Written Commentary
CRUDE OIL
December Crude Oil gapped lower overnight and fell to its lowest level since October 1 after Israel’s retaliatory missile strike against Iran over the weekend focused on military targets and avoided oil and nuclear infrastructure and civilian targets. This helped ease concerns about escalation and possible interruptions in global oil supply. Iran’s response to the strike was low-key and lacking the usual bellicose tone, which also indicated a step back from escalation. Next up is the OPEC+ scheduled unwinding its quotas. The steep selloff today may encourage them to postpone plans to lift them, which is currently scheduled for December 1. Focus may also resume on Chinese demand, which has been weighing on the market this year. Their sluggish economy and the switch to EV’s are to blame, but their the recent stimulus announcements had offered some hope. The Baker Hughes rig count on Friday showed US oil rigs in operation were down 2 rigs to 480 last week. This was down from 504 rigs a year ago and below the five-year average of 493. Friday’s Commitments of Traders Report showed managed money traders were net sellers of 15,880 contracts of crude oil for the week ending October 22, reducing their net long to 113,773.
PRODUCT MARKETS
RBOB and ULSD are following crude oil sharply lower this morning. Friday’s Commitments of Traders Report showed managed money traders were net buyers of 129 contracts of RBOB for the week ending October 22, increasing their net long to 50,046. This is towards the middle of the historic range. For ULSD, managed money traders were net sellers of 3,828 contracts, increasing their net short to 26,314. This is up from a record net short of 45,437 from September 17. December RBOB fell below the 0.618 retracement of the September-October rally overnight, leaving next support at 1.8555.
NATURAL GAS
Lower December Natural Gas was sharply lower overnight after in impressive rally last week that took the market to its highest level since October 11. One has to think that the somewhat calmer tone out of the Mideast, had eased concerns about an interruption to supply within the region. The market may also be seeing pressure from the increase in the Baker Hughes rig count last week, with US natural gas rigs in operation up 2 rigs to 101. This was down from 117 rigs a year ago and below the five-year average of 115.8 but marks a continued increase since they reached a low point of 94 on September 6, which was the lowest since April 2021. The market did find support last week from a cooler forecast for the western part of the US. The 6-10 day forecast calls for below normal temperatures west of the Rockies and above normal east, with much above across the eastern Midwest down to the Delta and southeast. Warmer than normal temperatures persist across the lower 48 in the 7-14 day, which could keep heating demand lower than normal. However, reduced demand could also be offset by lower production, with LSEG indicating average output in the lower 48 states falling to 101.5 billion cubic feet per day so far for October, down from 101.8 bcfd in September. The record was 105.5 last December. They expect average output to decline in 2024 for the first time since 2020. LNG shipping rates have fallen to their lowest levels in at least five years, as new tankers are being added at a faster rate than LNG production is climbing. Spot demand being described as “tepid.” Friday’s Commitments of Traders Report showed managed money traders were net sellers of 50,976 contracts of natural gas for the week ending October 22, increasing their net short to 130,407. This is far from the record net short of 330,000 from February 2020.
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