Energy prices are trading lower this morning as the Chinese stimulus news appears to have lost steam. Traders are focusing this morning on potential de-escalation in the Middle East, higher-than-expected API crude build, and the risk of global oversupply. U.S. Secretary of State Anthony Blinken met with Israeli leaders to push for conflict resolution in the region. Israel said they will continue their systematic attacks in Lebanon until it is possible to ensure the safe return of Israel’s northern communities to their homes and the withdrawal of Hezbollah forces from southern Lebanon. The statement came after Israel confirmed it killed a top Hezbollah leader expected to be the group’s next leader. Blinken stated that the U.S. will “always stand with Israel and its defense” but noted that it was “important that Israel responds in ways that do not create greater escalation.” With the current fundamental picture, expect WTI crude futures to remain rangebound between $68-78 with downside price risk from oversupply outweighing upside price risk from supply disruptions. The market is still waiting for Israel to retaliate against Iran, and until it does, geopolitical risk premium will remain in the market. An attack on Iran’s military would more than likely cause an initial price increase to energies, followed by additional opportunities to the downside. An attack on Iran’s energy infrastructure that disrupts supply could move crude prices back above $80 very quickly. If conflict remains in the Middle East, it will be difficult for crude to move below the most recent lows of $65.27 that occurred in September. However, increased U.S. production and OPEC’s plan to raise output in December could lead to global oversupply in the first quarter of 2025.
Crude
- According to market sources citing the API, U.S. crude inventory rose by 1.6 million barrels for the week ended October 18.
- U.S. Dollar at highest level since July 31.
- Brent-WTI spread of $4.23 is the widest spread since early September.
- WTI 12-month crude futures spread is backwardated $3.
- Lead month crude futures are meeting resistance by convergence of the 9-day, 20-day, and 50-day moving averages.
- U.S. refinery utilization is 3% above the five-year seasonal average.
- Midwest refinery utilization is 3% below the five-year seasonal average and at the bottom of the range.
- Cushing crude inventory is 24% below the five-year seasonal average.
- As of 8:50 am CST: Brent crude oil down $0.63 to $75.41, the US dollar index up $0.356 to 104.265 while the nearby e-mini S&P 500 futures contract is down 20.50 at 5872.00.
Diesel
- According to market sources citing the API, U.S. diesel inventory fell 1.5 million barrels for the week ended October 18.
- Diesel futures contract in two cent contango through the February contract.
- Diesel futures are meeting resistance at the 20-day moving average, but being supported by the 9-day and 50-day.
Gasoline
- According to market sources citing the API, U.S. gasoline inventory fell 2 million barrels for the week ended October 18.
- Gasoline futures are backwardated five cents through the March contract.
- Gasoline futures are seeing support from the 9-day and 50-day moving averages.
Propane
- Conway is trading at .7100 while Belvieu is trading at .7625.
- Conway Swap Q4-Q1 25/26 strip indicative midpoint ~.7400.
- Conway propane is trading at 40% to WTI.
Natural Gas
- The U.S. government will award $196 million in grants to repair and replace aging natural gas pipelines across 20 states. Continuous natural gas futures prices are 37% or $1.37 below the five-year seasonal average and at the bottom of the historical range.
- The third warmest October in the U.S. in more than 60 years and warm early-November forecasts have significantly weighted on U.S. gas prices.
- Month to date, NYMEX spot gas is down 21%, while the winter strip has lost approximately 14%.
Brent futures prices are outpacing WTI futures as increased Middle East geopolitical risk impacts Brent more than WTI, and U.S. production continues to grow.
