Daily Energy Market Update 10-29-2024

Crude is up 45 cents    December RB is up  0.88 cents       December ULSD is up 0.56 cents

Overview

Energies are higher, helped by some lingering Mideast tension. Prices are also being helped by the U S government seeking to replenish  the SPR. 

The Energy Department said late Monday it would take bids for up to 3 million barrels of oil for delivery to the SPR's Bryan Mound site in Texas from April through May. The department said it had bought more than 55 million barrels to date to replenish the reserve at an average price of around $76 a barrel, compared with the $95 a barrel it received for emergency sales from the reserve in 2022 in response to spiking crude prices following Russia's invasion of Ukraine.The department said it would continue to buy oil at $79 a barrel or less to refill the reserve, "taking into account planned exchange returns and market developments."

Tensions in the Middle East remain high. An Iranian Foreign Ministry spokesperson said on Monday that Iran will "use all available tools" to respond to Israel's weekend attack. The United States warned Iran at the United Nations on Monday that if it undertakes any further aggressive acts against Israel or US personnel in the region, "there will be severe consequences." (Reuters/Jerusalem Post) Israel’s parliament has voted to ban a nearly eight-decade-old United Nations agency that provides essential services for Palestinian refugees, a move that could have devastating consequences for millions of Palestinians living under Israeli occupation. Secretary of State Antony Blinken has previously warned Israel that passing the legislation could “have implications under US law and US policy.”  (CNN)

Demand concerns out of China remain in focus. Commerzbank's analyst says that the oil market in China was oversupplied by 930 MBPD in September. He added that China’s implied oil demand, which is the difference between crude-oil processing and net exports of oil products, was down 2% year over year in September.

Last week, hedge funds slashed their long-only positions in WTI to the lowest in 14 years, as per Bloomberg reporting. Their length may have been further reduced given the CME WTI open interest data from Monday's activity. WTI open interest rose by 57,115 contracts. We see this as new shorts in the December through July contracts.

Technicals

The steep fall in energy prices seen yesterday has turned momentum negative.

WTI spot futures see support at 66.92-66.95 and resistance at the bottom of the gap created over the weekend at 69.00. The gap goes up to 69.96. Currently the spot WTI futures are having an inside trading day.

December RB sees support at the double bottom from yesterday/today at 1.9202/1.9170. Below that support lies at 1.8821-1.8824. Resistance is seen at 1.9782-1.9803.

ULSD for December has support at 2.1288-2.1305, which was tested with the low overnight of 2.1300. Below that support comes in at 2.1096-2.1114. Resistance is seen at 2.1984-2.1998.

Natural Gas--December NG is down 1.0 cents

NG prices are lower due to recent higher wind generation and gas production together with weak seasonal demand as the November futures expire today. They are being dragged down by the cash price being down near $2. 

Celsius Energy data showed Monday to be on track for a Top 10 all-time wind generation day in the Lower 48 U.S. states. At 1:30 PM EDT the wind generation was already approaching 1100 GWh on its way to above 2000 GWh, double year-ago levels. This was going to displace over 12 BCF/d of gas demand.

On Monday, LSEG forecast average gas demand in the Lower 48, including exports, would rise from 99.1 BCF/d this week to 101.5 BCF/d next week. This was down 1.0 BCF/d total from Friday's outlook. 

Natural gas options are signaling European traders still see upside risk for prices, even after concerns linked to the Middle East have receded. The direction of the skew showing a premium of bullish call options over bearish puts comes as futures trade near their highest levels this year. (Bloomberg) 

Early EIA gas storage estimates for this week's data are calling for a build of 76 to 86 BCF. The 5 year average for the period is +67 BCF. This would be the 2nd straight week of storage rising relative to the 5 year average, which Reuters says would be the first time that has happened since last October. Prior to last week, injections had been smaller than usual for 14 weeks in a row. 

We have mentioned several times in recent weeks that the call/put skew is favoring the calls in the crude oil ( especially Brent) market. We have seen now a similar pattern in the NG options. As an example, yesterday we saw a quote for the February $2.25/$5.15 fence, referencing the pricing for the fence based on February 2025 futures valued at $3.005. This was the $ 2.25 put versus the $5.15 call for the February 2025 contract. The quote was -0.001/+0.005. Thus, the call was valued more than the put basically. The $2.25 put individually was valued at about 7.0/7.2 cents and had an implied volatility of 66 %, while the $5.15 call was valued at 7.3/7.6 cents with an implied volatility of 82 %.

Technically the November contract tested below the recent low of 2.210 with today's low of 2.200. December futures have remained well above their recent low of 2.712 and still have positive momentum. December futures see support at 2.787 and then at 2.762. Resistance comes in at 2.915-2.920 and then at 2.976-2.980.

Disclaimer

This article and its contents are provided for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any commodity, futures contract, option contract, or other transaction. Although any statements of fact have been obtained from and are based on sources that the Firm believes to be reliable, we do not guarantee their accuracy, and any such information may be incomplete or condensed.

Commodity trading involves risks, and you should fully understand those risks prior to trading. Liquidity Energy LLC and its affiliates assume no liability for the use of any information contained herein. Neither the information nor any opinion expressed shall be construed as an offer to buy or sell any futures or options on futures contracts. Information contained herein was obtained from sources believed to be reliable, but is not guaranteed as to its accuracy. Any opinions expressed herein are subject to change without notice, are that of the individual, and not necessarily the opinion of Liquidity Energy LLC