Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
Crude oil traded under pressure, reflecting the recent move into contango on weak refinery utilization and better availability from the Middle East as seasonally weaker demand led to better availability and a drop in crude oil differentials. Caution ahead of the DOE report was also apparent with a larger build in crude oil inventories than the API data last week of 13.8 mb for the week ending November 3rd being reported. The appearance that tightness in Cushing inventories had begun to ease reaching 25.2 mb in the latest reporting week also led to pressure on values.
The DOE report indicated a build of 3.6 mb in crude oil inventories to 790.8 mb compared to 773.2 mb two weeks ago. For the latest reporting week crude inventories rose 3.6 mb. In gasoline, stocks fell 1.5 mb and distillate fell 1.4. Despite the large build, total crude and product stocks showed little change at 1263.7 compared to 1262.6 mb two weeks prior. Refinery utilization at 86.1 percent showed a modest uptick from 85.2 last week. Total disappearance levels of products were indicated at 20.1 mb compared to 21.7 last week and 21.1 a year ago. Gasoline disappearance was stable at 8.7 mb while distillate disappearance was indicated at 3.7. The fall in middle distillate stocks reflected reduced runs due to the weak gasoline cracks which have begun to recover. This should lead to improved runs in the coming weeks that will help absorb surplus supplies that have been weighing on values.
Despite the weaker tone today, look for values to recover and retest the 80-81 range. The world economy is showing signs of stabilization as the interest rate environment steadies and inflationary pressures ease in the US and Europe. Chinese economic activity appeared to brighten in October as industrial output increased and retail sales beat expectations. Russian availability should be constrained as sanctions enforcement is ramped up in Europe and the US. Talk that the Saudi’s are considering extending their voluntary price cuts into the first quarter of 2024 will cause nervousness on the part of speculative shorts and provide a source of uncertainty into the OPEC meeting on November 26th.
Natural Gas
Prices have oscillated through Monday’s range over the last two sessions, driven by forecast revisions that have altered demand expectations multiple times. The market managed to eek out a new high for the week at 3.275 today before closing with a gain of 8.4 cents at 3.190. The settlement was above the 9-day moving average, offering near term support with the next area of resistance in the 3.30 to 3.33 range and then near 3.45. Although LNG flows continue to impress, production has more than offset the export pace. There is room on the upside for a weather driven rally, but a reversal of the overall downtrend will be difficult considering current storage levels and ample output pace. The 3.06-3.08 range should offer support, with 3 dollars remaining the key level to be maintained on a settlement basis to avoid a return to the recent downward bias. Tomorrow’s storage report will cover two weeks of data, with the week ending November 3rd expected to show a 7 bcf draw, while the November 10th number is forecast to show a 40 bcf injection compared to the 5-year average build of 20.
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