The past couple of years show the degree of flexibility that can be expected from the French nuclear fleet for a given availability in 1Q, with output adapting to demand levels. The reduction from projected availability to actual output was limited to 3.2-3.8GW during cold months, but it raised to 5.2-5.7GW during warmer ones. After adjusting our view to account for this relation and assuming normal demand, current market premiums still imply a supply shortfall of ~4.0GW in Jan and ~2.5GW in Feb with respect to our model. Seasonal weather forecasts and comfortable hydro conditions hardly justify this shortfall and limited exports to Belgium at times of system tightness softens the risks coming from that market.

Crude’s drop of 7.3 MMB led the draw, with the decline in other products offsetting a 3.9 MMB build in the four major products for the week ending November 30. Cushing storage showed a large 1.7 MMB build. Continuing net inflows should lead to another build next week of 1.3 MMB. Coming after a surge in crude imports the previous week, imports fell to 7.2 MMB/D for the latest week, in part delayed by fog. Imports are expected to move up slightly to 7.3 MMB/D for the next week. Most notably reported crude exports unexpectedly surged to 3.2 MMB/D. This should decline to 1.85 MMB/D for the following week. The EIA reported U.S. total crude field production of 11.7 MMB/D, 0.1 MMB/D lower than expected. Despite the new pipeline expansion allowing more production out of the Permian, the reported production has been flat since the beginning of November. We expect another 11.7 MMB/D of U.S. production for the next week. Overall domestic crude supply has been boosted by a balancing item of 580 MB/D. Refinery runs came off by about 70 MB/D, despite the availability of capacity coming back on-line. Runs are expected to move up to 17.53 MMB/D for the next week. Gasoline and distillate stocks moved up sharply, adding 1.7 and 3.8 MMB respectively for the week. Large, but smaller increases are anticipated for the next week.

Platts Analytics expects that mandated production cuts announced by Alberta Premier Rachel Notley’s administration will reduce average crude production in Alberta by 90 MB/D in 2019 relative to our reference case forecast. Effective January 1st, producers will be required to reduce crude and bitumen production by 8.7% from a reference point defined as the average of the six highest production months in the last twelve months (which we for now estimate as December 2017 – November 2018).

Saudi Arabia released their pricing for January last week. Prices were cut to Asia more than Dubai structure, alone, would have suggested and more than a narrowly based consensus survey had expected. While there was significant narrowing in the Urals-Dated Brent discount, the offset into Northwest Europe was raised less than that would have suggested. U.S. pricing was again raised as Saudi continues to make its crude less attractive to the U.S. market. While Saudi volumes are expected to decline in December and then move still lower in 1Q19, it seeks to maintain competitiveness into Asia.

Crude runs inched higher by 31 MB/D and reached their highest level since late August as maintenance ends. Crude imports eased slightly, as expected, but crude stocks still built 1.2 MMBbls. Finished product stocks finally drew 1 MMBbls, and supported by solid draws in kerosene, fuel oil and gasoline. Product stock length lessened slightly but remains a problem for downstream. Middle distillate and fuel oil cracks have begun to weaken, while gasoline and naphtha remain very weak. Implied marketing margins remain very strong.

For the first time since the EIA has been reporting total weekly net imports of crude and petroleum products, the U.S. was a net exporter of total oils for the week ending November 30th, 2018. It is evident that U.S. net imports of oil have been in decline since the shale crude revolution began in earnest in 2012.  While the downtrend in net imports has been well defined, the sudden drop for the week ending 11/30/2018 actually turned that statistic negative…i.e., the U.S. was a net exporter of crude and products.  This was a first for the U.S., and perhaps transitory in the very near term, though looking forward given the demand and supply growth profiles expected for the U.S., it is clear that this will eventually be the norm in DOE reports of the future.

U.S. job growth was slower than expected in November.  But the economy remains in a solid shape, as the unemployment rate stayed at a multi-decade low and manufacturing confidence remained elevated.  Wage data were benign.  Based on a tally of third quarter GDP data, economic growth outside the U.S. is past its peak.  This has put a downward pressure on U.S. exports, and the country’s trade deficits have grown steadily of late.

