Written Commentary
CRUDE OIL
Clearly, indications of a delay in the Israeli ground offensive have temporarily discouraged buyers and fostered concern among the bull camp. However, the bull camp should be supported by increasing anger in the Arab world, with the heavy bombardment of Gaza continuing, 5,700 reported deaths thus far in Gaza and headlines that Israel is spending $245 million daily in its attacks. Therefore, tensions in the region continue to escalate despite the delay in the Israeli ground attack. On the other hand, crude oil prices have faltered in the face of improved economic sentiment toward China following a series of government stimulus efforts. In an indirect negative for crude oil prices, there are efforts to quickly revitalize Venezuelan oil production with Venezuelan oil company executives moving quickly to re-sign export contracts with US refiners who are gearing up for the processing of heavy crude oil grades. We see downside targeting in December crude oil at $81.31 but expect headlines of any military action other than the IDF bombardment of Gaza to reverse prices almost instantly. While events in the Middle East are likely to dominate trader sentiment, the markets will consider today’s EIA oil inventory data which last week posted a large decline of 4 million barrels.
NATURAL GAS
We see natural gas prices clawing higher from technical short covering and a slight improvement in fundamentals. In fact, with a rejection of $3.25 pricing yesterday, cooler temperatures next week and a dip in US production, further technical and fundamental short covering is likely. However, average lower 48-States October daily production at 103.9 bcfd this month is running ahead of September’s 103.6 bcfd. Fortunately for the bull camp, natural gas prices from the positioning report into the low on Monday fell by nearly $0.24 which probably means the net spec and fund short was inflated considerably.
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