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Energy Brief 9.16

Price Overview

The petroleum complex attracted good buying interest with crude and gasoline showing the best gains while ULSD lagged.   The strength reflected active buying in response to a larger than expected draw in crude inventories that was reflected in the API and DOE reports, along with storm related production shut-ins due to Hurricane Sally.  Additional support was provided by reports the US Congress was moving closer to a compromise on additional stimulus measures.

Despite the recovery from recent losses, concerns continue over demand prospects and a modest recovery in production from some non-OPEC countries in North America.  The IEA in their most recent monthly report indicated that global demand from January-July was 10.5 mb below last year’s level at 91.7 mb, an area not reached since 2013.  In August the easing of OPEC production cuts from 9.7 to 7.7 mb/d led to an increase of only 1.3 mb/d in output as some countries produced less than their target to compensate for earlier non-compliance.  The OPEC Price Monitoring Committee, which meets tomorrow, is expected to recommend no changes to the current quota but might allow some countries that had overproduced in earlier months to extend the time period into early 2020 to compensate. With global output increasing along with downward revised demand data, the IEA calculates the implied stock draws at about 3.4 mb/d in the second half of the year which is nearly 1 mb/d below what was estimated last month.  Despite the draw expected from global stocks,  OECD data shows they have returned to record levels in July.  Although the agency indicated that the market remains in a state of delicate re-balancing, they feel the outlook appears even more fragile.

Natural Gas

Prices slipped today with the October losing 9 1/2 cents to settle at 2.267.  Lack of weather demand along with the continued shut-in of Cameron LNG were the main catalysts for the weakness.  Concern is building that the terminal may not be up and running until October which could further strain the already ample storage situation.  Hurricane Sally made landfall today as a Category 2 storm, and although some gulf production was effected, the bigger concern seems to have switched to demand losses as the storm looks to pack large amounts of precipitation.  With tomorrow’s storage report expected to show a build of 79 bcf verses the average for this time of year at 78, a larger number could lead to further washout to the 2.20 level and possibly to the 200 day moving average at 2.17.  The first resistance area remains at 2.40, which likely will not materialize until Cameron shows signs of life.

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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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