October 24, 2019

October 24, 2019
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  • WTI is up 15c to $56.12/Bbl, and Brent is up 25c to $61.42/Bbl
  • A withdrawal in US crude stocks surprised analysts on Wednesday helping sending crude oil prices higher
    • The EIA reported a 1.7 MMBbl drop in oil inventories versus the Bloomberg consensus estimate of a 2.7 MMBbl build
    • US crude imports fell by 438 MBbl/d to about 5.9 MMBbl/d in the week ended October 18, the lowest weekly total since February 1996, according to the EIA
    • Crude exports from the US rose by 435 MBbl/d to about 3.7 MMBbl/d, nearly a record high since the US lifted the ban on Lower 48 crude oil exports
  • Mexico’s finance ministry has nearly completed a majority of its yearly oil hedging program (Reuters)
    • JPMorgan, Citi, Goldman, BNP Paribas and Shell are among those the finance ministry used to execute the hedge, according to two sources familiar (Bloomberg)
    • Mexico typically buys as much as $1 billion worth of positions, mostly in the form of Put options
    • The second-largest Latin American economy is sticking to $49/Bbl as its estimate to calculate government income in the 2020 budget (CNBC)
  • Brent’s second month call/put skew flipped back to a call bias after yesterday’s price rally
    • Albeit skew is only in favor of the calls by 1.6 percentage points, oil typically carries a downward bias or put skew
    • A call skew can help producers when they are trying to hedge with option structures like costless collars. In a call skew environment, the producer can achieve a better price floor due to the now more expensive relative call option price
  • Natural gas is up 2.5c to $2.307/MMBtu
  • Analysts estimate a 92-Bcf build for the week ending October 18, the corresponding build last year was only 62 Bcf
    • Estimates ranged from 80 Bcf to 101 Bcf
    • An injection within this range would bring total stocks close to 3.6 Tcf
  • The April ‘20 and May ‘20 Waha tenors sank to their lowest levels on record, coming in at $0.26 and $0.27 respectively
    • These contracts sank due to a perceived lack of takeaway capacity as gas production from the Permian continues to grow following the startup of the Gulf Coast Express
    • Production in the Permian is up approximately 0.3 Bcf/d compared to September
  • The 6-to-10-day forecast is predicting a significant cold front coming through the Midwest, as some areas could see temperatures drop 30-degrees below normal
    •  However, expectations are that this winter storm will only be short lived and temperatures could return to normal, or above normal, the following week

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