Energy Price Outlook
The oil market stabilized its short-term selloff yesterday and rebounded slightly, but evidence is unclear as to whether a bottom has been formed. The action was not typical of a bottom, as volumes appeared to be light and fresh economic data was mixed. The trading range in WTI was a relatively small $1.52/bbl and it formed an inside-day within Wednesday’s range. The market may continue its drift lower into the election just over a week from now, and we’d stand aside on trading until that point. Election polls are mixed and the focus of the market is not only on prospects for economic growth after the election but also on the Fed Chairmanship. Pressure could be applied by that uncertainty as well as yesterday’s mixed economic data, weakness in Canadian Syncrude, a lack of investment in oil futures, and high levels of oil production and stocks. The upside will focus on support near $81 & $85/bbl in WTI, the hold near $107.10 (Sep 20th low) in Brent, and the potential for another short-term solution to the Spanish and Greek debt issues. We would stand aside on the market at the moment, but would anticipate a bottom being formed sometime over the next week.
Dec futures ended 32 cents higher yesterday in WTI and 64 cents better in Brent. The market fell in the first half of the session and rebounded in the second, as the trading pattern resembled that of the stock market. Some support was seen in both markets overnight due to reports that the Spanish government would formally ask for a bailout of up to €60.0B out of €100.0B that the EU offered. There was also a report that Greece may obtain a loan of up to €20.0B to supplement its existing rescue package. The market later fell, however, as durable goods orders were mixed. The headline looked strong, but it was supported by a 2600% surge in aircraft orders. Excluding defense and aircraft orders, the number was unchanged vs. +0.2% previously. Even though jobless claims fell 23K, they nearly matched expectations and continuing claims were basically unchanged.