Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
Crude oil recovered from yesterday’s setback related to economic concerns as buying linked to voluntary production cuts and further declines in US inventory levels emerged. WTI settled 65 cents higher at 87.72 while gasoline gained 3.07 and ULSD rose 8.68 as concerns over a strike action at LNG facilities in Australia raised demand for middle distillates. The strength was attributed to news of Saudi Arabia and Russia extending their voluntary production cuts of 1 million and 300 thousand barrels into the end of the year. Although concerns persist over weakness to the global economy, particularly in China, the appearance that stocks will continue to decline in the fourth quarter is supporting values.
In the background was the DOE report released yesterday. It showed crude inventories falling for the fourth consecutive week, reaching a 6 percent drop over the past month, falling by 6.3 mb compared to expectations of a 2.1 mb build. Stocks at Cushing declined by 1.8 mb to a relatively low 27.4 mb. Refinery utilization was lower by .2 at 93.1 percent. Despite declining rig counts, domestic production was reported at 12.8 mb compared to 12.1 mb last year. Net imports of crude reached 1.8 mb, well short of last year when it reached 3.3. Net exports of crude and products were 2.6 mb compared to .7 last year. Total product supplied reached 20.2 mb compared to 19.9 last year. Gasoline disappearance reached 9.3 mb compared to 8.7 last year while distillate disappearance was 3.7 mb compared to 3.6 last year.
The market is showing resistance as it approaches the 88-90 range. The possibility that Russian availability is better than indicated by the production cut along with expanding supplies from other members of OPEC, especially Iran, could limit upside movement until a better reading on the global economy emerges. In addition, the build in inventories in China and India could limit buying interest at the higher price levels.
Natural Gas
Prices staged a recovery yesterday before ending the week on a quiet note with the October contract settling with a 2.6 cent gain at 2.605 today. The bounce was initiated by the weekly storage report, which indicated a 33 bcf build in stocks. This was well below estimates in the 43 area as total stocks now stand 7.6 percent above the 5-year average. The market reached its intraday peak soon after the release and maintained upside momentum into today’s early trade. Underlying support was offered by steady LNG flows just above 13 bcf/d and a strong rally in European prices as the potential increased for a strike by Australian LNG workers. The recovery quickly tested the 9-day moving average currently at 2.66 as that level now offers initial resistance, followed by the 100-day near 2.69. With the shoulder season upon us, a push much beyond there will be difficult. On the downside the 2.50 level was tested twice this week, and now offers key support with a drop below there signaling a test of the lows at 2.377.
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