Daily Energy Market Update 10-7-2024

Crude is up 93 cents????????? RB is up 1.32 cents???????? HO is up 1.56 cents

Overview

Energy prices are higher as Mideast tension has risen further today.

Rockets fired by Iran-backed Hezbollah hit Israel's third-largest city, Haifa, early on Monday. Israel, meanwhile, looked poised to expand ground incursions into southern Lebanon on the first anniversary of the Gaza war. (Reuters)

On Friday: President Biden said that the Israeli government should be considering other options instead of striking Iranian oil facilities, when asked for clarification on his Thursday comments. (Bloomberg) The fear of a loss of Iranian production/supply is seen being cushioned by the spare capacity currently held by OPEC+, but it would struggle if Iran retaliates by attacking installations of neighboring Gulf nations, analysts have said. (Reuters)

Iran's oil minister said on Saturday that he was "not worried" amid the escalating conflict in the region, the ministry's Shana news site said, after reports that Israel may strike Iran. "I am not worried about the crises that the enemies of the revolution are creating, and this trip is considered a normal work trip," he was quoted by Shana as saying. (Reuters)

Yet, the Israeli Defense Minister warned 'everything is on the table' as the IDF prepares a response to Iranian missile attack, during an interview with Fox News on Sunday.The U.S. and British militaries struck more than a dozen Houthi targets in Yemen on Friday, going after weapons systems, bases and other equipment belonging to the Iranian-backed rebels, U.S. officials confirmed. (AP)

The Saudis raised the OSP for November loadings for their flagship A-Light crude grade to Asia by 90 cents to $2.20 over the Oman/Dubai average. They raised the price for their Medium crude by the same amount. The OSP for their Heavy crude grade was raised by 70 cents. Prices for all crude grades to the Med and NW Europe were lowered by 90 cents. Prices to the U.S. were lowered by 10 to 20 cents.

The EIA, in a report, says:" Distillate fuel oil demand will increase in the fall because of the agricultural harvest." They expect distillate fuel oil consumption to increase in the fall as diesel-powered agricultural equipment is used to harvest and transport crops. The harvest tends to peak in mid-October and continue through November, when the start of the winter home heating season also supports distillate fuel oil demand. With early indications that the 2024 harvest will likely be on schedule or slightly ahead of schedule, we expect distillate demand to generally follow the five-year average in 2024. In the last five years (2019–23), U.S. consumption of distillate fuel oil has increased by an average of 4% between September and October, primarily because of agricultural harvest trends, the EIA adds. But, then, this November, they expect less-than-average U.S. consumption of distillate fuel oil in part because of expectations of a relatively warm November. (eia.gov )

The Baker Hughes rig count seen Friday showed a drop of 5 oil rigs.

CFTC data issued Friday saw money managers reduce their net length in WTI on ICE/CME combined by 23,860 contracts in the week ended Tuesday October 1. But, money managers increased their net length in ICE Brent by 20,013 lots for The move was driven by a combination of shorts being liquidated and fresh longs having been added. RB net length rose by 1,883 contracts, taking money managers positioning to its largest net length since July 16th. (ING)? Money managers reduced their net short positon in ULSD by 2,029 contracts. Their net short position stood at 40,085 contracts as of Tuesday October 1. Net length in ICE Gasoil rose by 6,032 contracts in the latest report, boosted mostly by short covering.

The call skew on second-month West Texas Intermediate futures jumped to its highest level since the Russian invasion of Ukraine in February of 2022. About two weeks ago, put volume peaked, with traders paying up for bearish options as futures slumped toward $70 a barrel, as per Bloomberg reporting. “We have seen a sizeable bid in volatility and increased demand for upside exposure to oil prices,” said one options trader. Implied volatility has surpassed a high from October of last year, “which seems reasonable given that this escalation is potentially more impactful on oil supplies.”? Last week, traders snapped up December calls on Brent crude to bet on oil reaching $100 or higher, with aggregate call volume hitting a record on Wednesday. Implied volatility for December calls climbed more than 30 points last week, more than triple that for puts, while there was almost no change for either bullish or bearish positions for July contracts and onward. Additionally, more than 5 million barrels wagering on the nearest Brent spread hitting $3 a barrel traded last week; it was at 62 cents on Friday. The spread for Dec/Jan Brent is again trading 62 cents this morning. One money managers adds :". “Fundamental energy investors remain fairly sour on 2025 and are using call options as opposed to chasing the rally in crude to get upside exposure to a potential supply disruption.”?? (Bloomberg)

In the absence of major disruption to oil supply, Goldman Sachs expects Brent to continue to trade in the $70-85 a barrel range, and estimates an average price of $77 a barrel for the fourth quarter and $76 a barrel for 2025. This reflects assumptions of roughly flat Iranian supply through 2025, and three months of OPEC+ production increases starting December. (WSJ)

Technicals

Momentum remains positive for the energies on the DC chart bases.

WTI spot futures see resistance at 76.87-76.91. Support lies at 74.59-74.60 and then at 73.46-73.50. The overnight low is 73.62. The spot futures traded today at the $76.30 objective that we had suggested mid-September based off of an inverted head and shoulders formation. Our faith in that prognostication was put into serious doubt last Tuesday when prices fell back considerably.

November RB sees support at 2.0649-2.0668. Resistance comes in at 2.1405-2.1406. There is a double top from Friday/today at 2.1258-2.1273.

ULSD for November sees support at 2.2850-2.2866. Resistance lies at 2.3654-2.3677; the overnight high is 2.3610.

Natural Gas--NG is down 3.8 cents

NG spot futures are down as current long range forecasts show no uptick in cooling demand as we head to the end of the month. Also the hurricane that is forecast to hit Florida later this week will undoubtedly lead to large demand destruction.

Producer selling was seen Friday in the Calendar 2025 and Calendar 2026 strips. Their values mid-morning Friday were respectively $3.387 and $3.663.

In LN/NG options, on the CME on Friday we saw 2 sizable options trades. The April 2025 trade consisted of the $4.50 call being bought against the sale of the $2.25 puts at a cost for the call purchase of 0.1 cents, with a delta amount of the HH Look-Alike Penultimate contract (symbol HP) having been sold at a price of $3.04.? Additionally, in the November 2024 options, the $3.25 call was purchased against selling of the $3.50 and $3.70 calls. The trade was seen done in a size amounting to 3,600 contracts; and the trade was heard done at a cost of 2.3 and then 2.0 cents for the purchaser of the $3.25 call option.

CFTC data issued Friday saw money managers reduce their net length by a small amount in the week ended Tuesday October 1. They cut their net short position by 1,087 contracts to a total of 13,713 contracts. More notable was the almost equal sizable reductions in longs (-15,759 contracts) and shorts (-16,846 contracts) seen in the report.

The Baker Hughes rig count seen Friday showed an increase of 3 gas rigs. This is now the highest since July 19, but is still down 16 rigs versus last year. (Celsius Energy)

Next day Henry Hub cash natural gas prices on Friday slipped below $2.50, which did not support NG staying over $2.90. That together with the rejection from the psychological $3 level has turned momentum negative on the DC chart. But, as one colleague suggests: "More Downside Could Be Coming, But A New Bear Market Is Not." Support for the spot futures is seen at 2.720-2.724. Resistance lies below the $3 level at 2.942-2.948.

Disclaimer

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