Tanker markets have shown substantial improvement in October and November on higher OPEC output, including record production from Saudi Arabia in November. Fleet capacity rationalization measures have also helped, with vessel scrapping this year expected to be the highest since 2010. But the rate improvements seen during 4Q 2018 are likely to be reversed in 2019 if OPEC+ make substantial production cuts from recent levels, as expected, when they meet on December 6.

The Canadian WCS differential strengthened in November, while Syncrude weakened; December differentials are much stronger with Canadian production cuts mandated by the Alberta government starting Jan 2019. Inventories at Cushing built in November, with a smaller build expected in December. The Midland discount was flat in November, as barrels continue to fill new space. Exports rose in November, reaching a new all-time high at 2.4 MMB/D.

Front-month non-LST propane gained 2.75 cents/gal, or 4%, ending the week at 72.25 cents/gal—maintaining value at 58% of front-month crude futures. US propane stocks fell 1.3 million barrels during the week ended November 30. The bulk of the stock draw occurred in PADDs 2 and 1, where inventories fell by 848,000 barrels and 466,000 barrels, respectively. Cold weather in the Midwest and Northeast has likely contributed to the draws on primary inventories and support for Conway propane prices, which have recently increased by over 6 cents/gal and narrowed the spread to Mont Belvieu prices to within 5 cents/gal. With cold weather expected to continue in the Northeast and upper Midwest, additional res/com demand is likely to pull on stocks in those regions over the next couple of weeks. While US wholesale propane prices are roughly 23% lower year-over-year, residential prices are flat to year-ago levels, according to EIA data, indicating demand in secondary markets remains strong.

Global equities fell back 2.7% on the week, though the U.S. S&P 500 fell 4.6%. Among the domestic tracking indices, banking, was the biggest underperformer, lower by 7.4%, while retail and industrials also lagged badly. Energy fell back 3.1%. Internationally, all the tracking indices did better than the U.S., with Latin America doing the best, but still losing 1.9%.

The S&P 500, after gaining almost 5% the previous week, slumped back 4.6%, while equity volatility exploded by about 30%. Oil fared well in the wake of the OPEC agreement to cut production with oil volatility (OVX) falling 25% on the week to about 42.The dollar weakened and commodities gained 1%, with energy matching that performance. Palladium remains in a strong uptrend. Disinflation trends remain a big concern, along with weakness in financial equity indicators. The market is seen as fragile, as evidenced by the sharp swings seen this past week.

The EPA set the 2019 total renewable fuel mandate at 19.92 billion ethanol-equivalent gallons, up from 19.29 billion this year. Domestic ethanol prices plunged to the lowest level in 13 years due to high stocks and production. In Brazil, demand for hydrous fuel ethanol reached record 2.03 billion liters in October. Chicago biodiesel prices fell last week to $2.50 per gallon, the lowest since December 2015. The U.S. imported 13.6 million gallons of renewable diesel in September, the latest reported month, bringing the total for the year to 140.0 million gallons. In Europe, RME prices experienced a sharp downward correction last week after soaring to a record high in November.

U.S. ethanol production rose by 21 MB/D during the week ending November 30 to 1,069 MB/D. Many companies are experiencing weak margins, but most continue to produce near capacity to fulfill supply contracts. Inventories built by 100 thousand barrels to 23.0 million barrels, though East Coast stocks dropped below 7.0 million barrels for the first time since May. Ethanol-blended gasoline production decreased by 311 MB/D to 8,858 MB/D as total gasoline output fell sharply.

Appalachian production has been on a tear in recent months, with December production averaging a record ~31.5 Bcf/d — up ~18% Y/Y and ~14% since June. Such robust gains in recent months is eye catching and does make a call for moderating growth somewhat unnerving. Nevertheless, when thinking through the fundamentals, i.e. stalled drilling activity, limited productivity gains, a focus on returning capital to shareholders, higher base declines, and a potential shift to wetter windows, Platts Analytics continues to see slowing production growth ahead — with our Reference Case calling for Y/Y growth slipping below market expectations of 15 to 20%.

