Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
Dollar strength and recessionary concerns weighed on the petroleum complex, with values declining by over 2 dollars in November crude. The potential for inflationary pressures and tight monetary policies to weigh down economic growth was expressed by the IMF. The Agency indicated that global growth was likely to slow next year more than previously expected, and warned that living conditions will worsen as soaring inflation harms people’s lives around the world. The weaker outlook was attributed to the effects of inflation, the Russian invasion of Ukraine, and the slowdown in China due to Covid lockdowns and weakness in their property sector.
OPEC also released their monthly report today. They indicated that oil demand in 2022 will increase by 2.7 percent to 99.68. This is a revision down from last month by 460 tb/d. In 2023, OPEC sees demand continuing to expand, rising by 2.34 mb/d to 102.02 mb/d, 360 tb/d below the previous forecast. They are assuming global economic growth at 2.5 percent from 2.7 percent forecast for 2022. Like the IMF, they see the world economy entering into a time of heightened uncertainty and rising challenges citing not only inflation and monetary tightening but also high sovereign debt levels.
Despite the possibility for further liquidation pressure in the near term toward the 84.00-85.00 level basis November, we look for support to develop. Stocks remain low in the Western Hemisphere, and as demand for middle distillates trends higher into winter, tightness in supplies should be apparent. In addition, Chinese demand should ramp up as export allocations increase into the new year. The approach of the Northern Hemisphere winter will also have an impact, with any colder trends intensifying issues in Europe and the US as low inventories remain a concern with only limited relief from further SPR releases. Key to the outlook will be the CPI report tomorrow as it could have a profound impact on dollar direction and interest rate trends.
The DOE report to be release tomorrow at 11:00 ET is expected to show crude stocks built by 2.1 mb, distillates dropping 2.2 and gasoline lower by 1.9 mb. Refinery utilization is expected to be down .8 at 90.5 percent.
Natural Gas
After probing to a new low for the week yesterday, the natural gas found a brief wave of support that pushed prices back above the 6.50 level. The buying was based on increased HDD expectations in the 5-10 day period with the Eastern portion of the country cooling significantly. Production has also been supportive, pulling back to the 99 bcf/d area after surpassing 100 over the weekend. In the background was the expected restart of the Freeport LNG terminal next month that offered an underlying bid to the market. Despite the bounce, prices struggled to follow through today as concern over another sizeable build in stocks kept a lid on optimism and pushed the market down to settle with a 16 cent loss at 6.435. Tomorrow’s report is estimated to show a 123 bcf injection as compared to the 5-year average build of 82. The settlement back below 6.50 opens up the market for a near term test of last week’s double bottom near 6.305. Resistance emerges at the 9-day moving average near 6.70.
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