Written Commentary
CRUDE OIL
Crude oil prices were able to shake off early pressure as they finished Thursday with moderate gains, but they have lost strength and are back under pressure early in today’s action. October Chinese crude oil imports were down 2% from September and down 9% from last year, which put pressure on energy prices as it shows more evidence of lukewarm Chinese demand. Tropical Storm Rafael is expected to miss the US, which will sharply reduce any supply bottlenecks and has pressured energy markets. The Dollar gave back a sizable portion of its post-election rally on Thursday due to lukewarm US economic data and the latest FOMC meeting results which featured a 25-basis point Fed rate cut, and that provided crude oil with underlying support. There are indications that the incoming Trump Administration will revive sanctions on Iranian crude oil exports, which would tighten global supply during the first quarter. The latest Baker Hughes US oil rig count will come out late in the day, and a weekly decline of 3 rigs or more would bring oil rigs to their lowest level since December 2021.
PRODUCT MARKETS
The product markets have had a wild ride so far this week, but RBOB and ULSD have both held within inside-day ranges and are under moderate pressure early in today’s action. Fuel stocks in Singapore had a sizable increase over the past week, which is another sign of lukewarm Asian demand that has put the brakes on this week’s recovery move. While the EIA reports featured surprise weekly builds in gasoline and distillate stocks, there were some positive readings on demand that have underpinned prices near their November highs. Average US retail “pump” prices for regular gasoline have seen a modest rebound this week from Sunday’s 9-month low, and that should also provide some measure of support to product prices as that may signal a mild rebound in driving during what is normally a “shoulder” demand season.
NATURAL GAS
Natural gas prices were unable to hold onto early strength as they finished Thursday with a moderate loss, but their coiling action is producing mild gains early in this morning’s action. The EIA storage report showed a weekly net injection of 69 bcf which was larger than last year and the 5-year average, and that put the natural gas market under pressure at midsession. Tropical Storm Rafael is now expected to miss the US, and that will eliminate the potential for extensive power disruptions that would have weakened power plant demand for natural gas. On the other hand, offshore gas wells are still being shut off just in case Rafael turns north again, and that will cut into US dry gas production this week. A weekly increase of 2 rigs or more in today’s Baker Hughes US gas rig count would lift gas rigs to their highest total since April.
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