Crude markets are gearing up for a further prices swing between Israel and Iran, and technical indications were mainly responsible for oil price direction this week.
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Oil, fundamental analysis
Speculation in crude markets re-calibrating the next set of developments in the Israel/Iran story has taken a back seat this week with technical indicators having a field day on the oil price front. Panic selling started the session Sunday evening and bargain buying and therefore lower inventory numbers increased prices by the end of the week. WTI recovered to $71.45/bbl as High for the week and bottomed at $66.70/bbl on Tuesday while Brent traded between $74.95/$70.70. The Brent/WTI has come down to negative $ 4. 00 per barrel.
Last Friday, oil traders made bets based on what they thought would happen over the weekend, returned to their families and just waited with their fingers crossed looking forward to the counterattack from Israel on Iran. End of the week savanna prices were only available until last Sunday evening when a market that remained closed throughout the previous week was gradually unwinding having been more dependent upon the fact that Israel will not bomb Iranian oil facilities than anything else. By Saturday, some missiles attacks on Iran occurred and oil facilities were left unharmed so traders ran back to previous concerns about demand.
The consequent “Open” on Sunday evening at $69.00/bbl below Friday’s Settlement of $71.75 and the low of $69.75 resulted in a “gap” on the technical charts. And just as nature cannot abide a vacuum, so do technical traders expect these gaps to be closed before the continued progression of current trends. It was filled on Thursday and prices started marching up to the 21-day Moving Average where the movement has stopped. In the meantime, rumors are circulating among traders about Iran’s attack on Israel with a subsequent counterattack on Iran while at present it is Israel that supports prices.
The Biden administration has approved the permit for the proposed Sentinel Midstream “Texas Gulflink Deepwater Port” which will be capable of exporting 1.0 million Bbld, while being able to load VLCCs (OGJ Online, Nov. 1, 2024).
The EIA weekly report showed commercial stocks of crude and products reduced, but production remained unchanged at 13.5m b/d. Another 1.2 million bbl was also incorporated into the stock of the SPR. There were 585 rigs recorded in the US for the last week which was unchanged from the previous week, but 33 less than the same period last year.
Heading to September PCE the Fed’s preferred inflation was at +2.1% against the previous year and nearly touching the Central Bank’s desirable rate of 2.0%. Only 12,000 were added last month, due to hurricanes and port strikes that slowed and disrupted employment and turnover. At the same time, the PMI read 46.5 against 47.2 recorded in September. Values below ‘50 ‘indicate contraction in manufacturing and to this effect, the current reading is below threshold.
But construction spending was +0.1% in September was a 0.0% change that was expected. The Dow stands a little higher compared to the last week while the S&P and NASDAQ are a little lower.rt indicated commercial inventories of crude oil and refined products decreased across the board while oil production held steady at the 13.5-million b/d record level. An additional 1.2 million bbl was added to the Strategic Petroleum Reserve. The US rig count for last week was steady at 585 which is down 33 from last year.
September’s PCE, the Fed’s preferred measure of inflation, was +2.1% vs. the prior year and very close to the Central Bank’s 2.0 target. A meager 12,000 jobs were added last month as hurricanes and the port strikes stalled hiring and displaced workers. Meanwhile, the PMI came in at 46.5 vs. September’s 47.2. A reading below “50” is an indication of contraction in manufacturing. However, construction spending was +0.1% I September vs. a forecasted 0.0% change. The Dow is a little higher week-on-week while the S&P and NASDAQ are lower. The USD is just a tad lower which is assisting in getting the oil prices up.
Oil, technical analysis
“Gap Theory” was intact this week as December 2024 NYMEX WTI futures contracts stepped up from Sunday’s gaps in the ladder. The MACD line has crossed over the signal line and prices have crossed over the 8 and 13-day MAs and are slightly above the 21-day MA. Volume, in the second box, is established at over 200, 000. The Relative Strength Index, RSI is slightly bearish and is currently at the figure 48; 30 is very oversold while 70 is considered very overbought. It is now clear that resistance lies at $71.45 (21-day MA). Near-term Support is $69.85.
Looking ahead
While crude traders hold for any eventuality emanating from the Middle East, the OPEC+ ministry has a herculean task cut out as far as following its announced agenda to raise output next month is concerned. Of course, with the release of the estimated +2.2 million b/d of spare capacity, prices would plunge even lower.
Finally, the tropics were active in the later part of the last month with 3 systems being tracked. Three storms are current: One is in the North-Central Atlantic and does not pose any threat to the US, while two of the storms have the potential to affect the Gulf of Mexico. Now a trough of low pressure is near Puerto Rico and there is an active storm in the SW Caribbean Sea off Panama. However, the first two weeks of November seem to be bearish for heating oil consumption.
Natural gas, fundamental analysis
As we enter winter and production stats ramp up, a storage surplus keeps natural gas futures prices low. $3.00 is not there for the November-March period. The week’s peak price was Tuesday’s $2.20/MMbtu while the bottom price was Wednesday’s ‘roll-over” from November to December at $2.92.
Supply last week to 109.1 BCFD increased by 2.0 BCFD compared to 107 the prior week. Demand was 100 BCFD, from 96.3 BCFD the previous week due to an increase in usage by the Residential sector as well as the Power sector. Exports to Mexico were 6.2 BCFD same as we saw last week exports were 6.3 BCFD. LNG exports were 13.5 BCFD. compared to 13.7 for the previous week.
The current European spot prices were around $12.35 per MMbtu even though the storage was filled to 95% and winter was relatively warm.
The EIA stated in the Weekly Natural Gas Storage Report an injection of 78 BCF compared to a fore cast of +82 BCF. Today’s total gas in storage is 3.86 tcf, 280 billion cubic feet or 2.8% higher than last year, and 470 BCF or 4.8% more than the five-year average.
One weak remaining in the traditional injection season and with an average build of 80 BCF yearend storage levels could rise to 3.94 tcf something which has occurred only a handful of times over the last 15 years.
Natural gas, technical analysis
February 2024 NYMEX Henry Hub Natural Gas futures have broken to the downside of the 8-, 13- and 21-day Moving Averages on the November/December continuation chart. Volume is low at 110k. The RSI is neutral at 55. The technical pullback has Resistance at $2.70 and Support at $2.62.
Looking ahead
Some volumes of natural gas flow from Russia to the EU and the transport agreement between Russia and Ukraine will end this year at yearend. It is assumed that there will not be a renewal between the two countries again making the EU seek more supply. The next 2 weeks do not seem to bode well for the US natural gas demand since temperatures are expected to be above normal.