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Refined Products

Recap: Doubts over an output freeze from OPEC outweighed the 553,000 barrel draw in U.S. crude oil stocks, pushing oil futures lower for the third straight day. Today's EIA report was in marked contrast to the 4.8 million barrel build reported by the API on Tuesday, and contrary to the expected 1.7 million barrel build. December WTI settled at $49.18, down 78 cents or 1.56%. December Brent fell 81 cents, or 1.59%, to settle at $49.98.

November RBOB fell 1.7 cents, or 1.2%, to $1.483 a gallon, while November heating oil lost 1.2 cents, or 0.8%, to $1.551 a gallon.

Fundamental News:  Russia's Energy Minister, Alexander Novak, said a potential global deal to cap oil production is unlikely to fail because of Iraq's claims it would not cut its output.  Iraqi officials say the country should get the same exemptions as Iran, Nigeria and Libya, whose output has been hit by wars and sanctions.

While any cut agreed by OPEC at its November 30th meeting could take effect as soon as December 1st, traders say the largest price impact will be in contracts for delivery in early 2017, especially the February contract, rather than in the spot market.  Even January data will be less affected as it expires on the day of the meeting, leaving February as the first contract that covers the meeting itself.  Market data shows a steady inflow of new positions into the February contract, with the number of open positions in February futures up 48% since OPEC proposed an output cut on September 28th.  The options market has also recorded an increase in activity tied to February. 

According to the EIA, US Gulf Coast distillate inventories fell to 38.5 million barrels last week, their lowest level for this time of the year since 2014. 

Baker Hughes sees WTI oil prices in the mid-to-upper $50s/barrel as the catalyst for recovery in North America, including the Gulf of Mexico.  Its CEO, Martin Craighead, said the North American market had continued to "grind slowly upwards" as the rig count, particularly in the US, increases from troughs seen six months ago. 

Hess Corp's Chief Executive, John Hess, said its 2016 exploration and production capex should be $2 billion or about $100 million below prior estimates.  He said the company is making preparations to increase Bakken activity in 2017.  Bakken production is estimated to average 105,000 bpd of oil equivalent. 

Enterprise said the Seaway Legacy pipeline was shut following a crude spill in Cushing, Oklahoma.  It stated that clean-up of the site is underway and the company is working with regulatory authorities to develop a repair plan. 

IIR reported that US oil refiners are expected to shut in 1,118,000 bpd of capacity in the week ending October 28th, increasing available refining capacity by 276,000 bpd from the previous week.  IIR expects offline capacity to fall to 610,000 bpd in the week ending November 4th.  

Early Market Call - as of 9:00 AM EDT

WTI - Dec $49.50 up 32 cents

RBOB - Nov $1.4864 up 33 points

HO - Nov $1.5679 up 1.68 cents

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Natural Gas

Wednesday, October 26th, saw the front-month NYMEX Natural Gas Futures Contracts open at $2.715, six cents below Tuesday’s closing price of $2.774.  Showing promise through the nine o’clock hour, prices confidently rose to mark the intraday high of $2.776 at 9:30AM and again twenty minutes later.  Lacking any fundamental support, the contract proceeded to extend the market’s current decline.  Plummeting to the intraday low of $2.627 at 1:40PM, and despite a last minute rally, November closed lower on Wednesday at $2.731.

The EIA Natural Gas Storage Report is due out at 10:30AM today.  The report is expected to show a 74 BCF injection to storage for the week ended October 21st.  This compares to a 62 BCF injection at this time last year and a five-year average injection amount of 77 BCF.

This morning in Globex, WTI Crude was up 16 cents; Natural Gas was up two cents; Heating Oil was up one cent; and, Gasoline was up one cent.  Additionally, cash prices were lower in New York and higher in New England.

Natural Gas Glossary

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