Oil, fundamental analysis

Lasting uncertainty surrounding the future of the Middle East violence supported oil prices this week while a stronger USD and an inventory build kept a lid on any rally. WTI saw a High/Low range of $72.65/bbl (Tuesday)/$69.00 (Monday). Meanwhile, Brent crude saw a High/Low range on the week of $76.55/bbl (Thursday) and $72.80/bbl (Monday). Both grades of oil look to settle higher week over week. The WTI/Brent spread has tightened to -$4.25.

Oil markets continue to look for direction as increased diplomatic efforts in the Middle East have removed some geopolitical risk and small stimulus moves by China are seen as slowly increasing demand from the world’s No. 1 crude importer. However, Israel has stepped-up its campaign against Hezbollah in Lebanon with both air and ground assaults. The US-designated terrorist group there is a political and economic force whose influence Israel seeks to erode.

The US Dollar has risen this week to a near 3-month high as investors seek a “safe haven” against the backdrop of Middle East tensions, uncertainty surrounding the US presidential election and on positive US economic signals. The stronger greenback is suppressing crude prices.

Libyan oil production is back to about 1.2 million b/d and is targeting higher levels. Meanwhile, China has raised the oil import quota for private refiners by +6%, the first increase in 4 years. Concerns over any disruption of Iranian oil production are being mitigated by a perception that OPEC+ could always increase its output which is currently expected to happen in December.

The Energy Information Administration’s Weekly Petroleum Status Report indicated that commercial crude oil increased substantially while gasoline saw a slight gain and distillates fell. Total US oil production held at its record high of 13.5 million b/d vs. 13.2 last year at this time.  

The Port of Corpus Christi recently rose to the No. 3 global oil export point behind Saudi Arabia and Iraq. It is also the US’ No. 1 source of LNG export shipments.

The US Commerce Department reported that orders for durable goods last month were down -0.8% while forecasts called for a -1.0% decline.  Additionally, claims for jobless benefits fell last week to 227,000 from 242,000 and sales of new single-family homes rose +4.1% in September. However, sales of existing homes fell -3.5% last month. The Dow and S&P are lower this week while the tech-heavy NASDAQ is higher week-on-week. The USD is higher on the move out of equities.   

Oil, technical analysis

December 2024 NYMEX WTI futures contracts are now in focus and are trading below the 13-, and 21-day Moving Averages but above the 8-day MA. And, despite the market’s indecisiveness, the weekly Hi/Lo range was $4.00. Volume is rising at 165,000. The Relative Strength Indicator (RSI), a momentum indicator, is neutral at the 50 mark. Thirty or below is considered very oversold while 70 or above is considered very overbought. Resistance is now pegged at $72.00 (13- and 21-day MAs). Near-term Support is $70.00.

Looking ahead

Israel’s increased military moves in Lebanon has once again raised the geopolitical risk factor for oil prices while OPEC+ has spare production. Thus, the market may remain in a period of continuing uncertainty. The results of the US presidential election will be interpreted, right or wrong, as having an impact on oil prices one way or the other despite 2 months before either candidate can even take office.

Given that the Northeast region of the US is the world’s largest consumer of heating oil, it’s time to start monitoring the area’s Heating Degree Days for indications of demand while tracking the inventories of HO. Right now, the first week of November looks solidly bearish for heating oil consumption.  We have passed the peak of hurricane season but its official end is not until Nov. 30. 

Natural gas, fundamental analysis

Natural gas futures rose this week on bargain-buying and expectations of cooler weather as we head towards November. However, a larger-than-forecasted storage injection coupled with a warm outlook for the first week of November stalled the rally at week’s end.

The week’s High was $2.58/MMbtu on both Thursday and Friday while the Low was Monday’s $2.21. Supply last week was 107.0 bcfd vs. 108.0 the prior week. Demand was 96.3 bcfd, down from 99.6 the week prior with a decrease in residential usage and power consumption.

Exports to Mexico were 6.2 bcfd vs. 6.3 the prior week. LNG exports were 13.7 bcfd. vs. 13.7 the prior week. The latest European natural gas prices were quoted at ≈$11.75/MMbtu on rising fears of LNG shipment disruptions in the Middle East.

The EIA’s Weekly Natural Gas Storage Report indicated an injection of 80 bcf vs. a forecast of +56 Bcf. Total gas in storage is now 3.79 tcf, 2.9% above last year and 4.6% over the 5-year average. With only 2 weeks left in the traditional injection season and, assuming an average build of +80 bcf, yearend storage totals could reach 3.95 tcf, a level seen very few times over the past 15 years.

Natural gas, technical analysis

November 2024 NYMEX Henry Hub Natural Gas futures are trading above the 8-day Moving Averages but below the 13- and 21-day MAs. Volume is low at 40,000.  The RSI is nutral at 51. Support is pegged at $2.39 with Resistance at $2.60. The November contract expires next Tuesday.

Looking ahead

Mild temperatures and even the small storage overhang will keep natural gas prices lower for the short-term. The warm start to the winter heating season may only add volumes to storage. The next 2 weeks don’t look positive for natural gas demand as above-normal temperatures are forecasted. The recent cool snap along the East Coast appears to be short-lived.