Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
Crude oil prices recovered on fear of an escalation of the Middle East conflict following a limited attack by two US fighter jets against Iranian backed militias in Lebanon. Iranian threats against the US continue in response to the impending offensive in Gaza. The preparation for a full ground offensive continues according to Israel Prime Minister Netanyahu. Although crude oil and product inventories are getting tighter due to strength in the US economy and new stimulus measures in China, the growing efficiencies in US shale production and the willingness of the Saudis to pursue a joint peace initiative in the Middle East are providing upside resistance.
The risk premium attached to the Israeli/Hamas conflict is likely to attract support near the 84.00 level with potential for values to retest the 88-89 range basis December crude. Reports that Iranian export levels have recently fallen sharply could attract support as the impact of additional US sanctions and higher domestic use restrains availability. Limiting a move much above the 90 dollar level is the potential involvement in peace negotiations by the Saudis and their concern over the global economic fallout from the conflict. The situation remains fluid and Israel is intent on eliminating Hamas as a political force in Gaza, while the Saudi’s are intent on easing the situation and leading negotiations toward a broader peace initiative in the area to counter Iranian military influence. A key area of support arises at the 100-day moving average at 81.38. In addition, it looks as if the gasoline crack is starting to attract support, rising from as low as 8.00 on October 14th to 11.37 today, suggesting an improvement in refinery utilization and likewise throughput in the months ahead.
Natural Gas
Prices continued their push higher yesterday and through overnight trade before losing ground as the session wore on today, ending the week at 3.483 basis December. The storage report again supplied upside fodder, with the 74 bcf build below estimates near 80. The market spiked after the release and then continued to push higher in overnight trade that appeared to be algo based. Increased demand expected early next week was also eyed as fuel for the rally, but overall fundamentals appear negative. The cold spell is expected to be followed by another round of warming, while production remains near record highs and LNG flows have pulled back slightly. The rejection of the 200-day moving average today and close near the lows looks very similar on the charts to the reversal from October 9th which lead to a two week pullback. Minor support now lies near 3.45 and then at the 9-day moving averge of 3.38. With the upside cleared out on today’s early strength, the 200-day moving average currently near 3.65 marks a key level on a settlement basis that will likely need a much colder temperature pattern to be violated.
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