Asia's oil markets are tightening as China cuts output, fuel stocks dwindle - Sean Seshadri

From sharp cuts to Chinese oil production to falling inventories of refined fuel products, signs are mounting that Asia's oil markets are slowly returning to balance.

Global inventories of refined products - made up from light and middle distillates like gasoline and diesel, as well as residual fuel such as fuel oil - have all fallen since the beginning of the month. They are now at or below levels seen this time last year, data in Thomson Reuters Datastream shows.

The drawdowns come after China, Asia's biggest oil consumer and a top-5 global producer, this week reported a 9.8 percent fall in output for September, amounting to one of the deepest cuts on record.

The falling stocks in most oil trading hubs, including Singapore, Europe's ARA (Amsterdam, Rotterdam, Antwerp), and in the United States, as well as China's declining production, are signs of a market coming closer into balance following two years of consistent crude and refined product oversupply.

"The oil products market is in the midst of rebalancing – it started in the U.S. and Europe a few months back, and in Asia the rebalancing is starting to show," said Nevyn Nah of energy consulting firm Energy Aspects.

Despite a slight increase over the past week, Singapore's refined product stocks have fallen from over 58 million barrels last May to below 50 million barrels, according to government data. [O/SING]

"After two years of oversupply and sharply rising inventories, inventories may have peaked as supply and demand comes back into balance," Neil Beveridge of Bernstein Energy said on Friday in a note to clients.

Analysts said the tighter markets were a result of both strengthening demand and tightening supplies.

FROM GLUT TO SQUEEZE?

A tightening fuel market is also visible in Singapore's refinery margins, which have improved despite rising feedstock crude prices.

Gasoline profits have soared from just $1.70 per barrel in July to almost $10, while overall Singapore refinery margins started picking up in August and have since jumped from $2.50 a barrel to around $6.20.

"The net result of these developments implies that prices could have further to run as markets tighten," said Bernstein's Beveridge, who expected crude prices to average $60 per barrel in 2017 and $70 a barrel in 2018.

Given strong demand, especially in Asia, and tightening supplies, "there could be a substantial supply shortfall in 2017 which could go a long way to draining inventories," he added.

Yet for the moment, traders say Asia's markets are still some way off a squeeze.

China's gasoline and diesel exports, which contributed heavily to Asia's refined product glut, jumped again in September, customs data showed on Friday, as its refiners continue to produce more fuel than China consumes.

And with the refinery maintenance season coming to an end soon, refined product supplies will soon start to pick up.

Oil prices dip after strong rally, but sentiment remains confident - Sean Seshadri

Oil prices dipped on Thursday on profit taking after markets rallied the previous day due to a draw in U.S. stocks and an expectation of an OPEC-led cut in production.

U.S. West Texas Intermediate (WTI) crude oil futures CLc1 were trading at $51.44 per barrel at 0122 GMT, down 16 cents from their last close.

International Brent crude futures LCOc1 were trading at $52.64 per barrel, down 3 cents.

Traders said that the price dips were a result of profit taking following a rally the previous day, which saw WTI settle at a 15 month high, fuelled by a reduction in U.S. crude stocks by 5.2 million barrels in the week ended Oct. 14 to 468.7 million barrels. prices continued to rise overnight on optimism over OPEC supply restraint and weaker-than-expected inventories," ANZ bank said on Thursday.

The overall mood in oil markets remained confident, with most analysts expecting further increases.

Reuters technical commodity analyst Wang Tao said U.S. oil is expected to break a resistance zone of $51.67-$52.11 per barrel, and then rise towards $52.78, while Brent oil may stabilize around a support at $52.49 per barrel and then retest a resistance at $53.45. Organization of the Petroleum Exporting Countries (OPEC) plans to meet on Nov. 30 and hopes to decide on a half a million to one million barrels per day oil production cut, and the producer cartel hopes that non-OPEC exporters, especially Russia, will cooperate.

Gold steady, but gains capped by stronger equities - Sean Seshadri Trading Tampa

Gold prices were steady on Wednesday, after gains in the previous session but fresh gains were held in check amid a rise in equity markets after data indicating that China’s economy has stabilized.

Gold for December delivery on the Comex division of the New York Mercantile Exchange was last at $1,262.45 a troy ounce.

Asian shares notched up a second day of gains on Wednesday after data showing thatChina’s economy expanded 6.9% in the third quarter, matching economists’ forecasts.

The data bolstered market sentiment, curbing safe haven demand for the precious metal.

