The Nov WTI (CLX24) trading session settled at 77.14 (+2.76) [+3.71%], had a high of 77.40, a low of 73.62. Cash price is at 74.33 (+0.60), while open interest for CLX24 is at 265,679. CLX settled above its 5 day (72.84), its 20 day (69.92), its 50 day (71.78), and its 200 day (74.89) moving-averages. The COT report (Futures and Options Summary) as of 10/4 showed commercials with a net short position of -215,898 (a increase in short positions by 6,662 compared to last week) to non-commercials who are net long 198,109 (a increase in long positions by 6,962 compared to last week).
The COT report from Friday showed commercials adding to their net short position while non-commercials added to their net long positions. Last week we broke through the technical double bottom pattern and broke through 5, 20 and 50 day moving averages to the upside. While the Brent benchmark traded above $80 in today’s session. CLX is up a whopping 13% over the last 5 trading sessions. Personally I was surprised the COT report showed the funds getting shorter, while I was not surprised at all to see the specs getting longer, I believe part of today’s rally was some short covering from the funds as there’s too much uncertainty in the market based on the fluid developments in the Middle East and continuing retail traders piling in to the long side. If you’re interested in the retail volume I’d suggest you read the very good Bloomberg article written this morning on the topic.
I think the market might be short-term overbought, with the volume pouring in from retail spec traders seizing on the war-premium hysteria. If we’re able to hold above $78 this week we could test above $80, but I think the longer Israel delays their retaliation we have a higher probability to move back to the lower $70’s high $60’s range we were previously trading in. This of course could go completely the opposite way depending on the size and scale of Israel’s retaliation and a blockade of the Strait of Hormuz. But if Israel chooses to go with merely a strategic smaller-scale retaliation, I would expect at some point soon after for OPEC and the U.S. to fill the gap on the production loss Iran may incur (For context Iran produces 4 million barrels per day – roughly 4% of global production according to the EIA). This morning on the anniversary of the October 7th terrorist attacks, Hamas fired off another round of rocket attacks into Israel, while Israel continued its push into Lebanon with its ground forces. Israel’s Defense Minister is expected to meet with U.S. Defense Secretary Lloyd Austin this week and I expect traders to react if there’s headline grabbing language disclosed to reporters.
A Reuters survey from last week showed OPEC had its lowest output in oil production this year in the month of September, at 26.14 million barrels per day, down 400,000bpd from August. Production was down last month due to the halt in Libya, but the country resumed its oil production of ~1.2 million barrels per day last week. OPEC still plans on sticking with the December timetable for an increase of 180,000bpd output. In China, the CSI 300 Index, has jumped over 25% over the last 5 trading sessions since China released their economic stimulus package, and there are rumors the country could soon announce further stimulus plans. With what’s going on with Iran it’s noteworthy to mention China is by far their largest buyer of crude, to the tune of over 90% of Iran’s crude exports.
In the U.S. the Gulf of Mexico and Florida are again facing another Hurricane, upgraded today to a Category 5 Hurricane Milton is expected to make landfall this Wednesday. Although from what I’ve read it’s not going to push as many oil platforms in the region offline compared to Hurricane Helene, some platforms will more than likely pause operations, I have to believe. There’s also the rebuilding in the region that will need to be done after a particularly strong and devastating Hurricane season. Last week the September jobs number came in much better than expected (showing a gain of 245,000 jobs vs the forecasted 145,000), which I believe may ease some traders’ concerns about the state of the U.S. economy. Although the CBOE Fear Index (VIX) jumped over 15% today.
Contact me JRinaudo@walshtrading.com
Jim Rinaudo
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