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Crude Swings on Mixed Saudi Reports

  

Energy futures are wrapping up a volatile week struggling to assess the aftermath of the Saudi facilities attack.

Crude prices began this week rocketing to four-month highs following the weekend drone attack on the Saudi Arabian Abqaiq processing facility. Prices climbed near 15% Monday as early reports had 5.7 million barrels of daily processing capacity knocked offline. That accounted for over half of the country’s 9.8 million bpd production capacity, and represented roughly 5% of world output.

However, prices pulled back sharply Tuesday after Saudi officials indicated the damage may be less severe than originally thought. Energy minister Abdulaziz Bin Salman announced that 40% of the facility capacity had been restored and a full resumption would be achieved by month’s end. Aramco officials confirmed that same assessment Wednesday. Prices continued the pullback throughout the day Wednesday with the November contract (CLX19) off over $6 from Monday’s highs.

However, uncertainty fed into the volatile conditions again early yesterday. Reports that Saudi Arabia was looking to buy oil from Iraq to meet current needs brought into question the optimistic damage assessments of the day earlier. Newswire reports of upwards of 20 mbl to be purchased by Aramco lifted prices back up to the $59.50 level early Thursday.

However, statements out of both Iraq and Aramco later that morning, denying the reported purchases, sent prices lower. Markets continue to trade on a swivel as sporadic news of the extent of the damage and expected recovery time remain in flux.

Adding to the unsettled conditions is the speculation around any U.S./Saudi response to the attack. Despite Houthi rebels out of Yemen claiming responsibility, U.S. Secretary of State Mike Pompeo has laid the blame on the group’s sponsor Iran. While Pompeo is in the kingdom meeting with Saudi officials, President Trump has sent mixed signals of U.S. resolve to act if Iran is found to have been behind the attacks. Saudi officials presented evidence on Wednesday of the drone strike pointing to Iranian involvement that was deemed less than conclusive by some.

For their part, Iran has denied any involvement and accused the U.S. of fabricating the blame. Iranian Foreign Minister Javad Zarif was quoted yesterday stating that any military response by the U.S. or Saudi Arabia would bring an “all-out war”. Prices will continue to hold a “risk premium” as any chance of escalation persists.

Wednesday’s weekly Energy Information Administration (EIA) data provided some pressure on prices as U.S. stockpiles surprisingly rose slightly over 1.0 mbl when the trade had been expecting a -2.0 mbl drawdown.  

 

Developments in the U.S./China trade dispute remain in focus with mid-level talks taking place this week. Reports out yesterday hinted that President Trump may be growing frustrated at the lack of progress and could consider raising tariffs if the next round of negotiations prove fruitless.

There was not much to take away from this week’s Fed announcement. The expected 25 basis point cut was coupled with an unclear message on FOMC direction moving forward. The split committee vote failed to assure market watchers of future rate policy beyond Chairman Powell’s usual "monitor and act accordingly" stance.

Technicals:

The November Crude Oil contract CLX19 has pulled back to the top of the old congestion range at the 57.50 mark. There is a sizeable gap to fill down to 55.61 from Monday’s sharply higher open if prices decide to work lower. The 57.58 low will offer near-term support first. A combination of the major moving averages all pass through between $56-57 as well and will offer support. Rallies will find initial resistance at 59.50 followed by stronger levels back at the 63.50 and 65.00 marks.

20-day SMA     56.28

50-day SMA     56.08

200-day SMA   57.07

14-day RSI      55.00%

Implied Vol    38.00%

CME November Crude Oil futures trade on your StreetSmart Central platform under the symbol CLX19.

Contract Specs

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