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Energy Brief for Oct 23.23

by market analysts Stephen Platt and Mike McElroy

Price Overview

Crude oil came under concerted selling pressure as the ground offensive by Israel remained stalled and diplomatic negotiations intensified. The December contract settled lower by 2.59 at 85.49. The visit to Israel by French President Macron also delayed the offensive. Fears the conflict will intensify as tension increased between Israel and Hesbollah forces in Lebanon were ignored. Instead, the fact that Iran is showing restraint regarding entering the conflict contributed to the weakness. The situation remains fluid and Israel remains intent on eliminating Hamas as a political force in Gaza.

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 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 still be possible 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 also suffer from dollar strength and higher interest rates, which will eventually be reflected along with supply expansion due to the higher prices.

DTN Dec23 Nat Gas chart 10.23.23
DTN Dec23 Crude Oil chart 10.23.23

The volatile situation makes price movement hard to predict, but the 84.00-85.00 area basis December should offer support. In the background will be the strength of the Chinese and US recoveries along with the Fed’s interest rate policy. The destruction of Hamas remains the focus of Israel and if and when that occurs remains a key consideration along with the global reaction, particularly in the Middle East, and its impact on supply availability.

Natural Gas

Prices continued to probe the downside early in the session, with the contract low at 3.216 basis December tested this morning. Record production levels over the weekend that touched 106 bcf on Sunday were the catalyst of the follow-through weakness. The market turned around at mid-session to end with a gain of 1 ½  cents at 3.273. The bounce was not surprising after eight straight days of lower closes as the market had become oversold. Weather was supportive as weekend revisions saw higher demand as the cooling expected into early November remained in the forecasts. With a double bottom on the contract lows at 3.216, that level now marks key support, with a settlement below there opening up the potential for a move to the 3 dollar area. Any continuation of today’s swing higher will find initial resistance near 3.31 and and then at 3.36.

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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