Written Commentary
Price Overview
The petroleum complex traded sharply lower in response to the API report released yesterday. It showed a larger than expected build in crude inventory levels of 3.6 mb compared to expectations near 1.0. The DOE report this morning confirmed the build in commercial crude inventories, indicating a 3.3 mb increase with releases from the Strategic Petroleum Reserve continuing, coming in at 1.6 mb this week. Stocks at Cushing, which have steadily been drawn down, fell .9 mb to 26.4 while Gulf Coast stocks continue to rise by 1.9 mb and currently stand at 249.3 versus 253.4 last year and 227.6 mb in 2019. Gasoline inventories fell 1.5 mb while distillates rose by 2.2. Total commercial inventories of crude and products rose .6 and stand at 1,234 mb compared to 2,016 last year and are still below levels in 2019 of 1,916 million barrels. Refinery utilization increased to 86.3 percent compared to 85.1 last week as refineries come out of maintenance. Total product supplied at 20.0 mb was respectable but still off from levels achieved in 2019 at 21.1 mb. One unexpected component of the report taken bearishly was the increase in domestic production to 11.5 mb from 11.3 last week as rig counts trend higher.
For tomorrow, attention will focus on the OPEC meeting and the appearance that the current plan to increase production by 400 tb/d in December will be followed. Whether they address shortfalls by some producers given the over compliance level at 118 percent should be watched, but it is doubtful that they will stress that issue and disrupt what appears to be a rather unified front supporting the current agreement. Another consideration will be Iran and the start of JCPOA talks later this month. The two sides are still far apart, with Iran demanding the US commit to fulfillment of any agreement which appears to be politically impossible. Nevertheless, deteriorating signs from the Chinese economy appear to be a limiting influence on the upside for now, while the potential for declining global inventories into the Northern Hemisphere winter should limit downside pressure, suggesting a consolidating price pattern.
Natural Gas
The market has staged a recovery over the last two sessions, retracing 50 percent of the break since last Wednesday. The December contract settled at 5.67 today for a gain of nearly 13 cents. The emergence of potential cold temperatures in the back half of the 15 day forecasts has rekindled buying interest, while continued shenanigans from Russia, this time with decreased flows to Ukraine, spurred a further recovery in overseas prices and spilled over to US values. Production has maintained its solid pace above 95 bcf/d this week, and will remain a limiting factor until LNG flows can become more consistent above 11 bcf to offset those gains. Tomorrow’s storage report is expected to show an injection or 63 bcf compared to the 5 year avearge build of 38. The 5.65-5.70 range remains near term resistance as the market awaits confirmation of the cooling temperatures and rebuilding of US stocks. Initial support near 5.50 could be short lived with the October lows at 5.07 the next downside targed if selling resurfaces.
The authors of this piece do not currently maintain positions in the commodities mentioned within this report.
Charts Courtesy of DTN Prophet X, EIA, Reuters
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