Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The petroleum complex traded mixed, with the crude settling 15 cents lower at 85.46 as a recovery in US equity markets, dollar weakness and lower interest rates helped attract buying into support in the 84-85 range basis November.
The market was cautious in advance of the DOE report on Wednesday, with talk of a further crude stock build circulating following last week’s bearish report. Estimates for this week point to crude stocks being higher by 1.6 mb, while distillate and gasoline are expected to show draws of .2 and 2.0 mb respectively. Refinery utilization is expected lower by .4 to 89.5 percent.
China remains a key to demand trends. A more stimulative recent monetary policy continues to limit concerns linked to high energy prices, possible shortages of natural gas in Europe, and higher US interest rates. Moves Monday by the Chinese Central Bank to roll over maturing medium-term loans and keep interest rates unchanged appeared to help quell fears of a Chinese slowdown. In addition, their sharp increase in export allocations for refined products underpinned constructive sentiment on ideas it will increase availability in Asia. We expect caution ahead of Chinese GDP data due out tomorrow with expectations pointing to a 3.4 percent increase.
Support in December crude should hold near today’s low in the 83.70 area, with potential to advance toward 100-102. Stocks remain low in the Western Hemisphere, and as demand for middle distillates trends higher into winter, supply tightness 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 inventory issues in Europe and the US against a backdrop of lower OPEC+ production. The NWS will release their seasonal outlook on October 20th.
Natural Gas
Prices gapped lower to start the new trading week and never looked back as the November contract lost 45.4 cents to settle at 5.999. The market is looking past the cold in the Eastern half of the US that will run its course by late this week, as the remainder of the month is forecast to produce total degree days that are below normal, with weekend forecast revisions intensifying the expected warmup. A slight improvement in production over the weekend, regaining the 99 bcf/d level, added to the weak tone. LNG flows have held above 11 bcf for the last 4 days, and along with the expected return of Freeport drawing near helped offer support today on dips below 6 dollars. With the market settling on a psychological support level, the next downside target looks to be the June/July double bottom near 5.465. Initial resistance comes in at 6.30 and beyond there in the 6.59 area.
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