Oil things considered - HSBC

"Brent crude hit a YTD high in September, and prices continue to stabilise at much improved levels," note analysts at HSBC.

Key quotes:

"Inventories are continuing their steady downward trend. US commercial stocks are now only 8% above their five-year average vs 21% at the peak in February, while latest (August) OECD data shows a halving of the surplus since the start of this year."

"OPEC supply was broadly flat in September, with compliance at well over 80% but a net cut of only 0.5mbd after factoring in the recovery in Libya. The OPEC agreement to rein in supply is scheduled to run to end-1Q18, but there are signs that key members are edging towards extending it to year-end 2018."

"The US oil rig count has stalled and is now down 3% from its August peak. Meanwhile, productivity data still shows average productivity per rig flat-to-down in aggregate, with increases in the Bakken a notable exception. The rate of well completions is still growing, but it is not yet matching the pace of wells drilled so the number of drilled, uncompleted wells (DUCs) continues to rise. Latest weekly data was affected by precautionary hurricane shut-ins, but the prior week’s data showed US crude supply up 1.0mbd y/y, and total supply (including NGLs) up 1.2mbd. However, latest revised monthly data for crude is showing volumes around 200kbd lower than this, and October’s Drilling Productivity Report saw another downgrade to Eagle Ford production estimates. Nevertheless, the strong momentum of US tight oil supply should continue for now, not least as completion activity catches up and DUCs fall. However, we remain convinced that higher prices than current levels are needed if this momentum is to be sustained in the longer term."

"We think the market needs sustained long term growth in US tight oil supply in order to fill an impending supply gap as conventional non-OPEC output starts to decline in the next few years. An extension of the OPEC cuts through 2018 would help keep the market tight until that point is closer to reality. Our Brent price assumptions remain US54.4/b for 2017e, rising to USD65/b for 2018e and USD70/b for 2019e."