Energy Brief for Oct 30.23
by market analysts Stephen Platt and Mike McElroy
Crude oil prices retraced Friday’s rally as no discernible impact on Middle East crude supplies was apparent following the ratcheting up of tensions in Gaza. The lack of change in the conflict between Lebanon and Israel also forced recent buyers to the sidelines with the situation not having the expected impact on valuations. The disappointed long liquidation reflects the fact that the Saudi’s remain on the sidelines with the intention of improving relations with the US as well as having an economic interest in seeing stability return to the region as quickly as possible. The ground war in Gaza will be a slow grind but a pick-up in aid as Israeli positions become established in the area appears to be a distinct possibility. In the background limiting upside movement is the recognition of improving efficiencies in US shale production along with the willingness of the Saudis to pursue a joint peace initiative in the Middle East.
Despite the breakdown today below the 84.00 area, the potential for risk premium from the Israeli/Hamas conflict holds the potential for values to retest the 88-89 range basis December. Reports that Iranian export levels have recently fallen sharply could attract support as the impact of additional US sanctions and higher domestic use in Iran restrains availability. Limiting a move above the 90-dollar level is the potential involvement in peace negotiations by the Saudis and their concern over the global economic fallout from the conflict. The situation remains fluid and Israel is intent on eliminating Hamas as a political force in Gaza, while the Saudi’s are intent on easing the situation and leading negotiations toward a broader peace initiative in the area to counter Iranian military influence. A key area of support arises at the 100-day moving average at 81.42.
The crude spreads have seen mixed action with Brent-WTI firmer, reaching over $5.00 today basis December from $4.11 a week ago, reflecting stabilization in the European economy following recent weakness and North Sea maintenance. The forward curve has also eased, with the Dec-Jan WTI falling to a 72-cent premium from 1.50 on Oct 20th.
The DOE report is expected to show a crude inventory build of 1.6 mb, gasoline lower by .5 and distillate off 1.8 mb. Refinery utilization is estimated to be higher by .3 to 85.9 percent. The US Federal Reserve is not expected to raise rates following their meeting that ends on Wednesday.
The natural gas market gapped lower to start the week, opening 8 cents below Friday’s settlement and trading as much as 16 cents lower intraday. Prices steadied into the close to end with a 13.1 cent loss at 3.352 basis December. Forecast revisions were the main catalyst behind the drop, with 15-day demand expectations losing as much as 37 bcf since Friday. Production also remained strong, topping 105 bcf/d over the weekend, adding to the negative tone. The current cold temperatures being experienced across much of the country offered support at the lower levels as demand likely remains solid through the end of the week. The rejection of the 200-day moving average on Friday, reversal on the charts, and close below the 9-day moving average today keeps the near term bias negative, with minor support in the way of a test of the double bottom at 3.216. Any price recovery will initially target this mornings gap at 3.435.
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