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Energy Brief Sep 13

Price Overview

The petroleum complex saw prices follow through on strength seen late last week, with crude making an intra-day high for the month at 70.97 basis October before settling 73 cents higher at 70.45.  Products also ended in positive territory but failed to make new September highs.  Gulf shut-ins continue to offer underlying support, with output still nearly 50 percent offline and estimates of lost production in the 15-20 mb range.  Indications that refining capacity is returning faster than offshore production added to the upside bias. The approach of Tropical Storm Nicholas to the Texas coast has also heightened concern, as its landfall later tonight will bring heavy rains and wind to an area already reeling from Hurricane Ida.  Current assumptions are for limited effects to offshore and coastal crude oil infrastructure, but the picture should be much clearer tomorrow.  Offering overhead resistance was the OPEC Monthly Report, where they revised world demand forecast for Q4 lower by 110 tb/d, citing the Delta variants’ effect on demand. OPEC appears likely to continue to steadily increase output rather than bow to any outside pressures, and a continuing drawdown of inventory levels should underpin the market, with initial support on any retrenchment surfacing in the 67.80 area, which is the 100-day moving average.  The 71.00 level held today and likely gets tested near term as Tropical Storm Nicholas runs its course.

Natural Gas

Friday’s pause to the rally was short lived as the market spiked higher again today, with the October peaking at 5.289 before settling just over 29 cents higher at 5.231.  Another surge in overseas LNG prices formed the basis for the continuation of the rally, as European prices topped 20 dollars and surpassed East Asian levels as they desperately need to win the competition for cargos to attempt to replenish depleted storage levels ahead of the winter withdrawal season.  The high premium to US prices is pushing exports to maximum capacity, as loadings have surpassed 11.3 bcf the last two days.  Adding to the upside bias was Gulf production remaining over 50 percent shut-in and a jump in nuclear outages that will push gas demand for power burn higher near term.  The strength has been maintained despite the approach of Tropical Storm Nicholas, which is expected to bring heavy rains and strong winds to the Texas coast tonight.  Trade currently seems to be assuming minor effects from the storm, but it would be surprising if at the very least exports were not slowed for a couple of days in the aftermath with demand adversely effected as well.  Initial support has now moved up to the 5.00 level, while you have to go to a monthly chart to find the next potential upside target at the highs from February 2014 near 6.50.

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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