Is a distillate glut next?

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Happy middle O’week! After temporarily ripping higher in response to a surprise draw to crude inventories, oil prices are looking lower once more, as bearish builds from the products more than offset this. Hark, here are five things to consider in oil (and natgas) markets today. 

1) About that EIA report. Even though refinery runs dropped, a relatively normal level of imports into the U.S. Gulf Coast – as opposed to a post-storm surge – has meant a minor draw to oil inventories. Nonetheless, a build to gasoline stocks amid lower runs and lower product supplied has helped to counter the bullish influence of the crude draw, a notion enthusiastically affirmed by a strong build to distillates.    

us_gulf_distillates.jpgThe distillate data is perhaps the most interesting. Total distillate Inventories increased by 4.6 million barrels, or 3 percent, to 162.8 million barrels. The majority of the build was seen on the East Coast, with a 3.5mn bbl build.

This build comes amid weaker distillate demand, and a recent drop-off in exports from the US Gulf (as seen in our ClipperData here – in kbd, hark right).

Distillate inventories peaked at this time last year at 153 mn bbls, before being seasonally drawn down ahead of the winter heating period and amid the fall maintenance period. But after a balmy winter in the Northeast (it’s all relative, folks), consumers may still have more supply than usual left in their tanks, meaning we may see less drawn from inventories over the next two months than seen in prior years.

This poses the question: is this a sign of baton passing from an oil glut…to a gasoline glut…to a distillate glut?

distillate_inventories_sept_2016.jpg

2) The chart below is a great illustration of how OPEC / key producer jawboning really works. For the second time this year we have seen a swift, sharp shock of short-covering by money managers, ignited by production freeze chatter – lending support to prices.

As we approach another producer meeting at the end of the month – which is likely to come to nothing – the result of the meeting appears to be immaterial; the goal of Saudi et al appears to have already been achieved. Rinse and repeat in let’s say, oooh, another four months or so?

OPEC_hits_shorts.jpg

3) IEA has released an annual report today on world energy investment. It estimates that global energy investment declined last year to $1.83 trillion, falling 8 percent. The drop was in investment in fossil fuels, which fell by $200 billion. Nonetheless, fossil fuels still account for 55 percent of the total.

Similar to OPEC’s report on Monday, IEA sees upstream capex screeching lower this year by 24 percent, after dropping 25 percent in 2015. A third consecutive year of cuts still in the mix for 2017:

IEA_global_capex_2016.jpgChina’s investment in its power sector meant it has regained the top spot as the leading investment market, spending $315 billion last year ($90 billion of this was in renewables-based power capacity), while the U.S. is in second place at $280 billion. Combined with the E.U., Russia and India, these five markets account for half of all global investment. Oil and gas still account for nearly half of all investment:

global_investment.jpg4) We have seen both OPEC and IEA revise up their expectations for non-OPEC supply this week. While this year’s stubborn strength has come from the hunkering down of U.S. shale producers (think: Permian), next year’s output optimism is being spurred on by Kazakhstan’s Kashagan oil field.  

After 16 years and