Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
de oil failed to follow-through on early strength, settling 58 cents lower at 80.44 and below the 100-day moving average at 81.40. The lack of response to the Fed holding interest rates steady and events in Gaza was a source of disappointment and reflects growing disillusionment with the course of the global economy. The market appears oversold, with support potentially revived by reports that Venezuela’s highest court suspended the outcome of a primary held by the opposition to choose a presidential candidate. The action casts doubt over a deal Maduro had reached with the Biden administration of free and fair elections in exchange for a loosening of sanctions on oil exports. The inventory situation should get tighter into the end of the year which will also support values.
The DOE report showed crude inventories rising .8 mb, gasoline gaining .1, and distillate off by .8 mb. Total stocks of crude and products fell 3.1 mb. Cushing stocks rose .3 to 21.5 mb. Refinery utilization was off .2 at 85.4 percent. Total disappearance showed a modest decline to 19.9 mb compared to 20.1 last week and 20.5 a year ago. Gasoline disappearance was stable at 8.7 compared to 8.9 the prior week while distillate was 3.7 mb compared to 4.1 previously. Total exports of crude and products remained strong at 3.4 mb, sharply above last year’s levels of 1.4.
The market continues to assess supply availability following the ratcheting up of tensions in Gaza. The reluctance of Lebanon’s Hezbollah to engage Israeli forces has helped temper the risk premium. In addition, the fact that the Saudi’s remain on the sidelines due to their interest in improving relations with the US and in seeing stability return to the region as quickly as possible has discouraged buying. The ground war in Gaza will be a slow grind, but an increase in aid as Israeli positions become established in the area is slowly moving along. With interest rates showing stability and tempered inflationary pressures, the economy is on more stable footing, which should be favorable to demand. In addition, reports that Iranian export levels have recently fallen should maintain a tight inventory outlook into the end of the year, which should ease as we move into early 2024 as high US production levels offset OPEC+ cuts.
Natural Gas
Weather has taken the drivers seat in the natural gas market as we move into withdrawl season, with substantial price swings this week traced to forecast changes. Yesterday’s 22 cent jump was initiated by an increase in demand expectations as the market filled Monday’s chart gap early in the session, with month-end position squaring and stop order election overextending gains. Prices changed course again today as early forecast revisions took back the prior day’s cooling, removing as much as 21 bcf in expected demand from the 15-day outlooks as the December closed with a loss of 8.1 cents at 3.494. In the background, production remained strong near 105 bcf/d while LNG loadings surpassed 14 bcf to offset the output strength. The 200-day moving average near 3.64 was tested again yesterday, and now marks key resistance on a settlement basis. A move above there could portend a winter trend with 3.90 the next level of resistance. The 9-day moving average at 3.40 marks initial support, with 3.32 the next level below there. Tomorrow’s storage report is expected to show an 80 bcf injection compared to the 5-year average of 57.
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