The Nov WTI (CLX24) trading session settled at 73.24 (-0.33) [-0.45%], had a high of 74.45, a low of 71.53. Cash price is at 73.67 (-3.48), while open interest for CLX24 is at 221,249. CLX settled below its 5 day (74.43), above its 20 day (70.73), above its 50 day (71.79), and below its 200 day (74.90) 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 Dec contract has larger open interest than the Nov contract.
The EIA released its weekly report today showing that crude inventories increased by 5.8 million barrels, coming in much higher than the 2 million barrels forecast, with Imports at 6.2 million bpd and Exports at 3.79 million bpd. Refineries were operating at 86.7% capacity last week. The EIA has revised its estimates for global crude oil demand for next year, now projecting an increase of 1.2 million barrels per day to 104.3 million barrels per day. This is 300,000 barrels per day lower than the previous forecast. The API report from yesterday showed crude stockpiles increasing by 11 million barrels and a 2.359 million barrel increase at Cushing. Tomorrow we get fresh CPI data which I believe will help us get a better gauge on U.S. inflation.
China is set to hold a press conference this Saturday addressing their fiscal policy. One of China’s top economic policy makers Zheng Shanjie held a meeting yesterday, telling reporters he was “fully confident” of achieving economic targets for 2024, but did not go into specific detail on any new stimulus measures. In an economic update released earlier in the week the World Bank revised China’s growth rate to 4.3% for next year, which is lower than the 4.8% projected growth rate for this current year. The CSI 300 Index was down -7% today.
Category 5 Hurricane Milton will make landfall as a Category 3 tonight on the western coast of Florida. This is expected to be the worst Hurricane to hit west-central Florida in 100 years. Analysts from Jefferies estimate it could cause in the range of $50 to $175 billion dollars in damage.
Israel’s Defense Minister Yoav Gallant has delayed his meeting with U.S. Defense Secretary Lloyd Austin. Meanwhile, President Biden and Prime Minister Netanyahu held a conversation today to discuss Israel’s anticipated response. Reports indicate that President Biden has urged Israel to refrain from targeting Iran’s oil fields. Yoav Gallant was quoted this morning saying Israel’s retaliation would be “lethal” and “surprising”.
As I said in yesterday’s commentary, I thought the market was short-term overbought and the rally was partially put on by retail traders trying to time Israel’s retaliation on Iran, and then cashing out on their trade. Until there’s a missile strike on energy sites I think there’s still downward pressure facing crude, which I think pushes us back into that high $60 low $70 range. I do think there’s some technical support around the $71-$72 range depending on how we settle tomorrow. This of course could go completely the opposite way depending on the size and scale of Israel’s retaliation on Iran, or if there becomes 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 there 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, ~4% of global production according to the EIA). A blocaide of the Strait of Hormuz, in my opinion, would be much more bearish for crude oil than targeted strikes on energy facilities, as ~21 million barrels flow through per day according to the EIA, which accounts for ~21% of the global crude trade. But more than anything I think the downward trend in global economies is the main weight on crude prices.
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Jim Rinaudo
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