Written Commentary
Price Overview
Following four days of flip-flopping price action, the market ended the week basically where it started as the October crude settled at 69.72 for a gain of over 1.50 on the day. Prices slipped yesterday after China announced that they would sell crude from their strategic reserves to try and control what they considered high prices to their refiners. The weakness was short lived, with buying interest returning today as production outages in the Gulf drug on, with output still 76 percent offline. Discussions between President Biden and Chinese leader Xi also offered support across markets as hopes were raised for improved trade relations. The DOE report was seen as supportive overall with product stocks drawing down considerably.
The DOE release indicated that crude inventories fell by only 1.5 mb/d while expectations had been in the 3.8 area. Refinery utilization dropped 9.4 percent to 81.9 on fallout from Hurricane Ida. Distillate inventories were down by 3.1 mb, while gasoline was the biggest surprise as it showed a decrease of 7.2 mb compared to expectations for a 3.6 drop. Total stocks were down by 10.4 mb.
Gulf of Mexico production remains the immediate concern, while the trend in Delta variant infections will be a key factor as its effects on the global economy and mobility are discerned. With OPEC apparently maintaining discipline on their steady approach to increasing output, the continued drawdown of inventory levels should offer support in the 65-66.00 range basis October on any pullbacks, while the 71.00 level offers upside resistance as offshore rigs and refineries slowly return to production.
With OPEC apparently maintaining discipline on their steady approach to increasing output, the continued drawdown of inventory levels should offer support in the 65-66.00 range basis October on any pullbacks, while the 71.00 level offers upside resistance as offshore rigs and refineries slowly return to production.
Natural Gas
The week ended with another new high reached before profit taking emerged and pushed the October to a settlement at 4.938, which was just over 9 cents lower on the day. Yesterday’s storage report showed a 52 bcf build, well above estimates near 40, but was unable to flush out any selling interest as minor weakness after the release was followed by a quick run to the day’s high as it appeared more fund short covering emerged. Trade quickly forgot the large build and focused on the fact that stocks are still more than 7 percent below the 5-year average, while at the same time 76 percent of Gulf production is still shut-in and LNG exports are humming along near 11 bcf/d. With these factors converging as we head toward the winter withdrawal season, the potential for significant price spikes increases if cold temperatures develop. Despite today’s retrenchment the market could still handle some additional selling to ease the overbought condition. Initial support continues to be likely near 4.80, and beyond that 4.56 represents a 38 percent retracement of the rally since mid-August. You have to go to a monthly chart to find the next potential target on the upside, which looks to be the highs from February of 2014 near 6.50.
Charts Courtesy of DTN Prophet X, EIA, Reuters
The authors of this piece do currently maintain positions in the commodities mentioned within this report.
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