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Crude Continues to See Resistance

CRUDE OIL

In general, we see ongoing concern toward global energy demand and technical vulnerability from crude oil charts. However, reports overnight predict 4th quarter improvement in Chinese demand from seasonal influences, the dollar is lower and an extension of risk on sentiment has been presented from the US equity markets at times this morning. In a fresh negative International Energy Agency overnight indicated they could sell supply from their SPR if there are winter supply disruptions. The crude oil market continues to see resistance around the $85.00 level in the December futures thicken, as fear of recession and slowing energy demand remains a broad market concern. In fact, China registered a decline in September crude oil imports of 2% lower than year ago levels and registered a decline in January through September crude oil imports of 4.3%! However, over the past several weeks, Chinese officials have indicated they were intending to boost fuel exports significantly at the same time stimulating their oil industry by authorizing additional crude import quotas and setting the stage to ramp up their fuel exports. With measurements depicting extremely tight diesel stocks around the world, Chinese efforts to boost refinery activity could meet with strong demand. A fresh development in the Russian Ukraine conflict are claims from both sides that opposition is planning to utilize dirty bombs and then blame it on the other party. While we are not sure how long the correlation will last, it should be noted that energy prices yesterday showed strength following soft US data which suggest the oil trade is impacted by the ebb and flow of views toward the US Fed’s December rate hike.

Oil Rig

NATURAL GAS

In addition to a significant short-term oversold condition, the European trade has shaped a hotter forecast for the end of October in Europe as a negative as that delays heating use. Furthermore, we think natural gas prices remain vulnerable to additional selling, and seeing China import a record amount of Russian LNG pulls gas supply out from behind the embargo wall. Other bearish developments overnight include an ongoing steady Russian gas flow through Ukraine, a jump in LNG floating supply of 5.8% on the week and evidence that South Korea is nearing its strategic stockpile target. In a longer-term negative, Chinese September coal production apparently jump by 12.3% and is posting daily records which in turn could reduce the reliance on imported LNG for power generation. While it is unclear when the damaged Freeport LNG export facility will see a return to full output, there are predictions that ships arriving on October 29th might be loaded. On the other hand, there is significant skepticism in the market that the Freeport facility will be able to secure full permit status until sometime in November. While natural gas prices can “bounce”, weather forecasts for the US remain bearish, economic influences remain bearish and Russian threats to hold back supply have been absent for many sessions.

 

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