tensions rising in regard to potential sanctions, has kept the markets on edge and afloat the last few trading sessions. Conflicts, sanctions, and supply cuts are certainly the main ingredients to get long the oil complex, but when the music stops: i.e. Iraqis urgently calling for dialogue between the central government in Baghdad and the Kurdistan regional leadership to resolve the crisis triggered by the Kurdish independence referendum; Iran Deputy Oil Minister saying President Trump’s policy on Iran has little implication on Iran’s oil industry; and the uncertainty of supply cuts by OPEC beyond March of 2018; all of these equal a concoction brewing up a potential near-term pullback towards that all too magnetic level of $50 in West Texas Intermediate with $49.01 and $48.68 as major support levels.
On September 25th the Kurdish Regional Government (KRG) voted for their independence and ever since there has been uncertainty in the region. The stability of the Middle East is called into question yet again to start the trading week. Tensions were escalating quickly in the city of Kirkuk as Iraqi forces entered the city and solidified control over the oil rich fields of Bai Hassan and Avana. Reuters reported that the oil fields were briefly shut down Monday morning due to “security concerns.” These oil fields are responsible for roughly 350,000 barrels a day of production. Based on the bullish move in the markets this morning, it is safe to say this flare-up in tensions is playing a major role in the energy sector. After Iraqi forces were able to control the northern region of the country’s oil fields, the KRG government was reported as saying that the regions’ oil was still flowing and that they would not attempt to halt it in any way.