Crude Higher on Mideast Worries

CRUDE OIL

November Crude Oil was higher overnight as Mideast worries, a hurricane forecast for the Gulf of Mexico, and new stimulus measures for China lent support. The market has been in a steady uptrend since putting in a  low earlier this month and has traded to its highest level since September 1. A category-3 hurricane is expected land somewhere along Florida coast on Thursday. The current forecast has landfall anywhere from the panhandle to the mid-south Gulf Coast. Oil companies have begin evacuating staff from offshore facilities, and several have paused production. The Peoples Bank of China announced plans to lower borrowing costs and inject more funds into the economy and ease households’ mortgage repayment burdens. This is being described as China’s biggest stimulus move since the pandemic, and its announcement sent Chinese and other stock markets higher. This also improves the outlook for Chinese oil demand. Israel’s attacks on Hezbollah targets in Lebanon this week have raised concerns that this will pull Iran into the conflict beyond its proxy role and ignite a broader war in the region. For the US supply reports this week, the Reuters survey has trade expectations for a 1.2 million-barrel decline in crude oil stocks, distillates to be down 2.2 million barrels, and gasoline up 200,000. Refinery runs are expected be down 0.7% to 91.4% of capacity.

PRODUCT MARKETS

November RBOB is higher this morning, but it has yet to take out last week’s high. A key resistance level is the 0.382 retracement of the decline from the April high to the September low, which comes in at 2.0342. Unlike crude, RBOB failed to push through that line last week. November ULSD traded above the 21-day moving average for the first time since August 30 overnight, leaving next resistance at 2.1611.

NATURAL GAS

November Natural Gas traded to its highest level since July 12 overnight but met resistance at the 100-day moving average and was lower on the day this morning. The market is still in the upper end of yesterday’s range. The hurricane forming in the Gulf is threatening to reduce production somewhat, but it also could affect LNG loading facilities if it were to move east. Most of US production comes from inland, and any threat to LNG exports could cause a backup in supply. At this point, the hurricane’s landfall projection does not appear to be much of a threat to LNG facilities, and the precautionary shutdowns of oil and gas production in the Gulf offers mild support to gas prices. Chinese stimulus measures also raise the prospects for global gas demand. For the US supply update on Thursday, the Reuters survey has an average trade expectation for US natural gas storage to show a net injection of 53-56 bcf last week. The five-year average change for the week is +86 bcf. Injections have been below average recently, which has improved the supply/demand setup.

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