The December WTI (CLZ24) trading session settled at 72.36 (+0.67) [+0.93%], had a high of 72.88, a low of 70.66. Cash price is at 71.70 (-0.26), while open interest for CLZ24 is at 279,129. CLZ settled above its 5 day (71.33), above its 20 day (70.52), above its 50 day (70.05), below its 100 day (72.91) and below its 200 day (74.29) moving-averages. The COT report (Futures and Options Summary) as of 10/29 showed commercials with a net short position of -211,631 (a decrease in short positions by 18,244 compared to the prior report) to non-commercials who are net long +182,643 (a decrease in long positions by 21,347 compared to the prior report).
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Hurricane Rafael is making its way through the middle of the Gulf of Mexico as a Category 2 hurricane. It is not expected to make landfall on the American coast, although the hurricane is going to disrupt some tanker shipping activity and oil rig platforms for the next few days. The Bureau Of Safety and Environmental Enforcement has reported that 17.4% of current oil production in the Gulf has been shut-in due to Rafael. Rafael could disrupt as much as 4.9 million barrels per day, analysts from Earth Science Associates estimate.
The Standing Committee of China’s National People’s Congress has been holding policy meetings this week. In my opinion, now that Trump has been elected we should expect a higher probability of economic stimulus packages announced in the near term out of China, to counter the potential trade war and tariff idea’s Trump may impose next year. Customs data released this morning showed China’s exports rose by 12.7% in October year-over-year, far larger than the forecasted 5.5% growth, this was the fastest monthly growth in over 2 years for the country. On the flipside it showed imports falling by 2.3% in October YoY. On Tuesday Chinese Premier Li Qiang said China would hit its economic growth target of 5% and has remained optimistic about China’s economic recovery. The Shanghai CSI 300 Index closed higher by +3.02%.
Yesterday’s EIA report showed last week’s crude oil imports averaging 6.2 million barrels per day, increasing by 265 thousand barrels per day. U.S. commercial crude oil inventories rose by 2.1 million barrels, seasonally U.S. inventories are still roughly 5% lower. The total current U.S. inventory number sits at 427.7 million barrels. American refiners were operating at 90.5% capacity last week. Tuesday’s API showed an inventory build of 3.132 million barrels against a forecast of 1.8 million barrels, the Cushing Hub saw a build of 1.724 million barrels, while the U.S. Strategic Petroleum Reserve had grown by 1.4 million barrels.
The Wall Street Journal reported that Brazilian crude export data for October suggests Brazil’s crude production could fall modestly this year. The state-controlled Brazilian oil company Petrobras reported that their oil output in Brazil was down 8.2% YoY in the third quarter.
For the second consecutive FOMC meeting the Federal Reserve has lowered interest rates, this time by 25 basis points after September’s 50 basis points reduction. This went as expected as the CME Fedwatch Tool had had this forecasted at a 98% likelihood earlier in the week. Meanwhile the stock indexes continue to make new all time highs, while other commodity futures are in the midst of some price adjustment due to Trump expectations. Last week’s U.S. jobs report was disappointing, showing only +12,000 jobs created against a forecast of +112,500 jobs created that economists had expected, the unemployment rate stayed flat at 4.1%, while job gains for August and September were revised lower by a combined 112,000 positions. Last week’s U.S. GDP number covering the July through September quarter came in at 2.8%, slightly weaker than the previous 3% that covered the April through June quarter. The USD is currently sitting near four-month highs.
On Tuesday Prime Minister Netanyahu fired Defense Minister Yoav Gallant, who was viewed as a political rival and held contrasting views from Bibi on how to approach the wars against Hamas and Hezbollah. Many analysts view this as consolidation of power by Netanyahu. In my opinion, with the election of Trump in America, Netanyahu has to feel a bit more emboldened, as historically, Trump has been more in line with Netanyahu than the Biden-Harris and Obama administrations. The Wall Street Journal reported Sunday night that Iran is planning a retaliation strike on Israel involving “powerful warheads and other weapons”, with Iran’s Supreme Leader Ali Khamenei pronouncing that there would be a “tooth-breaking response” and Iran’s top general warning of “an unimaginable response”. This newest “tit for tat” comes after Israel took out defensive military equipment that protected Iran’s energy facilities. Iranian sources said the response will happen sometime after the U.S. election but before the presidential inauguration. Last Friday the Pentagon announced that they would be sending B-52 bombers, additional fighter jets, and Navy Destroyers to the region.
Oil markets began trading higher Sunday night after OPEC+ agreed to delay their planned December oil output rollout by one month. The rollout would have begun with an 180,000 barrels per day increase starting in December, gradually restoring 2.2 million barrels per day by the end of next year. OPEC+ is currently withholding 5.86 million barrels per day (roughly 5.7% of global crude demand). OPEC+ is scheduled to have their next meeting on December 1st. OPEC+ forecast oil demand growth at 1.93 million barrels per day for this year and 1.64 million barrels per day for 2025. This counters the International Energy Agency’s assessment, which sees global oil demand increasing by ~900,000 barrels per day for this year and ~1 million barrels per day for 2025.
Price Thoughts – Settling above $72 today could see short-term prices heading towards the next resistance line of ~$75, the $67 dollar support line has been holding up very strong over the last few weeks. I would be looking to buy any price breaks under $69 at the moment. In the short term I would expect higher volatility from now till the dust settles between the U.S. election and the potential Iran retaliation, no doubt the risk has increased for the shorts right now with all this uncertainty.
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, passing executive orders as soon as day one in office and we could see increased sanctions on Venezuela and Iran. 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 then there’s the Middle East situation, which could simmer or explode. With the prevailing themes of a stronger dollar, potential trade wars, increasing supply, 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 $65 to middle $70’s range, for long as there’s no black swan events.
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Jim Rinaudo
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