Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
Crude oil traded under pressure late in the session finishing off .82 at 89.66 basis Nov WTI. The stable tone early reflected concern over lower OPEC supply and higher demand offset by higher US supplies. Goldman Sachs forecast that OPEC can sustain Brent prices which currently trade at a premium of 3.90 to WTI to between 80-105. The forecast assumed that Saudi Arabia would gradually unwind its voluntary cuts output cut of 1 mb/d starting in the second quarter of 2024 but expects the production cut of 1.7 mb/d agreed to by eight other OPEC +members to hold throughout the year. Goldman suggested that most of the rally is behind us and that Brent was unlikely to hold above 105 in a sustained manner next year given high sustainable capacity and the expansion of offshore projects while support near 80.00 is likely given the expansion in demand from Asia and prospects for an economic soft landing. The report injected caution into trade following recent strength.
The DOE inventory report failed to encourage renewed interest with the draw in commercial inventories of 2.1 mb falling short of the API draw of 5.25 mb reported yesterday. Cushing stocks continued to decline falling to 22.9 mb a decline of b 2.1 mb from 25 mb last week. Refinery utilization was 91.9 a decline of 1.8 percent from last week. Gasoline inventories showed a modest decline of .5 mb while distillate fell 2.9 mb. Overall crude and product stocks rose 3.6 mb. Domestic production remained stable at 12.9 mb but still is well above last year’s level of 12.1 mb. Total exports of crude and products recovered from last week rising to 2.3 mb. Total products supplied remained robust at 20.9 mb.
The market overall will remain sensitive to economic prospects and its implication for global demand. Despite the decision to leave the Fed Funds rate unchanged, their remains considerable economic uncertainty given the situation in China, strike actions in the US and US budget negotiations. While many feel the Chinese economy might be on better footing, it still seems far to early to tell the extent of growth and how quickly crude stocks built up over the past year will be drawn down. Forecast increases in consumption will be hard to reach if prices remain high and curtail economic activity. For now, it may well be that we are looking at a more two sided trade that could see values contained to the 87-92 area basis November WTI.
Natural Gas
Good upside follow through was seen yesterday as the October tested the 2.86 resistance area before losing steam today, settling with a loss of 11.5 cents at 2.733. The November, which will become the front month next week, was off 10.5 at 2.921. The market found support yesterday from the recovery of LNG flows after last weeks setback at Freeport, along with signs of slowing production as seasonal maintenance is expected to pick up in the near future. Tomorrow’s storage expectations added to the positive tone, with another below average injection likely. Estimates are pointing to a 64 bcf build compared to the 5-year average increase of 84. The momentum was slowed today with the overriding weight of weakening demand into the shoulder season leading to profit taking after the 20 cent rally since Friday’s close. The 9-day moving average currently near 2.69 was tested today, with a settlement below there signaling a swing in momentum that would find minimal support until 2.50. On the upside, the 2.86-2.87 range offers initial resistance with a move through there targeting the psychological 3 dollar level.
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