The dollar continued to hold below seven-month highs against the other major currencies after data on Tuesday showing that while the cost of living in the U.S. rose at the fastest pace in five months in September the rate of underlying inflation moderated.

The U.S. dollar index, which measures the greenback's value against a basket of six major currencies, was at 97.85. Gold is priced in U.S. dollars and becomes cheaper to holders of other currencies when the dollar weakens.

The inflation data fueled speculation over whether the world's largest economy is strong enough to withstand an increase in borrowing costs before the end of the year.

Rising inflation would be a catalyst to push the Fed toward raising interest rates.

Markets are currently pricing in around a 64% chance of a rate hike at December's meeting, according to Investing.com's Fed Rate Monitor Tool.

On Monday, Fed Vice Chair Stanley Fischer said the U.S. central bank is "very close" to its employment and inflation targets, while Boston Fed President Eric Rosengren said the current levels of jobs and inflation support the case for a rate increase soon.

Gold is sensitive to moves in U.S. rates, which lift the opportunity cost of holding non-yielding assets such as bullion.

Also on the Comex, silver futures for December delivery were at $17.61 a troy ounce during morning hours in London, while copper futures traded at $2.101 a pound.

Gold prices hold steady, eyes on U.S. data - Sean Seshadri Trading Florida

Gold prices held steady on Friday, as a higher U.S. dollar weighed on the precious metal although investors remained cautious ahead of U.S. retail sales and consumer sentiment data, as well as a speech by Federal Reserve Chair Janet Yellen due later in the day.

On the Comex division of the New York Mercantile Exchange, gold futures for December delivery were little changed at $1,257.35.

The December contract ended Thursday’s session 0.30% higher at $1,257.60 an ounce.

Futures were likely to find support at $1,251.70, Wednesday’s low and resistance at $1,265.30, the high from October 6.

Gold prices had regained some ground on Thursday thanks to a weaker U.S. dollar, but the greenback moved back higher on Friday morning.

The dollar was still supported by the minutes of the Federal Reserve’s September policy meeting released on Wednesday, which showed that several voting members of the policy committee judged a rate hike would be warranted "relatively soon" if the U.S. economy continued to strengthen.

Gold is sensitive to moves in U.S. rates, which lift the opportunity cost of holding non-yielding assets such as bullion.

The U.S. dollar was also helped by data on Thursday showing that U.S. initial jobless claims held steady at 246,000 in the week ending October 8. Analysts expected jobless claims to rise by 8,000.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.30% at 97.83, just off Thursday’s seven-month high of 98.12.

A stronger U.S. dollar usually weighs on gold, as it dampens the metal's appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies.

Elsewhere in metals trading, silver futures for December delivery added 0.17% to $17.487 a troy ounce, while copper futures for December delivery gained 0.38% to $2.128 a pound.

China overtakes U.S. again as world's top crude importer - Sean Seshadri

China imported record volumes of crude oil last month, eclipsing the United States as the world's top buyer of foreign oil as Beijing's state reserves shipped in cheap crude to fill new storage tanks.

September's crude imports rose 18 percent from a year earlier to 33.06 million tonnes or 8.04 million barrels per day (bpd) on daily basis, customs data showed.

The buying outpaced the U.S. four-week average assessed by the U.S. Energy Information Administration of 7.98 million bpd at the end of September.

It marked the second time this year - but the third month in the past twelve - that China's imports have overtaken the United States, and reflected contracts signed in July when renewed selling pressure pushed crude below $42 a barrel. Oil has since recovered to around $50 a barrel.

The shipments also arrived as Chinese refineries entered the final stretch of their annual maintenance season, which typically takes place in the third quarter.

With U.S. plants' repair work extending into this month, the world's largest economy could retake pole position in October, analysts said.

China's strategic reserve is preparing to start filling late this year newly-built storage tanks that can take some 19 million barrels of crude, or about three days worth of imports, traders said.

"The increase was mainly driven by stocking activities at some reserve sites," said Harry Liu, associate director of oil markets with IHS Energy, who said August and September volumes were higher than he expected.

That contrasts with earlier in the year when China's independent refiners known as "teapots" were the driving force behind the imports.

Analysts from BMI research expected China's crude imports to remain elevated for the rest of the year due to falling production, expanding storage capacity and a seasonal uptick in demand over the winter months.

Over the first nine months, import volumes rose 14 percent to 284 million tonnes, or 7.55 million bpd, according to the data. On a cumulative basis, the United States is still the biggest importer with more than 8 million bpd of imports.

China's refined fuel exports in September rose 21.1 percent from a year ago to 4.3 million tonnes, near the record high 4.57 million tonnes notched in July and well up on August's 3.7 million tonnes.

