Energy Price Outlook
The oil market may continue its short-term correction in the near-term, but it’s also entering a support range between $81.00 and $85.00/bbl. We think that the rate of decline will slow in the near-term, as some of the impulsive selling and weak longs exited the market during Monday’s session. Yesterday’s FOMC announcement may pressure the market as the committee did not announce any further easing measures and also produced a statement which showed little evidence of economic recovery. That could cause prices to drift slightly lower over the next 1-2 weeks until clarity on the election and the fiscal cliff are received. Oil prices may also fall due to high levels of oil inventories and oil production, as well as relatively weak demand. We would trade WTI as a negative affair this week and then look for prices to eventually stabilize in the $81.00-$85.00/bbl range. A hold in the Dow near 13,000 support would assist oil prices in forming a bottom (psychological support, the Sep 4th low, and the 200-day MA).
Dec futures settled 94 cents lower in WTI and 40 cents lower in Brent. Oil prices were slightly higher in the overnight session, but reversed into negative territory around the time of the NY session open. The selloff continued through the weekly inventory report and ended around lunchtime, where a small recovery was then initiated into the close. It was really a mixed day from a news perspective, where mild “risk-off” selling took place and economic data was mixed. The Eurozone PMI and German IFO climate surveys both showed weakness, while a defense of the OMT to the German parliament by ECB’s Draghi appeared to go successfully. An increase in the Chinese PMI number received a lot of attention even though it was still below the 50.0 level of expansion/contraction. There were also favorable comments made on China from Caterpillar and United Technologies, which called it an area of stability in conference calls Tuesday. In oil news, support was taken from Nigeria’s cut in production of 500,000 b/d due to flooding. That was countered by a report that Iraq will boost its exports from Kirkuk in November, and from a report that North Dakota’s oil production may surpass that of Qatar by the end of the year.