Energy Market Update 10-01-2024

Crude is down 91 cents RB is down 3.71 cents ULSD is 3.45 cents

Overview

The following headline sums up today's lower pricing for the energies : " Oil prices drop, with supply concerns outweighing worries over Middle East." Without Iran entering the fray in the Mideast, there is little concern for supply disruptions. And OPEC+ has signaled that it will add supply come December. In addition, Libyan supply may rise.

The possibility of Libyan oil output recovering also weighed on the market. Libya's eastern-based parliament agreed on Monday to approve the nomination of a new central bank governor, which could help to end a crisis that drastically reduced the country's oil output.(Reuters)

Yet, Mideast tension was heightened today with "energy market risks in the region rising, as the Israeli military said today that it had launched a ground operation in Lebanon." In addition, two merchant vessels sustained damage as a result of attacks in the Red Sea early Oct. 1, the first in a month, following the latest missile and surface attacks by Houthi militants, the UK Maritime Trade Operations said. (Platts)

The Dallas Federal Reserve issued their 3rd quarter Energy Survey last week with a headline : " Oil and gas activity edges lower as outlooks dim, uncertainty rises." The company outlook index turned negative in the third quarter, plunging 22 points to -12.1, suggesting modest pessimism among firms. The overall outlook uncertainty index jumped 25 points to 48.6, suggesting mounting uncertainty. On average, respondents expect a WTI price of $73 per barrel at year-end 2024. When asked about longer-term expectations, respondents on average expect a WTI oil price of $81 per barrel two years from now and $87 per barrel five years from now.

"Massive port strike begins across America’s East Coast, threatening shortages and rising prices" is the headline today from CNN. Nearly 50,000 members of the International Longshoremen’s Association are on strike Tuesday against the nation’s East and Gulf Coast ports, choking off the flow of many of America’s imports and exports in what could become the country’s most disruptive work stoppage in decades. Depending on the length of the strike, it could result in shortages of consumer and industrial goods, which could then lead to price hikes. It could also mark a setback to the economy, which has shown signs of recovery from pandemic-induced supply chain disruptions that resulted in a spike in inflation.

WTI spot futures prices fell 16.4% during the third quarter. The global benchmark posted a 9% drop in September, its biggest monthly decline since November 2022. (Reuters)

Technicals

Momentum remains negative. WTI tested the lower bollinger band on the DC chart today. That band lies at 66.62.

WTI spot futures have support at the recent low at 65.27. Resistance lies at 69.23-69.32.

There is a rollover gap in RB spot futures from the October contract's expiration. The DC chart shows the gap being from 1.9416 to 1.9530. November RB sees support at 1.8757 and then at 1.8545. Resistance lies at 1.9220-1.9230 and then at 1.9557-1.9559.

Somewhat supportive is the pattern developing on the ULSD's DC chart, where 3 of the past 4 sessions' lows lie between 2.0980 and 2.1034. November ULSD sees support at 2.1034-2.1051. Resistance lies at 2.1650-2.1670.

Natural Gas-- NG is down 2.3 cents

NG prices are down as shoulder season lower demand sets in and production has risen some in recent days. But, as one colleague suggests : "Expect Losses To Be Limited—And Temporary--As Surpluses Continue To Narrow". This opinion fits with the growing bullish narrative that we detail below.

Signaling a shift to a more bullish attitude for gas is the following headline seen on NGI yesterday: " U.S. Natural Gas Price Mantra Said No Longer ‘Lower for Longer’ but ‘Lower Forever’."" This shift is likely a function of the time of year as we head to the withdrawal/demand season and as the storage surplus has shrunk, thus reducing concerns of over supply. Also, leading the shift is the belief that demand will rise quite a bit in the coming years with strong power burn due to the need to support AI growth and the opening of further LNG export plants. From a technical viewpoint, this summer NG spot futures struggled to rise over $2.30. Now it looks as if the contract is likely to hold over $2.40 -if not even $2.50, if prices were to fall back that far.

Also indicative of the bullish view for NG looking forward, in the Dallas Fed's 3rd quarter energy survey, survey participants expect higher NG prices in coming years. When asked about longer-term expectations, respondents on average anticipate a Henry Hub gas price of $3.24 per MMBtu two years from now and $3.89 per MMBtu five years from now. Respondents expect a Henry Hub natural gas price of $2.62 at year-end.

Supporting the overall longer view bullish narrative is the fact that storage injections in July, August and so far in September were at record lows, according to federal energy data going back to 1997. (Reuters)

On Monday, LSEG forecast average gas demand in the Lower 48 states, including exports, will rise from 95.9 BCF/d this week to 96.6 BCF/d next week. These forecasts were down from those seen Friday of 98.4 BCF/d for this week and 98.1 BCF/d next week. This amounts to a total drop of 4.5 BCF/d.

Notable is the very large open interest drop in NG futures from Monday's activity, which looks to be mostly a function of short covering in the November spot contract.

Early estimates for this week's EIA data point to a build in storage of 57 to 60 BCF. This compares to last year's build of 87 BCF and the 5 year average build of 98 BCF.

Some point to an uncertain forecast for tropical activity in the U.S. Gulf of Mexico as adding to some near term weakness in NG prices today. "The prospects of another storm developing in the Gulf of Mexico are unclear." (Washington Post)

NG spot futures ended the quarter rising 12.4%. Technically the contract reached an overbought condition the past few sessions with an RSI indicator over 70. Also sending some caution to bulls is the confirmation of the mean reversion set up seen Friday, with Monday's settlement being back below the DC chart's upper bollinger band. Support is seen at 2.756-2.759. Resistance lies at yesterday's high at 2.948, which matched the high seen June 20 on the DC chart.

Disclaimer

This article and its contents are provided for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any commodity, futures contract, option contract, or other transaction. Although any statements of fact have been obtained from and are based on sources that the Firm believes to be reliable, we do not guarantee their accuracy, and any such information may be incomplete or condensed.

Commodity trading involves risks, and you should fully understand those risks prior to trading. Liquidity Energy LLC and its affiliates assume no liability for the use of any information contained herein. Neither the information nor any opinion expressed shall be construed as an offer to buy or sell any futures or options on futures contracts. Information contained herein was obtained from sources believed to be reliable, but is not guaranteed as to its accuracy. Any opinions expressed herein are subject to change without notice, are that of the individual, and not necessarily the opinion of Liquidity Energy LLC