Oil drops as economy and supply weigh on market

The tropics are still quiet with no immediate threats to Nat Gas or oil producing operations in the Gulf of Mexico. However, as I have been mentioning the hurricane season is not yet over and as of this morning there is a tropical weather pattern about 1000 miles west-southwest of the Cape Verde Islands. It now has about an 80% chance of strengthening to a tropical cyclone over the next 48 hours. At this point in time the only action is to keep this pattern on the radar to see if it materializes and starts to move toward the US.

Oil has become more reasonably valued after about a 10% downside correction (basis WTI). WTI is still currently in a $90 to $100/bbl trading range while Brent is in a $110 to $120 trading range. Both crude oils have bounced off of the lower end of the trading range as support has emerged from the refined products markets as well as from what seems to be a shifting sentiment in Europe. The battle continues between the negativity from the slowing of the global economy compared to what global stimulus programs might do to the economy going forward while geopolitics has moved toward the background for the short term.

I am keeping my Nat Gas price view at neutral with a bias to the upside as the market continues to react positively to the latest forecast for colder than normal temperature forecast. Event though current prices favor coal over Nat Gas (based on a macroeconomic comparison) the market is now more focused on the  upcoming winter heating season and what it may do to Nat Gas demand.

Markets are mostly lower ahead of the US trading session as shown in the following table.

Dominick A. Chirichella

dchirichella@mailaec.com

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