EOX Live Daily Energy
Energy Price Outlook
The oil market could trade sideways yet again, but yesterday’s developments on the economy were worrisome. We still can’t rule out a test of the 50-day MA at $93.90, but continue to expect it to be followed by a decline toward this month’s low at $87.70. Any upside could be driven by favorable events at today’s EU summit or Sunday’s Spanish local elections, a generally weaker dollar, Monday’s expiration of Nov WTI futures, improved Chinese oil imports, or Iran’s “Muddy Waters” plan to block the Strait of Hormuz. However, contemplation about negative factors may eventually return and push prices lower. The downside is still in contention due to yesterday’s weaker employment indications, the decline in Chinese power output, the lack of investment flowing to oil futures, elevated domestic oil production, and elevated oil stock levels.
Oil prices were heavy in the pre-market session with WTI falling around 60 cents/bbl on weaker-than-expected jobless claims and a drop in Chinese GDP in Q3 to 7.4% from 7.6%. Chinese power production was reported at 390.7 bln kWh in Sep, which was down 10% from Aug and the lowest since May. The power data may suggest that Chinese GDP may actually below the 7.4% level reported and/or continuing to decline. By the opening of the NY session, the oil market fell further, with new lows made around $1.46/bbl lower. Additional pressure was applied after the open by the Philadelphia Fed index, which reported a drop in employment even though the headline diffusion index was higher. A rebound in the market took place as Wednesday evening’s announcement by Kinder Morgan received attention. The announcement said that the company may convert part of a natural gas pipeline system to transport West Texas crude oil to Southern California. WTI finished 2 cents lower while Brent closed 80 cents lower, so the Brent-WTI spread narrowed as a result of the report. Additional pressure on the spread came from news that TransCanada had closed its 590,000 b/d Keystone pipeline due to a “small anomaly” discovered on the outside of the line during planned maintenance.