Crude Oil Continues to Catch its Breath - WTI Crude Oil Commentary 10/17/24

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The December WTI (CLZ24) trading session settled at 70.09 (+0.27) [+0.39%], had a high of 70.53, a low of 68.89. Cash price is at 70.37 (-0.25), while open interest for CLZ24 is at 299,573. CLZ settled below its 5 day (71.63), below its 20 day (71.18), below its 50 day (71.71), below its 100 day (73.62) and below its 200 day (74.35) moving-averages. The COT report (Futures and Options Summary) as of 10/8 showed commercials with a net short position of -252,853 (a increase in short positions by -36,955 compared to last week) to non-commercials who are net long 226,214 (a increase in long positions by +28,143 compared to last week). 

 

The Energy Information Administration (EIA) released its weekly data showing an inventory draw of ~2.2 million barrels, which went against the 1.8mb forecasted build. U.S. inventories are down about 5% below the five year average for this time of year. The EIA also reduced its production forecast for U.S. crude oil for this year and next year. U.S. crude oil refineries operated at 87.7% capacity last week. This week’s American Petroleum Institute (API) said inventories had a drawdown of 1.58 million barrels last week, against a forecast of a 3.2mb build. 

 

Sources told CNN yesterday that American officials expect Israel will retaliate against Iran before the November 5th Presidential election. CNN reported that it remains unclear if Israel's attacks on Iran will focus solely on physical military targets or if they will also involve a cyber warfare element. Israel announced this afternoon that the IDF had killed Hamas leader Yahya Sinwar in the Gaza Strip on Wednesday. Elsewhere in the Middle East U.S. B-2 stealth bombers bombed Iranian backed Houthi rebels and took out five underground weapons facilities in Yemen overnight, this is the first use of the bombers in Yemen and the first time the B-2’s had been deployed for combat in recent years. 

 

U.S. CPI came in above expectations, rising 0.3% in September, breaking a trend of lower readings. This may be a sign of underlying pressures in the economy in my opinion. The S&P 500 and Dow Jones continue their march higher, both setting new intraday all-time highs.  As of today the CME Fedwatch tool shows a 90% chance for a rate cut at the Nov 7th Fed meeting. Accuweather recently raised the chances of a La Niña event, bringing in colder forecasts to the Northern Hemisphere for this year.

 

This morning an Official in China’s Housing Minister Ni Hong, announced that China will increase bank lending for housing developments by $562 billion by the end of the year. From what I’ve read analysts have deemed this not enough to make a major impact on their economy. A recent Reuters poll showed that China's economy is projected to grow by 4.8% in 2024, falling short of the government’s target, with growth potentially slowing to 4.5% in 2025. Recently 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. Bloomberg reported that China’s economy “likely grew at its weakest pace in six quarters”. On Saturday China’s Finance Minister Zheng Shanjie did not disclose any new incentives that would increase their oil consumption. OPEC’s recent economic growth forecast for China remained unchanged, however China’s oil demand for next year was lowered from 650,000b\d to 580,000b\d.  The Shanghai Composite Index was down 1.13% today.

 

Settling below $72 again today signals to me we are heading into the mid $60’s - lower $70’s range we were in a month ago, with a new floor to break through around the $67 mark. I see support levels around $71.50-72.50 and resistance around $75 to the upside for the bulls. The market should continue being volatile and reactionary as we head into winter and Middle East tensions stay high. In my own view I firmly believe there’s downward pressure facing crude prices in the mid to long term, with the largest thing weighing the crude markets down being lower global demand (specifically China), the transition from oil to electric powered energy and the cooling of economies worldwide.

 

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Jim Rinaudo

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