Crude Embraces Positive Energy Demand
While the new high for the move in crude oil this morning was not impressive, the market continues to embrace a generally positive energy demand theme off reduced recession prospects. In fact, oil prices shot higher Wednesday in sync with strength in equities, weakness in the dollar and falling treasury yields. In addition to outside market lift, crude oil benefited from the highest ever weekly US crude oil export reading and from next week’s looming official reductions in supply from OPEC+. Given the record US export pace, the market was clearly unable to discount EIA US crude oil inventories reaching 15-month highs this week. Another supportive angle this morning is talk that China continues to add to reserves despite a ramping up of refinery activity and signs of economic slowing. However, the sharp range up extension in December crude oil futures yesterday was forged on low trading volume which could indicate prices above $88.00 are viewed as expensive by a portion of the trade. On the other hand, a private energy advisory service projected crude oil prices will settle in above $90 per barrel for the rest of the year, as the impact of OPEC+ reductions kick in and US SPR flows to the market stop. EIA crude stocks rose 2.588 million barrels and are 9.133 million barrels above year ago levels. A
In retrospect, we see a large portion of the bounce off the Monday spike low as a classic technical balancing of an oversold condition. However, expectations for this week’s EIA injection into working gas storage shows a distinct reduction in the magnitude of injections and that could signal a winding down of the injection season. The US weather forecast remains bearish with 10 days of 5 to 10 degree above-normal temperatures in the Midwest and Northeast, with the rest of the country showing above average temperatures. The European weather forecast out to November 1st shows 90% of the euro zone posting daily lows roughly 10 degrees above freezing. While we suspect some would be buyers of natural gas were discouraged by talk of precipitous declines in gas prices in portions of Texas earlier this week, those sharp declines were the result of local capacity issues and not demand issues. Other negatives facing natural gas today are an unwillingness on the part of European gas buyers to sign long-term contracts and a sharp decline in European propane prices.
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