The February WTI (CLG25) trading session settled at 70.02 (+0.37) [+0.53%], a high of 70.80, a low of 69.39. Cash price is at 70.05 (-0.73), while open interest for CLG25 is at 332,289. CLG25 settled below its 5 day (70.15), above its 20 day (68.98), above its 50 day (69.34), below its 100 day (69.84), below its 200 day (72.83) and below its year-to-date (72.58) moving averages. The COT report (Futures and Options Summary) as of 12/10 showed commercials with a net short position of -227,239 (a decrease in short positions by +10,313 from the previous week) and non-commercials who are net long +214,911 (a decrease in long positions by -12,938 from the previous week).
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As expected the Federal Reserve cut rates by 25 basis points at today’s FOMC meeting, marking the third time rates have been cut this year. The Federal Reserve now forecasts two rate cuts for next year, previously the Fed expected there could be as many as four. The Fed raised their 2025 projections for Unemployment (4.3% rate vs. prior 4.4%), PCE Inflation (2.5% rate vs. prior 2.1%) and Core PCE Inflation (2.5% vs prior 2.2%). Tomorrow we’ll get Q3 GDP data and a fresh jobless claims figure. All three major American stock indexes closed lower, with the Dow having its 10th consecutive negative day, if the Dow finishes in the red again tomorrow that will mark the first 11 day losing streak for the benchmark since 1974. The CBOE’s Volatility Index was trading 74.05% higher as of this post. The Dollar Index (DYX) closed higher by 1.21%.
Today’s EIA data showed a draw of -934,000 barrels against a forecast of 1.6 million barrels, total crude oil inventories stand at 421 million barrels, roughly 6% below the five-year seasonal average. U.S. crude imports averaged 6.6 million barrels per day last week, an increase of 665,000 barrels per day over the previous week. Crude oil refinery inputs averaged 16.6 million barrels per day, about 48,000 barrels per day less than the previous week’s average, while refineries operated at 91.8% capacity. Yesterday’s American Petroleum Institute data said there was a -4.69 million barrel draw for U.S. crude oil inventories, the fourth straight weekly decline. The API figure showed the Cushing, OK hub having a +800,000 barrel build.
Overseas, yesterday Bloomberg reported that tanker-tracking data showed Russia’s seaborne crude exports fell by 11% over the last four weeks. Last month both the UK and EU added to their sanctions on Russia’s so-called “shadow fleet” of crude oil tankers. Last Friday U.S. Treasury Secretary Janet Yellen mentioned the Biden Administration is also considering putting on similar sanctions on the said shadow fleet of Russian oil tankers. In Saudi Arabia, Joint Organizations Data Initiative released a report that showed the Kingdom’s crude oil exports rose to a three-month high in October, with 5.92 million barrels per day of crude exported, an increase of 174,000 barrels per day over September. In China, the Shanghai based CSI 300 Index closed higher by 0.51%.
Price Thoughts – WTI was trading in the mid $70 for most of the day until the Federal Reserve’s 25 basis point cut and Fed Chair Jerome Powell spoke on the state of the U.S. economy and his outlook for next year, which sent the dollar a full percent higher while commodities sold off, crude oil eventually recovered on the close to close in the green. Crude has been content trading in the middle of its current range of $66-$72.25 for over two months at this point, and failed once again to stay above its 100 day moving average. I would urge patience until the Holidays are over, I suspect we continue to trade sideways with thinner volume until we hit the first week of the new year. After crude hit a 3 and a half week high and 6% rally last week, crude gave back some of its gains yesterday and sold off further today after weaker than expected Chinese economic data was released yesterday. Passing and settling through key moving averages last week (the 7, 20, 50 and 100), $72.50 still seems to be the resistance for Feb contracts.
Now that Donald Trump has been elected President, I believe he’ll fulfill his promise to “Drill baby, drill”, significantly increasing the output capacity for American energy by year’s end. Keep in mind that the U.S. currently produces 13.5 million barrels of oil per day, a figure that’s nearly 30% higher than it was just four years ago. Over the past 50 years, U.S. energy production has grown at a faster rate than consumption, and since 2019, America has been a net energy exporter. We shall see where that “million barrels per day” number goes after Trump is sworn in. Drastically increasing American energy output could create an interesting market share conflict with the OPEC+ nations, but that’s another story, potentially down the line. Then there’s China, how much stimulus they choose to add to bolster their economy could determine crude prices significantly in the short and long term, I believe, and we’ll have to wait and see the impact Trump’s tariffs have. As for the European Union, their economic situation has been trending down for some time now.And then there’s the Middle East situation, which could simmer or explode, and even if the violence ends I believe we’ll see new economic sanctions on Iran targeting their energy revenue. With the prevailing themes of a stronger dollar, potential trade wars, increasing global production, slowing economies and a lack of global demand front running price sentiment, it leads me to believe in 2025 crude oil prices will not end up averaging in the $85-$95 range, rather I see crude prices trading in the low $60’s to middle $70’s range, for long as there’s no black swan events.
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Jim Rinaudo
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