OPEC Cuts Demand Forecast
OHLC Price Chart oilprice.com

OPEC cut demand forecast for its crude oil to a 12-year low, sending oil prices, energy shares and the overall stock market into a dive on Wednesday. West Texas Intermediate (WTI) traded at a day low of $60.43. On top of the OPEC demand cut, U.S. inventories increased on a day when expectations were for a decrease. The TSX fell 342.78 with energy stocks leading the crush. The Dow Jones Industrials, which has been flirting with 18,000, dropped 268 on Wednesday.

OPEC reduced its proje...

Analyst Commentary

Raymond James Equity Research
DOE Petroleum Inventories Update
This week's petroleum inventories update was extremely bearish relative to consensus. "Big Three" petroleum inventories (crude, gasoline, distillates) rose by 15.2 MMBbls, 10 times higher compared to consensus estimates for a build of 1.5 MMBbls. Of note, this represents the second biggest "Big Three" build since 1996. Crude inventories increased by 1.5 MMBbls, versus consensus calling for a draw of 2.7 MMBbls. Cushing crude inventories rose by 1.0 MMBbls, while Gulf Coast inventories rose by 0.5 MMBbls. Total petroleum inventories were up 7.5 MMBbls from the previous week.

Refinery utilization rate was 95.4%, up from 93.4% last week. Total petroleum imports were 9.2 MMBbls per day, up from 9.1 MMBbls per day last week. On a four-week moving average basis, imports are down 0.2 MMBbls per day versus last year. Total petroleum product demand fell 1.9% after last week's 3.2% decline.

Amid a rapidly shifting macroeconomic and geopolitical backdrop, there has been plenty of volatility in oil prices over the past year - including an exceedingly sharp correction from August through the present, taking prices to five-year lows following OPEC's Nov. 27 decision not to cut production. The bounce in the first half of 2014 was mainly driven by improved economic data as well as geopolitical instability (Libya, Syria, South Sudan, Iraq). More recently, negative datapoints have come out of several key economies: China, Japan, and the eurozone. Demand continues to decline for OECD countries in aggregate, and demand growth in China and other emerging markets is slow, in part due to declining oil intensity. On the supply side, non-OPEC supply is trending up, driven largely (though not exclusively) by robust growth in the U.S. Of course, the wildcard remains the possibility of supply disruptions (above and beyond the lingering outages in Libya), as evidenced by the crisis in northern Iraq (although it has had virtually no impact on oil production thus far). The geopolitical risk premium in oil prices has clearly subsided, and concurrently, strength in the U.S. dollar has further pressured oil prices. Balancing all of the above variables, in October we lowered our 2015 Brent forecast to $90/Bbl (vs. $110/Bbl previously). For WTI, our 2015 forecast as of October has been $75/Bbl (vs. $85/Bbl previously). For some context, the 12-month futures curve is currently at $67.68/Bbl for Brent and $62.28/Bbl for WTI.  


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