Oil & Gas Focus
Oil and Gas Rally on Global Sentiment
October 2018
Gas in all regions was on an upwards price trajectory at the end of September as markets headed into the northern autumn season. Prices of Canadian heavy crude sold as WCS hit a high of US$55.27/bbl in May, but finished September at US$37.50/bbl.

AME’s Brent crude price dipped to US$76.54/bbl in early September before rising to US$82.63/bbl at the end of the month; the monthly average was US$79.08/bbl. The series averaged US$75.85/bbl over the September quarter, representing a quarter on quarter increase of 1.2%. WTI averaged US$66.05/bbl over September, 2.65% lower than in August. The series averaged US$64.97/bbl over the September quarter, a 3.8% quarter on quarter fall from the June quarter. Over the September quarter, Henry Hub natural gas averaged US$2.90/MBtu, 1.8% higher than the June quarter's average of US$2.85/MBtu.

US four-week refinery utilisation rates to September 28th fell by 3.8% to an average of 93.5% resulting in an end of month inventory build of 8Mbbl.  India currently imports 4.7Mbpd of Iranian crude oil but is expected to completely cut its imports. The gap left by sanctions against Iran would also mean more crude supplies to India from Angola, Nigeria, Russia and notably, from the US. However, for most of 2018 and 2019, Asian refinery crude demand for heavy oil is being skewed by a shift towards lighter crudes, particularly from Russia and the US.

Against China's resurgent refining demand by the Teapots, was a sustained fall in imports of Iranian oil and US crude. China is hoping to stimulate higher refining rates by lifting import quotas for independent refiners to around 4.1Mbpd (202Mtpa) in 2019, a 42% increase over 2018 quotas. This could mean more Chinese imports of South American, Kuwaiti and Russian crudes. OPEC's output is now under a downwards revision due to cuts to Iranian exports, despite a lift of 200kbpd in August to 32.79Mbpd due to rising exports from Libya and Saudi Arabia. OPEC's output will likely struggle to average 32.7Mbpd in 2018 whilst replacement volumes from Saudi Arabia remain elusive.