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Energy Brief for Dec 16.2022

by market analysts Stephen Platt and Mike McElroy

Price Overview

Prices saw retrenchment to end the week, with January crude losing $1.82 today to settle at 74.29, while the gasoline slipped by nearly 3 1/2 cents and the heating oil dropped by over 16 cents, catching up with the other markets after trading unchanged yesterday. The trade was digesting multiple inputs including recession fears, Covid outbreaks in China, and end-of-week profit taking. 

Economic concerns were the overriding negative factor as hawkish Fed comments suggesting further rate cuts next year, along with aggressive action by European Central banks yesterday to raise rates lead to heavy selling in equities and strength to the dollar. The worsening Covid situation in China has also raised demand fears and questions as to whether the government will follow through with its easing of restrictions. 

We expect underlying support to emerge, although near term follow-through is likely as the market digests economic concerns while waiting on information regarding the Keystone leak. Initial support comes in near the 9-day moving average at 73.85, and below there at 73.20. The 20-day moving average at 76.70 is the first upside target, with trendline resistance from the November and December highs coming in near 77.60. 

Natural Gas

The market spent much of the week trading between 6.50 and 7 dollars, probing below that range multiple times but unable to firmly break out in either direction. Weak trade was seen today as HDD expectation were trimmed into the end of the month. The selling pressure lead to a test under the 9-day moving average near 6.32, but prices managed to claw back to settle with a 37 cent loss on the day at 6.60. An all-out route was avoided as underlying support was offered by production losses from freeze-offs, as output has been below 99 bcf since Wednesday, and solid LNG flows that reached 13 bcf yesterday. In addition, despite the demand losses late in the forecast, the majority of the US is still going to see frigid temperatures next week leading up to Christmas, with single digits and teens across much of the country. Yesterday’s storage report indicated a 50 bcf injection compared to the 5-year average build of 93. Support rests near 6.32 and below there at 6.13. As the cold moves in next week, 7 dollars will mark a key level, with a settlement through there possibly leading to a quick run to the November highs above 8 dollars, with resistance on the way at the 200-day moving average near 7.39.

The authors of this piece do not currently maintain positions in the commodities mentioned within this report.

Charts Courtesy of DTN Prophet X, EIA, Reuters


Learn more about Stephen Platt here

Learn more about Mike McElroy here

Futures and options trading involve significant risk of loss and may not be suitable for everyone.  Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.  The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM.  The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared.  The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.

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