Energy Brief for Nov 6.23
by market analysts Stephen Platt and Mike McElroy
Crude oil had a modest recovery from the sharp losses seen last week. The strength reflected news that Saudi Arabia and Russia had extended their production cuts of 1.3 mb/d through December. In the background was speculation the Fed will be reluctant to make further hikes in interest rates until a definitive view of the economy is ascertained. Reports that India’s fuel consumption rose to a four-month high in October also aided sentiment, rising by 5.5 percent from September and by 3.7 percent over a year ago. The recent weakness has led to a reduction in the net speculative long position in WTI futures and options of 61,689 contracts to 117,800 in the week to October 31st according to the CFTC Commitments of Traders Report.
The Gaza conflict remains in the background, but the lack of escalation is limiting buying interest, with the market focusing on macro developments including the dollar and interest rates. The supply side also needs to be watched closely with the potential for voluntary cuts by Saudi Arabia extending into 2024 if demand does not hold up. In addition, SPR purchases are possible if prices decline below 79.
The market is oversold but looks to be holding near the 100-day moving average at 81.35 and continues to assess supply availability along with tensions in Gaza. The reluctance of Lebanon’s Hezbollah to engage Israeli forces has helped temper the risk premium. In addition, the fact that the Saudi’s remain on the sidelines due to their interest in improving relations with the US and seeing stability return to the region as quickly as possible has discouraged buying. With interest rates showing stability and tempered inflationary pressures, the economy is on more stable footing, which should be favorable to demand and underpin values with potential for a near term test of the 84.00 area basis December.
The DOE report scheduled for release on November 8th has been delayed one week due to a planned systems upgrade. The EIA will release two weeks of official data for The Weekly Petroleum Status Report on November 15th.
The week kicked off with another gap lower on the charts, with selling pressure maintained throughout the session. The December contract ended with a loss of 25.1 cents at 3.264. Record production levels over the weekend got the ball rolling, with Saturday’s output near 108 bcf. Weather offered little support as November continues to show an extremely mild trend. Even with LNG tipping along near record levels, there is not enough total capacity to keep up with the current production rate. With the substantial drop today, the contract lows at 3.216 are a stone’s throw away and offer initial support, with a violation of that level leading to a test toward 3 dollars. The washout leaves little resistance on the upside until the 9-day moving average currently at 3.447, which coincides with the chart gap which would be filled at 3.452.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.