The month-on-month gain rekindled worries of a supply glut in fuel products and might weigh on oil demand in the fourth quarter, analysts said.

Oil curves move above $50 as financial confidence in crude rises - Sean Seshadri Trading

U.S. oil futures held above $50 per barrel on Friday as the entire crude forward curve pushed above above that level in a sign that financial markets have increasing confidence in the sector.

U.S. West Texas Intermediate (WTI) futures (CLc1) settled at $50.44 per barrel on Thursday - the first settlement above $50 since June 24 - and were up 6 cents on Friday at $50.50 per barrel at 0542 GMT.

Brent futures (LCOc1) already moved over $50 at the start of this week, and were trading at $52.57 per barrel at 0542 GMT on Friday, also up 6 cents.

With both front-month contracts above $50 per barrel and each forward curve in contango, in which contracts for future delivery are more expensive than those for immediate sale, the entire crude futures complex has moved back over $50 per barrel. (Chart: http://tmsnrt.rs/2dz0bQH)

"There is still no end in sight for the current bullish run. Speculators have been buying every short-term dip, a strategy that has evidently been working very well so far," said Fawad Razaqzada, market analyst at futures brokerage Forex.com.

"This trend could well continue for some yet as after all crude oil's fundamental outlook continues to improve: as well as the planned OPEC oil output cut, we have seen surprise inventory destocking in the U.S. for five straight weeks now. Consequently, U.S. oil stocks have now fallen below 500 million barrels for the first time since January," he added.

The Organization of the Petroleum Exporting Countries (OPEC) plans to agree on a coordinated production cut when it next meets in late November, in a bid to rein in a global fuel supply overhang that has dogged prices for the last two years.

"OPEC kept the heat on oil prices overnight. The Algerian Energy Minister saying that OPEC could cut by more than the 0.5 million barrels per day initial agreement," said Jeffrey Halley of brokerage OANDA.

"More significantly representatives of both OPEC and Non-OPEC producers will meet for a tete-a-tete on the sidelines of yet another energy conference next week."

Despite the increasing confidence by financial oil traders in higher prices, the physical market remains relatively weak.

In a sign of ongoing oversupply, top exporter Saudi Arabia cut its benchmark crude prices to Asia this week, and analysts at JBC Energy warned there was "a growing disconnect between the physical and the financial (oil) market" which would likely converge.

HSBC on Friday said recent gains in Brent and WTI should be kept in perspective, cautioning that seasonal aspects of the price rally would fade again soon.

Gold bounces back from 3-1/2-month lows ahead of U.S. data - Sean Seshadri

Gold prices inched up during Europe's session on Wednesday, bouncing off a three-and-a-half-month low as market players looked ahead to more U.S. economic data for clues on the likelihood of a December rate hike.

Gold for December delivery on the Comex division of the New York Mercantile Exchange tacked on $4.00, or 0.3%, to $1,273.70 a troy ounce by 3:15AM ET (07:15GMT). The contract fell to $1,268.60 earlier, a level not seen since June 24.

On Tuesday, prices plunged $43.00, or 3.28%, its biggest one-day percentage drop since September 2013, as the U.S. dollar climbed to a two-month high and stocks rose.

The U.S. is due to release the ADP jobs report for September at 8:15AM ET (12:15GMT), with market analysts expecting a gain of 166,000 private sector payrolls, versus the 177,000 print for the prior month.

At 10:00AM ET (14:00GMT), the U.S. Institute of Supply Management is to publish a report on service sector growth for September, amid forecasts for a reading of 53.0. In August, the gauge dropped to 51.4, its weakest level since February 2010.

A pair of Fed policymakers are also due to make public appearances on Wednesday that may offer insight into how divided they are about raising rates. Minneapolis Fed PresidentNeel Kashkari will speak at 9:30AM ET (13:30GMT), while Richmond Fed President Jeffrey Lacker is due at 1:00PM ET (17:00GMT).

Markets are currently pricing in around a 14% chance of a rate hike in November, according to Investing.com's Fed Rate Monitor Tool. For December's meeting, odds were at nearly 63%.

Gold is sensitive to moves in U.S. rates, which lift the opportunity cost of holding non-yielding assets such as bullion.

The U.S. dollar index, which measures the greenback's value against a basket of six major currencies, dipped 0.1% to 96.00 early Wednesday, not far from the prior session's two-month peak of 96.38.

A stronger U.S. dollar usually weighs on gold, as it dampens the metal's appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies.