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Slumping Global Energy Demand

CRUDE OIL

In retrospect, the energy markets were either unimpressed with restraint action by OPEC+, or fear of slumping energy demand has become the primary fixture in the trade. In fact, we think the OPEC+ action is unlikely to offset slumping global energy demand and we recognize the markets doubt OPEC+ restraint will be fully complied with. Furthermore, trade chatter suggests that the oil producer’s cartel has exhausted its capacity to cushion prices in the current environment. Some will suggests that another monthly US production record of 13.24 million barrels per day more than counters the psychological impact of the announced cuts by OPEC+ yesterday. Other bearish developments facing crude oil today came from J.P. Morgan estimates of softer than expected US November gasoline demand, predictions of increased Russian oil exports this month (which countervailed the Russia product export cut of 200,000 bpd) and reports that Chinese refiners have not been granted enough import quotas to keep run rates at current levels.

Energy production

PRODUCT MARKET

As in the crude oil market, the gasoline market appears to have suffered a buy the rumor, sell the fact reaction to this week’s initial bullish events. Furthermore, bullish supply news from a Russian promise to reduce fuel exports by 200,000 barrels per day has been fully countered by evidence from the EIA and major brokerages of softening US gasoline demand. While US gasoline stocks have been relatively stable, implied gasoline demand reached an 8-week low and saw weekly declines in the 3 readings in front of the Thanksgiving Day holiday weekend.

NATURAL GAS

With natural gas prices down for twelve sessions in a row and a surprise injection to EIA gas in storage yesterday fundamentals continue to favor the bear camp. Obviously, a modest weekly net injection in the weekly EIA storage came as a surprise to the market which was expecting a weekly draw of 10 bcf to 15 bcf and the surplus to the five-year average also increased again. This kept US gas storage well above the 5-year average which has weighed on natural gas prices for most of this year. The weekly natural gas storage report showed an injection of 10 bcf.

 

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