Brent and WTI crude oil both fell slightly last week, despite a strong crude stock draw in the United States. Brent crude fell $0.35/bbl to average $63.42/bbl. WTI continued to show more negative momentum, falling $0.76/bbl to average $56.22/bbl. Although the Energy Information Administration reported a large draw in crude oil stocks, refined product inventory movements were lackluster, reinforcing fears about demand. For the week ahead we see no immediate bullish factors and thus expect Brent to continue its generally range-bound pattern, averaging $63.50/bbl.
Light-heavy crude differentials merit special attention in the weeks ahead. The government of Alberta announced that it was easing the volume curtailment for September to reflect increased shipments of crude by rail. In the lead-up to the announcement the WCS-WTI differential widened from below $12/bbl to roughly $14.50/bbl. However, since the initial jump the differential has remained steady. If WCS values fall significantly due to concerns about oversupply, the government is likely to again tighten and potentially lengthen the timeline of current curtailments. In Colombia, rebels bombed the Transandino pipeline for the 14th time this year, reminding markets of the risks that remain to medium and heavy crude oil types around the world.
On top of economic news, a sudden uptick in Chinese refined product exports is further stoking fears about demand. Chinese gasoline shipments have been sent as far afield as Mexico and Nigeria as refinery production appears to be outpacing regional demand. With no visible inventory data to evaluate, it is difficult to know the exact extent of a possible oversupply. Although Beijing has taken a more active role in managing product oversupply in the region, such far-ranging imports clearly imply that the region has volumes to spare. Additionally, an uptick in exports from China would add even more competition to already beleaguered European refiners, which have increasingly relied on exports to Africa to support activity in recent years.
Geopolitical Unrest – Positive
Global Economy – Negative
Oil Supply – Positive
Oil Demand – Negative
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