Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The petroleum complex attracted profit taking ahead of the weekend to settle 1.18 lower at 87.90 basis December. Weakness was associated with the reemergence of economic worries given the strength to interest rates, ongoing concerns over the Chinese economy, and weakness in the US housing sector due to higher mortgage rates. China remains the focus overall with reports of a pickup in Covid infections leading to speculation of renewed lockdowns. Potential for growth to remain low is fostering concerns over oil demand. The product markets continued to show divergent trends with ULSD attracting buying while gasoline declined. Talk that product exports, and possibly diesel, will increase from China as refinery runs improve remain in the background. Nevertheless, the low level of middle distillate stocks continue to be a source of concern and is contributing to the strength in 2-oil cracks.
The pullback toward the 84.00 area should attract support. With the OPEC cutback suggesting a contraction in availability of close to 1 mb/d in November, along with the cessation of SPR sales, the market will get increasingly tighter just as Europe bans Russian crude imports on December 5th. While near term resistance might be provided by moderate weather for the US and Europe, a pick-up in Russian availability as the European import ban draws closer, and with better availability from Chinese product exports, we still see the market attracting support on the low stock levels as demand for middle distillates trends higher into winter and on the substitution of petroleum derivatives for natural gas in Europe.
Natural Gas
The pullback that started Wednesday picked up steam over the last two sessions as the December contract followed up a 24 cent loss yesterday with another slide of 19 cents today to end the session at 5.684. The weakness has taken back the majority of the short covering gains seen in the first half of the week. Yesterday’s storage report indicated a 52 bcf injection verses expectations near 59. Despite the low side miss the release was only temporarily able to offer support as prices returned to the downtrend soon after the number. Mild weather continues to hold sway over the market, as US as well as European and Asian forecasts point to weak demand into mid-November. Production regained the 99 bcf level over the last two days and added to the negative bias. Cove Point LNG returned after extended maintenance, helping to push LNG flows above 12 bcf today and offering underlying support. The market likely remains rangebound until solid news of Freeport’s return is released. If there timetable is moved back, the 4 dollar handle could gets tested quickly. If they remain on schedule the market likely tries to fill the mid-October gap to 6.772. Near term support is at 5.50, while initial resistance emerges near 5.90.
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