Recap: Oil prices fell for the fourth straight day, owing its weakness to increased output by some of the world’s largest producers and mounting concern over weaker global demand due to the U.S. – China trade dispute. Signs of slowing demand have already been seen, as China’s manufacturing sector in October expanded at its weakest pace in over two years. Weakness in the market continues to foster longer dated contango market conditions down the curve, with spreads out to June19/July19 trading in contango market conditions. The Dec18/Dec19 spread has also slipped into a contango market for the first time since September of 2017. This is an indication that traders are growing less optimistic about forward demand. Spot prices fell to 5-month lows, with December WTI falling as much as 3.3% to a low $63.11 and January Brent falling equally as much to a low of $72.56. December WTI finished down $1.62, or 2.48%, to settle at $63.69 a barrel, while January Brent settled at $72.89 a barrel, down $2.15, or 2.87%.
Technical Analysis: Technical traders sprang into action after December WTI failed to gather momentum above the unchanged level. This spot contract is now poised to reach the lowest weekly settlement in WTI since June. The 200-day moving average, currently set at $65.40, is now a level of resistance, with additional resistance at $66.27, set by the ascending trend line that can be depicted on a daily bar chart for December futures. Support is set at $62.14 and $61.20.
Fundamental News: Genscape reported that as of October 30th, crude oil stocks at Cushing, OK stood at 35,452,022 barrels, up 1.288 million barrels from October 26th and up over 1.9 million barrels from October 23rd.
Bloomberg reported that both India and South Korea agreed with the U.S. on the outline of deals that would allow them to keep importing some Iranian oil, according to Asian officials with knowledge of the matter. No final decision has been made and an announcement is not expected before November 5th.
RBC Capital Markets in a research note to clients said it expects U.S sanctions will probably reduce Iranian exports by 1.3-1.7 million b/d by the 1Q2019. They also noted they expect the U.S. to be “very stringent in issuing significant reduction exemptions.”
Goldman Sachs said that they remained committed to their “year-end Brent price forecast of $80.00 per barrel.” While they noted they have slightly revised downward their demand growth forecast it remains above consensus expectations. They noted the market has misread emerging market demand, by underestimating destocking currently underway in these countries. They also noted that Chinese demand continues to surprise to the upside despite the appearance of an economic slowdown.
S&P Global Platts said it estimates U.S. exports of gasoline in October reached their highest level on a monthly basis since at least 2010. The analysis pointed to the poor refinery runs in Mexico as being a primary driver in this surge in exports with some traders estimating over half of these exports are going to Mexico.
PEMEX reported this week its refinery utilization at its six Mexican refineries fell to a record low in the third week of October to just 25.7%, down from a poor 29.2% operable capacity a week before. Back in April PEMEX refineries were averaging 52.6%.
Early Market Call – as of 9:10 AM EDT
WTI – Dec $63.13 down 56 cents
RBOB – Dec $1.7068 down 97 points
HO – Dec $2.1809 down 1.99 cents
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