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Energy Brief for Oct 6

Price Overview

Following the establishment of a new high for the move in the November crude to levels last seen in November 2014, the market saw active profit taking. The weakness appeared to reflect an overbought condition along with expressions of satisfaction with current prices by the Iraqi oil minister. Weakness in natural gas also weighed on values with prices moving from a new high of 6.466 basis November to as low as 5.663 today for a loss of more than 60 cents per MMBtu. Some caution might have been apparent on ideas that other producers with spare capacity such as Russia, Saudi Arabia and UAE might be able to make up for shortfalls. Although the DOE report showed a further build in inventory levels it did not appear to have a major impact on prices.

The DOE indicated that commercial crude inventories rose 2.3 mb, gasoline by 3.3 mb while distillates decreased by .4 mb.  Total petroleum stocks excluding the SPR were up .8 mb. Refinery utilization was at 89.6 percent compared to 88.1 last week and 77.1 last year.  Cushing crude stocks rose by 1.5 mb to 35.5.  Domestic crude production reached 11.3 mb which was up .2 from the prior week.  Product supplied rebounded from last week to 21.5 mb.

The sharp breakdown in natural gas values today following reports that Russia will increase shipments to Europe appeared to weigh on values.  Despite the downdraft, support to crude likely returns, particularly if a shifting of demand in Asia over to petroleum occurs due to shortages of coal and natural gas.  In addition, some OPEC producers in Africa have been unable to meet output targets due to delayed maintenance linked to COVID-19.  The global pivot away from fossil fuels towards greener energy, strains on supply chains, and potential power shortages might exacerbate the situation and lead to a widening gap between supply and demand in the first half.  With inventories in the US already at historically low levels, support should be apparent toward the 77.00 area until a more ample supply situation presents itself.

Natural Gas

Volatility continued in the natural gas market, with prices rallying 70 cents since Monday’s close  as the November contract peaked at 6.466 early today before retreating by over 60 cents to close sharply lower at 5.675.  Overseas prices continued their rally overnight, with European price points, which had been near 33 dollars early in the week, spiking past 40 dollars per MMbtu equivalent overnight.  Prices began to pull back early this morning after comments from Russian President Putin that they would be increasing shipments to Europe.  That coupled with the extremely overbought technical condition of the market lead to sharp losses.  Tomorrow’s weekly storage report is estimated to show a 105 bcf injection into storage compared to the 5 year average increase of 81.  A large build will redirect attention to the improving storage situation in the US, which is being aided by lackluster LNG performance, as loadings have dropped well under 10 bcf/d over the last few sessions on continued maintenance.  Today’s price move created a key reversal on the charts, with further retrenchment likely to lead to a test of initial support near 5.55, and below that at 5.35 if downside momentum intensifies.

Charts Courtesy of DTN Prophet X, EIA, Reuters


The authors of this piece do currently maintain positions in the commodities mentioned within this report.

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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