Photo by Timothy Newman on Unsplash

Oil prices pumped and dumped today after Yemen's Iran-backed Houthi rebel militia's attacks on tankers sparked supply concerns overnight which were then completely forgotten about as US Treasury yields puked lower during the day (and Maesrk reportedly scheduling several dozen ships to move through the Suez Canal, suggesting that the world’s leading shipping firm is not afraid of the Houthi attacks - or at least is hopeful about US protection).

Meanwhile, demand concerns also loom over the market, particularly in China where strong demand over the first nine months of the year has started to moderate, said Rebecca Babin, senior energy trader at CIBC Private Wealth U.S., in a note.

"The market expects that approximately 800,000 of the 1.2-1.6 million barrels-per-day growth next year will come from China, with jet fuel leading the charge," she wrote.

"The lack of confidence in China's economy in 2024 remains the market's biggest concern followed by fear that U.S. production will continue to beat estimates as it did in 2023."

The cautious sentiment, however, creates a low bar for positive surprises in 2024, Babin said, in contrast to a 2023 where expectations of massive inventory draws were too hard to live up to.

Oil ended lower ahead of the API inventory data.

API

• Crude +1.837mm (-2.4mm exp)

• Cushing

• Gasoline (+100k exp)

• Distillates (+700k exp)

After the prior week's surprise crude build, expectations were for a 2.4mm crude draw last week. But once again, crude stocks unexpectedly built by 1.837mm barrels...

Source: Bloomberg

WTI was hovering just below $74 ahead of the API print after a wild day, and extended losses on the unexpected build...

“As we approach the year end, more of the trade will focus on re-aligning positions on thin trading volume unless of course we see further attacks in the Red Sea area,” said Dennis Kissler, senior vice president for trading at BOK Financial Securities, in a note to clients.

Finally, we note that WTI suffered a 'death cross' today - the first since Sept 2022 - with the 50-day moving average for WTI crossing below the 200-DMA.

Additionally, timespreads - a critical barometer for supply and demand - softened, with the gap between WTI’s nearest two contracts at 24 cents a barrel in contango compared with 14 cents yesterday.

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