Crude Glut Eclipse

The oil trade has been totally eclipsed by the focus on the so called glut of crude even as the oil market, due to massive supply withdrawals, is the tightest it’s been in years when you compare it to record demand. The forward demand cover on oil supply in the U.S. has fallen to 26.7 days of supply, the lowest since October 2nd of 2015. This comes as there are signs that US shale producers are pulling back because many cannot make money below $50 a barrel. The US oil count fell by 5 oil rigs according to Baker Hughes, confirming talk of a slowdown by many in the oil service space. With a supply disruption in Libya and OPEC saying that they will see better compliance, the market will soon emerge out of its bearish darkness.

The oil trade is not paying attention to falling supply yet but as demand continues to be strong, the game is starting to change. Over the weekend reports that Libya's National Oil Corp declared force majeure on loadings of Shara crude from the Zawiya oil terminal.

Goldman Sachs is reporting that many oil producers are under hedged going into 2018, They say producers have only hedged 37% of 2017 oil production (vs. 36% with 1Q17 results), still above the 30% 3-year average. Only 15% of 2018 oil is hedged post 1Q earnings (vs. 9% in March). The 2018 hedged oil/liquids production rose to 15%/11% from 9%/7% post 1Q, below historical averages. For natural gas, 2017 hedging at 54% is above average; 2018 hedging is at 36%, above seasonal average.

The Weather Channel Says that Tropical Storm Harvey is likely to come back to life in the Bay of Campeche later this week and be a potential threat to Mexico and South Texas. They say that Harvey's remnants will bring locally heavy rain to Central America and the Yucatan Peninsula. The Miami Herald reports that a tropical wave rolling toward South Florida began to show signs of weakening Friday evening as it encountered stronger wind shear, National Hurricane Center forecasters said. In their 8 p.m. advisory, forecasters said the wave, located about 500 miles east of the northern Leeward Islands, had become less organized as it encountered upper winds that can shred hurricanes. Over the last day forecasters had worried that the storm tracking toward the Bahamas might become a tropical cyclone. But Friday evening they dropped the odds to 50 percent. Earlier in the day they’d given the storm a high 70 percent chance of forming. As the storm continues heading west at 20 mph, they say conditions make the likelihood of a cyclone even less likely.

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