Energy Brief for Sept 22.23
by market analysts Stephen Platt and Mike McElroy
Crude oil prices failed to follow-through on early buying and settled .40 higher at 90.03 in Nov WTI with the backwardation continuing to strengthen on low Cushing stocks tight global inventories. Early buying linked to the announcement yesterday of the temporary Russian export ban on gasoline and fuel oil to all countries outside a circle of four ex-Soviet states lacked follow-through at the higher levels as values failed to take out highs reached earlier this week of 92.43 basis November . The markets failure on the upside appears to reflect a combination of factors including the appearance that production of non-OPEC members is increasing and will cut into the effectiveness of Saudi production cuts as we move into 2024. This will be particularly true if global growth falls short of forecast and limits the expansion in world demand. In addition, the higher price along with the better availability of critical materials globally as supply chains improve should help support production increases.
The market overall will remain sensitive to economic prospects and its implication for global demand. Despite the decision to leave the Fed Funds rate unchanged, the appearance rates will remain high and keep credit tight should limit growth in US demand. In addition considerable economic uncertainty persists given the situation in China, strike actions in the US and US spending negotiations. While many feel the Chinese economy might be on better footing, it still seems far to early to tell the extent of growth and how quickly crude stocks built up over the past year in China will be drawn down. Forecast increases in consumption will be hard to reach if prices remain high and curtail economic activity. For now, it may well be that we are looking at a more two sided trade that could see values contained to the 87-92 area basis November WTI with inventories levels a key consideration.
A warmer weather outlook for early Oct helped attract renewed buying following recent weakness. Mixed selling into the price strength was apparent as forecasts that the coming winter might be mild due to the effects of El Nino. Some additional selling was also attracted on fears a tropical storm affecting North Carolina and Virginia might adversely affect power generation due to potential power outages in those areas. The prospect that LNG demand will be limited due to seasonal maintenance and domestic production high at 101.8 mcf also appears to be limiting upside movement. The EIA report yesterday showing 64 bcf injection was in line with expectations keeping stocks relatively high relative to 5 year averages. Nevertheless, prospects US LNG exports should increase given the temporary export ban on fuel oil exports by Russia is likely to provide support bais Nov Nat Gas between the May23 lows of 2.825 basis Nov and down to 2.80, .
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.