Mild Weather Adds to Bearish Fundamentals

CRUDE OIL

December Crude oil was lower overnight but inside yesterday’s range down action. The trade seems to be a bit more skeptical about yesterday’s media report that Israel would not target Iranian oil or nuclear facilities in its retaliation for Iran’s bombing, but so far this has only managed to stem the selling in the market. Worries about escalation interrupting oil supplies are still in the background. There were also comments overnight that the return of Libyan oil supplies are pressuring crude prices in Europe. Local media in China said that the government may raise an additional 6 trillion yuan ($850 billion) from special treasury bonds over three years to stimulate their economy. Iran is working on controlling an oil spill four miles off Kharg Island that was the result of leaky pipelines. For the inventory reports this week, the Reuters poll has an average trade expectation for an increase of 1.8 million barrels in US crude oil stocks last week, with gasoline stocks expected to be down 2.2 million and distillates down 1.5 million. Refinery runs are expected to be down 0.6% to 86.1%.

NATURAL GAS

December Natural Gas is close to taking out yesterday’s low 3+ year lows. On top of lower demand in the wake of the Hurricanes, the gas market is facing mild weather over the next couple of weeks that will keep heating demand down. The 6-10 and 8-14 day forecasts have above normal temperatures across most of the US. LSEG estimates that this could push demand down from 97.3 bcfd this week to 96.0 next week. The group said yesterday that average gas output in the lower 48 states fell to 101.4 billion cubic feet per day (bcfd) so far in October, down from 101.8 bcfd in September. On Tuesday, output was on track to fall to a four-month low of 100.4 bcfd, but part of the decline was blamed on the planned maintenance of Kinder Morgan’s El Paso Natural Gas pipe. For the inventory reports this week, the Reuters poll has trade expectations for US gas storage to show an increase of 63-87 bcf last week. The five year average increase for this week is 88 bcf. Last week’s report showed an increase of 82 bcf versus 84 bcf for the same week last year. Weekly increases have been lagging last year, which has allowed the surplus to year ago and five year average levels to narrow. Last week was the first time in seven that the increase came close to year ago levels.

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