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Takeaway: After a heavy week of data, both the fundamental picture and behavioral market activity suggest continued downside pressure.

We have highlighted our bearish view on oil in the last few months and would like to give a short update:

1.     Both our fundamental-macro and market activity-based processes suggest further downside pressure on crude prices

2.       In aggregate, a busy week of data was marginally more bearish

For access to our previous (and lengthier) notes, please see the link below published last week

OIL: MORE DOWNSIDE?

MONDAY: Drilling productivity report from the EIA which showed a month-over-month production per rig increase for nearly all major shale plays:

  • Bakken:               +7K B/D to 543K
  • Eagle Ford:        +9K B/D to 550K
  • Haynesville:     flat at 24K B/D
  • Marcellus:         +1K B/D to 33K
  • Niobrara:            +7K B/D to 407K
  • Permian:            +3K B/D to 179K
  • Utica:                   +7K B/D to 201K

WEDNESDAY: OPEC production data for the month of October which was largely unchanged with no signs of under the radar production cuts from the biggest producers:

  • Non-OPEC supply expectations held flat m/m: +1.68M B/D full year 2014
  • Global demand growth held flat m/m: +1.05MM B/D full year 2014
  • Demand for OPEC crude for 2014 is an estimated 29.5MM B/D and OPEC produced 30.25MM B/D on average in October

High-level notes from the OPEC report:

  • The +1.05MM B/D in estimated demand assumes Q4 will see the highest growth rates
  • 2015 estimates for the non-OPEC supply assume a sharp deceleration in growth in 2015 (+1.24MM B/D 2015 vs. +1.68MM B/D in 2014)

THURSDAY: DOE U.S. Inventory data revealed a domestic crude and gasoline inventory build:

  • DOE Change in U.S. Gasoline Inventories +1805K vs. -1378K prior (-54.55K est.)
  • DOE Change in Cushing, OK Crude Inventories +1704K vs. -551K prior

From a quantitative perspective, all of our contributing proprietary processes are signaling continued pressure to the downside in the immediate and intermediate-term.

WTI found support post-DOE report right at the low-end of our immediate term risk range and looks oversold on the day. The intermediate and longer-term bearish set-up is firmly intact, and resistance levels over these longer durations have moved lower week-over-week.

Oil: Supply, Supply, Supply - Levels chart

As always, please reach out with any questions or comments.  

 

Ben Ryan

Analyst