Oil: Price volatility continues – BBH

Analysts at BBH note that the November light sweet crude oil futures contract recorded a five-month high in late September near $52.85.  

Key Quotes

“It closed below $50 yesterday for the first time in 2 1/2 weeks.  At $49.50 it would have retraced half the gains it has recorded since the late August low around $46.15.  The next retracement objective is near $48.70.  The five-day average is moving below the 20-day average for the first time in a month.  Prices are steady today, but both Brent and WTI are off 2.7% and 3.2% on the week, which would be the largest losses in two months.”  

“US output is rising, and inventories are falling.  The missing piece is exports.  They have surged over the past couple of weeks, with last week's exports reaching almost two mln barrels a day.  Last year crude exports averaged about 600k a day.”

“The combined exports of crude and refined products have reduced the US net imports to a record low.  The US still imports oil, and the latest data puts those imports at around 7.2 mln barrels a day.  The storms did skew the data, and it may not have entirely worked its ways through, but the widest spread between Brent and WTI in two-years ($6.0) is also encouraging US exports.  The two-week surge in US exports is also made possible by the weaker demand from refineries as they continue to recover from the storm.”  

“The recent rally which carried Brent to almost $60 and WTI to almost $53 has also spurred some hedge-related sales, according to reports.  And this reveals a contradiction in the OPEC strategy.  If they succeed in driving the price of Brent higher, then this will see the US producers boost output and exports, and increasingly competing in third markets in Asia and Europe with OPEC.”