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Energy Brief for Oct 20.23

by market analysts Stephen Platt and Mike McElroy

Price Overview

Crude oil failed to follow-through on early strength linked to the Gaza crisis despite ongoing fear of the potential for an expanding conflict. Reports that Houthi rebels launched missiles from Yemen against US ships and Israel only added to the tense atmosphere. Background support was apparent from reports the US is looking to purchase 6 million barrels for the Strategic Petroleum Reserve in December and January at 79.00 per barrel from the 70.00 price previously offered, but still well below current prices near 90.00 a barrel. Calls by Iran for OPEC members to embargo oil shipments to Israel were not responded to by other Middle East producers while the release of two American hostages by Hamas might have helped undercut the early strength.

The energy situation could be impacted by macro forces in the weeks ahead. While no one can say whether significant disruptions will occur to oil exports from the Middle East, the Saudi’s are straddling the fence and intent on maintaining market stability. Ideas that the incursion by Hamas with Iranian backing was linked to a possible peace deal between Israel and more moderate members of the Arab community, including Saudi Arabia, suggests that such an agreement might be lying in the weeds but with a much longer timeline. Given the recent flight to hard assets with gold showing sharp gains, the fear factor remains pronounced and looks poised to underpin values. The tightness in crude inventory levels makes the situation more dire, particularly if users push ahead purchases due to the uncertain supply environment. Emerging market demand could suffer from dollar strength and higher interest rates, which will eventually be reflected along with supply expansion due to the higher prices. Despite the low stocks at Cushing and fears of a short squeeze, the November-December crude backwardation went out with a whimper at around 1.00 premium November.

DTN Chart WTI Crude Active Contract
DTN Nov23 Nat Gas chart 10.20.23

Natural Gas

Downside pressure continued through the second half of the week as the November contract lost 5.8 cents today to settle at 2.899 while the December, which will take over as front month next week, lost 6.8 cents to end at 3.258. Selling intensified after the weekly storage report yesterday, as the 97 bcf build was well above expectations near 80. Prices lost 10 cents immediately after the release and have not seen much of an uptick since. Impressive production levels above 104 bcf/d continued, offering additional weak bias. Weather has continued to be a net negative as well, but some cooling expected early in November could slow price declines next week if it continues to materialize. Momentum should carry prices down to a test of the lows at 2.796, with minor support on the way near 2.85. If the market can find footing, resistance now arises at 3 dollars and then in the 3.08-3.10 range.

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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