Recap: After hitting fresh four year highs on Wednesday, oil prices fell, with WTI receiving the hardest hit, which in turn widened its discount to Brent. The discount widened as much as 5% during the trading session, hitting a low of -$10.56. This spread settled at -$10.33. This is the widest this spread has traded since June 20th of this year. Prices fell on hopes that Saudi Arabia and Russia would increase production in an effort to make up for any shortfalls from the imminent U.S. sanctions against Iran. November WTI fell as much as 3.3%, hitting a low of $73.88 before paring losses to settle at $74.33 a barrel, down $2.08, or 2.72%. Brent for December delivery slipped $1.71, or 1.98%, to settle at $84.58 a barrel. November RBOB fell nearly 1.8% to $2.10 a gallon and November heating oil settled at $2.40 a gallon, down 1.5%.
Technical Analysis
Although the major trend in oil remains to the upside, we have to expect minor corrections within this trend. A break below $74.30 will shift the minor trend to the downside. Support below this level is set at $73.96 and $72.95. Resistance is set at $76.90 and $77.40. One should note that the 9 day slow stochastics flipped to the downside today, for the first time since September 14th, when spot WTI was at $68.70.
Fundamental News: The Saudi energy minister said that Saudi Arabia is doing everything it can to help supply the global oil market. He noted that Saudi exports to the U.S. are rising “significantly” and the market should feel “comfortable” about supply. He noted that Saudi crude oil exports in October should exceed 7.7 million b/d. He said that some may actually argue the market is currently over supplied. He said OPEC technically is able to raise output by 1.3 million b/d, if necessary.
The Russian energy minister said Thursday that uncertainties including the U.S trade war with China and the looming sanctions on Iran are having a major effect on the global oil market. He did not rule out the possibility of global oil prices hitting $100 per barrel. He noted though fundamentally, the market is “almost balanced”, with oil inventories now below the five year average. He did confirm the commitment that Russia made when it met with OPEC in June to raise output. He also mentioned that Russia and Iran were still considering how to make payments to one another in their national currencies in the face of upcoming U.S. sanctions against Iran.
Genscape reported Thursday morning that they estimated crude oil stocks in Cushing, OK as of October 2nd stood at 28,951,93 barrels, up 1,707,763 barrels from September 28th and up 2,193,003 barrels from the September 25th.
A market strategist for Commerzbank speaking at the Reuters Global Oil Forum said today that oil “prices will probably rise further into overshot territory. Once we see $90 I would expect decisive supply reaction.” He went on to say “major economies won’t let oil prices rise to triple digits and harm economic growth.”
Early Market Call – as of 9:00 AM EDT
WTI – Nov $74.38 up 5 cents
RBOB – Nov $2.0974 down 30 points
HO – Nov $2.3990 down 7 points