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Energy Brief Sep 8

Price Overview

The petroleum complex recovered from recent losses that had been traced to sharp cuts in Saudi prices to Asian customers and weak jobs data in the US.  The buying interest was traced to a variety of influences which included:

  • Production outages continuing in the Gulf of Mexico due to Hurricane Ida
  • Protests in Libya blocking oil exports
  • Renewed focus on Iran following a UN report criticizing their cooperation with an investigation into past activities and thwarting important monitoring work, which is complicating efforts to resume talks on the nuclear deal and the lifting of sanctions

 

The return of production at offshore platforms in the Gulf of Mexico remains the immediate concern.  80 percent of US Gulf production remained offline on Tuesday, with 79 production platforms still unoccupied and about 17.6 mb lost.  Although refinery operations have shown a quicker recovery, 1 mb/d of capacity is still closed or operating at reduced rates. The limited production levels are expected to be reflected in the delayed DOE report scheduled for release tomorrow.  Expectations are for a decline of 3.8 mb in crude stocks, a drawn down of 3.6 in gasoline and a drop of 3.0 in distillates.  Reports of leaking wells also remain a concern on potential for enhanced oversight that could limit the ability of some wells to return to production quickly. 

The OPEC agreement to follow-through on a plan to gradually increase output despite US entreaties to ramp up more quickly suggest some determination on their part to maintain a disciplined approach with an interest in maintaining values near current levels.  Key to the outlook will be the pace of economic growth in the US and globally amid the pandemic and restraints on mobility. The stable outlook for OPEC and declining inventory levels should help underpin values on pullbacks toward the 65.00-66.00 area basis October, with 71.00 posing upside resistance as damage to infrastructure is assessed and refineries slowly return to production in Louisiana.

Natural Gas

Prices spiked higher again today as the October contract reached an intraday peak at 5.01 before ending the session with a gain of 34 1/2 cents at 4.914.  It would be convenient to point a finger at one factor that ignited the move, but there was no smoking gun.  The list of supportive fundamentals remains the same, with Gulf production shut-ins continuing, overseas LNG prices moving higher almost every day, US exports back above 11 bcf/d, and weather signaling above average demand for this time of year.  These factors have steadily ramped up concerns about end of season storage levels and the risks of a cold winter and proceeded to push prices higher early in the session.  The fireworks really started as fund short covering appeared to be initiated above the 4.70 level and prices shot up to the highs within an hour.  Near term the market looks overdone with an RSI nearing 80 percent.  Initial support on a retrenchment likely surfaces near 4.80.  Expectations for tomorrow’s storage report point to an injection of 40 bcf compared to the 5-year average at 65.  

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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