Energy Market Update 10-2-2023

Crude is up 14 cents        RB is up 3.21 cents        ULSD is down 1 cent

Overview

The ongoing narrative of tight supply supported crude prices today.The market is keenly awaiting the OPEC+ meeting to be held Wednesday, although most analysts do not see any policy changes happening.

The Chinese PMI figures seen this weekend from both the government and one compiled by IHS Markit and announced by Caixin showed the economy having expanded in September with readings over 50. The Caixin China General Manufacturing PMI declined to 50.6 in September 2023 from August’s six-month high of 51.0 and below market estimates of 51.2. It was the second straight month of an increase in the sector. Factory output expanded the most in four months. The Official PMI from the Chinese government showed a reading of 50.2, which was the first reading in 6 months showing expansion. It beat the forecast of 50.0. (Reuters/Trading Economics)

Speaking at an event in Abu Dhabi on Monday, OPEC's Secretary General  said the group still sees "oil demand as quite resilient this year, as it was last year." The UAE's Energy Minister said that OPEC has "the right policy" for the oil markets. ENI's CEO said that OPEC would not tighten further, but that underinvestment is the main issue for oil, while demand stays strong. (Bloomberg/Reuters)

Golden Week is ongoing in China. The Rail travel total seen Friday hit a record at 20 million passengers. (Reuters)

Oil is higher even as the Euro has fallen to its lowest value since last November and U.S. equites are lower, despite the U.S. having averted a government shutdown.

The Baker Hughes oil rig count seen Friday showed a decline of 5 units. This put the total at 502,which is the lowest total since Feb. 4, 2022. (WSJ) Rigs were dropped in Texas. The Permian Basin, spanning West Texas and New Mexico, dropped five rigs to 312 and is now 32 lower from year-ago levels. (Quantum) WSJ reporting this morning cites the rig count data as supporting crude prices today.

CFTC data issued Friday showed a large drop in RB net length. RB length fell by 13,220 contracts as longs were sold. WTI net length held on ICE/CME combined rose by 16,191 contracts. This addition in net length puts speculative length at its highest since February 2022.  But Brent length fell more with a drop of 21,989 contracts, as per ING reporting. ULSD length rose by 1.901 contracts.  The data was for the week ended Tuesday 9/26.

The EIA reported Friday, in a monthly report, that US oil production climbed to a post-Covid high of 12.991 MMBPD in July, up from 12.900 MMBPD in June and just 9,000 barrels a day shy of an all-time high of 13.00 MMBPD seen in November 2019.

Technicals

Notable is the sharp drop in RB open interest in addition to the CFTC data's fall mentioned above. CME preliminary data from Friday's activity shows a drop of 17,063 contracts in RB's total open interest. We see this as long liquidation in RB in the November and December contract months, besides the expiration of the October contract. RB's open interest has fallen to its lowest level in 3 months, as per a colleague.

WTI has momentum that looks to be turning negative. The double index roll from November to January gets underway this week. Support for the spot futures is seen at 90.35-90.40 and then at 89.22-89.31. Resistance comes in at the overnight high at 91.88-91.98 and then at 93.10.

RB's DC based momentum looks to be bottoming. The DC lower bollinger lies at 2.4250-2.4255. Support is seen at 2.4016-2.4017. The overnight low is 2.3913. Below that support is seen at 2.3770. Resistance comes in at 2.4638-2.4649 and then at 2.4853-2.4865.

ULSD for November has support at 3.2840-3.2851, that is being tested as we write. Next support is then at 3.2699-3.2712. Resistance lies at 3.3464-3.3482 and then at 3.3655.

Brent spot futures show a gap from the November expiration up to 94.90. Resistance lies below that at 94.10-94.16. Support is seen at 91.80 and then at 91.10-91.15. Momentum is negative due to the sharp drop in spot futures due to the rollover from November to December.

Natural Gas--NG is down 3.2 cents

NG is a little lower as weather forecasts over the weekend turned a bit milder.The Baker Hughes NG rig count fell by 2 units to a total of 116. This is just 3 rigs above the low of 113 seen 3 weeks prior, which was the lowest total in 19 months.

Money managers increased their net short position in NG futures/options on the CME in the week ended Tuesday September 26. The net short position rose by 23,379 contracts as mostly new shorts were added versus longs sold. The net short position total rose to 56,190 contracts.

November TTF prices have broken below support in the 41.5 Euro/Mwh area and look poised to test lows seen in early June in the low 39 Euro area. The low seen then was 38.630 Euro. Resistance lies now toward 44.50 Euro. The price drop is said to be due to mild weather, which is offsetting supply worries, as per Bloomberg reporting. EU27+UK Gas demand is seen rising by 5.9% year on year in 4th quarter, albeit from 2022's very low base, according to S&P Global. S&P Global forecasts LNG imports to the EU and UK in the fourth quarter at a total of 36.6 Bcm, down 8.9% year on year. But, the S&P Global senior gas analyst says that the return of production capacity heading into October was expected to add downside price pressure in a month where storage will be at a recent all-time high.

Technically NG has positive momentum on the DC chart. although today's trading range shows an inside day with a sideways pattern from the past 3 sessions in which November has been the spot futures contract. Resistance lies at 2.997-2.998. Support comes in at 2.855-2.860. There is a gap from there down to 2.781 from the October contract's expiration. FX Empire analysis says that the market volatility index is at its lowest level since April 2022, signaling a somewhat stabilized trading environment.

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