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More Demand Concerns for Petroleum

CRUDE OIL

Petroleum markets continue to face demand concerns, and a recent flare-up in supply anxiety is winding down. A report of a drone attack on a tanker in the Gulf of Oman briefly increased supply concerns yesterday. However, US and European officials were able to dial back tensions when they determined that the missile that landed in Poland on Tuesday did not come from direct Russian action. This allowed the key Druzhba pipeline to resume the flow of Russian crude oil to Hungary and Slovakia. The EIA report showed a much larger than expected decline in US crude oil stocks last week. Stocks reached a six-week low despite a 4.1-million-barrel draw from the SPR. Crude oil imports fell to their level since May 2021. US crude production held steady at 12.1 million barrels per day (bpd), which has been the upper end of a relatively tight range of 11.9 to 12.1 million bpd since mid-April. Refinery crude oil throughput stayed above 16 million bpd and reached an 8-week high.

gas pump

NATURAL GAS

Natural gas has extended its coiling pattern for more than a week, but it could be setting the stage for an upside breakout move. The January contract finished Wednesday with outside-day and a moderately higher close, and it followed with further gains overnight. Unseasonably cold weather expected across much of the US over the next week should ramp up demand. This may overcome concerns about further delays to the reopening of the Freeport LNG export terminal. With production climbing back above 100 bcf per day, further delays in the reopening could increase the amount of gas in storage. Today’s EIA storage report is expected to show a net injection of 50 to 75 bcf. This may be one of the last reports to show an injection this year. Wednesday’s outside-day higher close has fueled upside follow-through and a wave of short-covering this morning, in front of the EIA storage report. If this report comes in at the low end of expectations, we could see a rally back above Friday’s high and perhaps to the November 7 gap at $7.2440 in the January contract.

 

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