Henry hub cash remained flat week-on-week, increasing by just 2 cents/MMBtu to $4.55/MMBtu the seven days ended December 6; volatility was high again this week, with prices ranging from a low of $4.39/MMBtu and to a high of $4.62/MMBtu. Recently, production has slipped in the Southeast offshore and Haynesville, tightening fundamentals around the benchmark hub. Bal-winter contracts edged lower by an average of 5 cents/MMBtu to $4.23/MMBtu, weighed down by the March 2019 contract which fell 12 cents/MMBtu W/W. Meanwhile, the summer 2019 strip moved higher seven cents/MMBtu W/W. The March – April 2019 spread has tightened recently but is trading around 0.99 cents/MMBtu over the past seven days — well-above the first week of November of 33 cents/MMBtu.

The fundamental picture has continued on its bearish trend, as a further rise in LNG sendouts to multi year highs has kept European balances increasingly well supplied. Although the start of December has seen more of the same, with the start of month seeing temperatures well above normal and LNG deliveries remaining robust, the curve has calmed and found support after the large drop in near-term pricing over Oct-18. A certain degree of restraint is justified. UK CSP prices continue to provide firm support to the NBP Q1-19 contract, as strong EU ETS prices (back above €20/t) compensate for a further weakening of CIF ARA. The falling NBP premium to TTF is also finding resistance at the short-run marginal cost of booked IUK and BBL capacity. A turn towards cold (below normal) temperatures in either Europe or Asia could vindicate those pricing risk into Q1, but some forecasts are suggesting a mild start to 2019. Downside remains however, with a significant Q1-19 premium to Summer-19 still in place for both TTF and NBP, and odds are that prices still have a ways to fall.

Platts Analytics has been emphasizing just how weak demand is in East Asia – thanks primarily to warmer than normal weather – and the weight that it is putting downward pressure on JKM and global LNG pricing. It must be noted that producers, whether actively or passively, are doing their part as well to keep prices from crashing. Production, outside of Australia, United States, and Russia (AUR), is down by 70-Mcm/d Y/Y or 8.5% Y/Y. Utilization in these non-AUR countries has dipped from 89% last year to 85% over the last 30-days.

This past spring’s reduction in Chinese policy support has led to slower solar PV capacity additions so far, but recently released data show a more optimistic picture than anticipated. China will be adding some 65 GW of renewables and hydro capacity this year, still well above thermal capacity additions of ~30 GW. These trends signal that while the central government appears to be willing to control the deployment of renewables and prevent the sector from overheating, China is not backing off from its long-term strategy to be a leader in clean energy technology.

CIF ARA forward prices ticked higher this week, breaking a month of consecutive weekly declines. Physical assessments led price increases this week, with FOB Richards Bay and Newcastle 5,500 kcal/kg physical prices increasing the most, after each contract was hit particularly hard amid Chinese import uncertainty and a slowdown in Indian buying. It does appear that the market is becoming optimistic that China’s import restrictions will be lifted early in CY19, which likely played a part in the price increases. We believe that FOB Newcastle prices will face modest downward pressure from here, but rising Rhine river levels this week should help reduce stockpiles at ARA ports, putting a floor under CIF ARA prices in the near term.

The December 2018 RGGI carbon allowance auction cleared at $5.35, up 19% from the September 2018 auction, and up 33% from the June 2018 auction – and the highest clearing price since December 2015. While secondary market prices moved lower in the days leading up to the auction, the auction nevertheless cleared above prompt-month secondary market prices for the third straight time. However, speculators saw their lowest share of winnings since December 2016. Entities with compliance needs took 77% of the winnings, vs. 61% at the prior auction (and 36% at the one before that). That compliance entities made up a smaller share of bids suggests that their bids were for higher prices. Meanwhile, efforts by New Jersey and Virginia to join RGGI at the start of 2020 continue to proceed. Virginia released a revised proposal with a starting cap much lower than what it was initially considering. New Jersey’s proposal for its RGGI rules is expected soon.