Crude oil traded under substantial selling pressure today, decisively taking out the 88.00 support area and settling 5 dollars lower at 84.22 basis November. The weakness was linked to a combination of factors which included talk that Russia was considering easing their ban on diesel exports, the potential for a restart of Kurdish exports through Turkey, stabilization in Cushing inventories, and a substantial build in gasoline stocks reported by the DOE. As expected, OPEC+ kept current production targets unchanged at the Joint Ministerial Monitoring Committee meeting, with Saudi Arabia and Russia maintaining their voluntary cuts totaling 1.3 mb/d. Despite the potential decline in global inventories, economic concerns remained in the background. The DOE report did little to dispel this uncertainty with crude inventories falling by 2.2 mb, but gasoline surged by 6.5 mb on weak disappearance levels. Distillate inventories fell 1.3 mb while stock of products and crude rose 4.9. Refinery utilization fell sharply to 87.3 percent from 89.5 last week and 91.3 percent in 2022. Crude export levels surged to 5 mb while net imports of crude were 1.3 mb against 3.2 in the prior week. Total disappearance at 19.2 mb was off compared to last week’s 20.1. Gasoline disappearance fell sharply to 8 mb from 8.8 last week and 9.5 a year ago. Whether this decline reflects a decisive change in spending patterns remains to be seen. Net exports of crude and products rose to 3.3 mb. Given today’s substantial decline, the market will be looking ahead to the payrolls report Friday for clues on Fed policy direction. Non-farm payrolls are expected to decline to 163,000 compared to 187,000 in the prior month. In addition, a possible increase in Kurdish exports to supplement current global supplies will be a key consideration. Given the extent of the market pullback, support could emerge near current levels, particularly with low Cushing stocks and the approach of last trading day for November crude on October 20th. Weakness in the backwardation foreshadowed the recent decline, and if strength returns it might signal a firmer tone in the near term as concerns over stock declines reassert themselves and provide support near the 50-day moving average at 84.57, and below there at the intermediate high of 83.26 established in early August. |
