Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
Ongoing weakness to outside markets undercut an early rally attempt with crude values falling to fresh lows for the downside move not seen since January. Ongoing fears that rising interest rates, persistent dollar strength along with prospects of recessionary economic trends in many regions will undercut demand for crude oil as we approach the new year continues to undercut rally attempts. In addition the prospect that cuts in Russian production might not be as substantial as once thought given the continued purchases of Russian crude by India and China at discounted prices continues to remain in the background as a potential bearish influence.
Ideas the market might be oversold in advance of the OPEC+ meeting next week might begin to attract modest short covering. Talk that OPEC+ might attempt to shore up prices through additional production cuts could begin to circulate. However given the under production relative to existing targets, such action is being looked upon skeptically; given that it might not prove to be a material change given their underproduction currently and questions over how much production they are willing to cut given current prices, which are still profitable. Nevertheless with prices near what we suspect might prove to be support near the 75.00 level basis November, any stabilization in the dollar or interest rates given recent declines and the appearance stock levels remain low might limit fresh selling pressure. In addition reports that some EU countries were struggling to agree to a price cap also might help attract short covering as well.
The DOE report is expected to show crude inventories +.3 mb with distillate -1.3 and gasoline stocks rising by .4 mb. Runs are expected to be down -.8 percent to 92.8 percent as weakness in the margins undercut runs.
Natural Gas
Nat Gas recovered from early weakness and settled up over 7 cents at 6.903. Early weakness on a more moderate forecast the next two weeks could not be sustained as the market appeared to respond to the limited impact Hurricane Ian will have on loading facilities in the Gulf of Mexico. The prospect that exports of LNG will be maintained at high levels particularly if the Freeport LNG plant resumes normal shipments should help provide support in the near term as recent weakness in Nat Gas prices in Europe attracts renewed demand in that region ahead of winter. High production levels remain a source of selling but colder weather should help attract better demand and provide support near the 6.50 level basis Nov . The EIA storage report on Thursday is expected to show an injection of 86 bcf putting gas in storage against the 5 year average -9.8 percent.
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