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Energy Brief for Sept 7 2022

by Stephen Platt and Mike McElroy

Price Overview

Recessionary fears pressured values to levels not seen since the Ukrainian war started. The prospect for rising interest rates and a tighter monetary policy sapping economic growth and leading to a recession took values through key support of 85.50 basis October as values fell nearly 5 dollars. The weaker tone developed despite OPEC’s pronouncement on Monday of a cut in the production target of 100 tb/d which had been initially taken in a bullish fashion.

The odds of a recession in Europe have heightened as the halting of natural gas shipments through the Nord Stream Pipeline is forcing adjustment in overall consumption levels throughout the European economic system. Additional pressure on values has emerged over China amid its COVID lockdowns, with crude oil import levels falling as much as 9.4 percent in August. Despite the lower prices. Efforts are being made to attract investment in new production on the belief that Russia will be limited in their longer-range potential given their lack of reliability as a longer-term supplier of crude and petroleum products and the uncertain political situation. A key consideration will be OPEC and whether they will take coordinated action to cut production further in an effort to support values. The threats by Russia to halt oil and gas supplies if a price cap is imposed appeared to fall on deaf ears as it appeared the European Union will proceed with a cap and will attempt to deal with the withdrawal of supplies by rationing and raising imports from other sources including the US.

The DOE report will be released tomorrow due to the Labor Day holiday. It is expected to show crude oil inventories falling by ,7 mb while distillate is expected to have risen by .9 and gasoline is estimated to be lower by 1.6 mb. Refinery utilization is expected to have fallen by .8 percent to 91.9 percent.

DTN Crude Oil Chart
DNT Natural Gas Daily chart

Natural Gas

The natural gas market has started the shortened trading week under strong selling pressure, with the October contract losing 64 cents yesterday and following that with a loss of 30 cents today to settle at 7.842. Increased US production against a backdrop of uncertainty created by potential price caps in Europe sparked the selling. US output pushed well above 99 bcf/d for 5 straight sessions prior to today, and actually neared 100 bcf over the holiday weekend. Decreased CDD expectations and poor liquidity helped feed the steep losses. With today’s settlement violating the 100-day moving average, 7.50 is likely to get tested soon. Initial resistance now arises at 8 dollars. Tomorrow’s storage report is estimated to show an injection of 54 bcf compared to the 5-year average build of 65.

The authors of this piece do not currently maintain positions in the commodities mentioned within this report.

Charts Courtesy of DTN Prophet X, EIA, Reuters


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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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