Petroleum Futures Prices Drop Amidst Geopolitical Concerns and Seasonal Downtrend

Petroleum futures prices experienced a significant decline on Tuesday morning, following the recent Hamas attack on Israel last month. While geopolitical tensions continue to be a concern, it is worth noting that the typical seasonal downtrend appears to have resumed.

The downward momentum was initiated by the Brent contract, as it broke through support levels and dropped below the previous low of $83.55 on October 6th. As of midday, the front-month Brent was trading at $82.39 per barrel (bbl), marking its lowest price since August 24th. This decline of $2.79 brings the price closer to the day's lows.

ICAP technical analyst Walter Zimmerman recently shared a note with clients, highlighting that the usual seasonal decline in Brent prices amounts to a 27% drop. Based on this analysis, it can be projected that the bottom could be reached in the low $70s.

Similarly, West Texas Intermediate (WTI) has also experienced a decrease of over $2, although it has managed to stay above critical support levels. The recent bottom for WTI was at $77.98, which is also its lowest level since late August. Despite the decline, the contract has struggled to gain significant momentum upwards and is currently trading at $78.09/bbl, reflecting a decrease of approximately $2.75.

These declines in petroleum futures prices indicate the influence of both geopolitical factors and the typical seasonal downtrend. It remains to be seen how the market will react and whether these patterns will continue in the coming days.

Refining Product Contracts Experience Sharp Declines

The ultra-low sulfur diesel (ULSD) contract has witnessed a significant selloff, with December futures plummeting more than 10 cents. This brings prices back to their pre-Hamas attack levels against Israel. Currently, front-month ULSD losses hover just below 11 cents at $2.8436/gal.

Meanwhile, the RBOB contract has also experienced a decline, dropping over 6 cents to trade at $2.1739/gal. Although spot gasoline prices across the United States have decreased by 5-7 cents/gal, the Pacific Northwest has managed to minimize this decline, with prices only slightly decreasing by less than a cent.

However, it is important to note that, apart from the Gulf Coast, there are no other markets currently at risk of falling below the $2/gal level. The Gulf Coast region has observed CBOB (gasoline blendstock for oxygen blending) prices below this mark, approaching some of the year's lowest points set approximately a week ago.

Reporting by Denton Cinquegrana; Editing by Michael Kelly