Energy Brief for Oct 25.23
by market analysts Stephen Platt and Mike McElroy
Crude oil attracted good selling interest early in the session, reaching a low of 82.08 basis December before staging a strong recovery to settle 1.65 higher at 85.39. Early weakness was linked to further discussions between the Saudis and US aimed at preventing the conflict from widening to include Iran and Lebanon. The ongoing negotiations suggest that a wider Middle East initiative might not be dead in the water. Other macro forces linked to demand also appeared to encourage selling including rising concerns over the European economy, which is at best stagnating or contracting on weak external demand, consumer sentiment and the impact of higher interest rates.
Buying emerged at the lower levels in response to further stimulus measures from China where moves were afoot to issue debt to boost the domestic economy. In addition, tight crude inventories that may worsen into the end of the year underpinned values. The uncertainty associated with the Middle East tension also provided a strong incentive for adding risk premium.
The DOE report was uneventful, with crude inventories rising 1.4 mb, gasoline increasing .2 and distillate falling 1.7 mb. Total stocks of crude and products fell .5 while Cushing stocks rose marginally by .2 mb. Refinery utilization was indicated at 85.6 percent, lower by .5. Of interest is the domestic production levels at 13.2 mb compared to 12 mb/d a year ago despite declining US rig counts as rising efficiencies in shale basins expand production. Total disappearance was indicated at 20.1 mb compared to 21.9 last week. Net exports of crude and products remained strong at 3.1 mb.
The market’s strong reversal leaves open the potential for further upside toward the 88-89 range with support still likely to be apparent near the 84-85 area. Limiting a move much above the 90 level are the apparent involvement in peace negotiations by the Saudis and their concern over the potential economic fallout globally over the conflict. Nevertheless, the situation remains fluid and Israel remains intent on eliminating Hamas as a political force in Gaza while the Saudis are intent on easing the situation and lead initiatives toward a broader peace initiative in the area to counter Iranian military influence and acquire US weapons and defensive backing.
The market caught a bid over the last two sessions, gaining 4.9 cents yesterday and adding another 5.4 today to settle at 3.376. The approach of withdrawl season stirred the upside swing, with a cold front over much of the US in the forecast next week expected to spike demand. A pullback in the recent string of production records added underlying support. The strength has brought the November contract to the 3 dollar area ahead of option expiration tomorrow which could amp up volatility. The rally also pushed the December to a test of the 9-day moving average at 3.395, making that level initial resistance with a settlement beyond there needed to ignite follow-through. The double bottom on the contract lows at 3.216 remains a pivotal area, which will need to be maintained to avoid a possible test to 3 dollars. Tomorrow’s storage report is expected to show an 80 bcf injection compared to the average build for this time of year at 66.
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