WTI crude futures tumbled over 6% toward $67 per barrel on Monday after Israel’s retaliatory strikes on Iran over the weekend avoided the country’s crude facilities and nuclear infrastructure, easing fears of disruptions to energy supplies. Israeli fighter jets targeted military sites across Iran on Saturday in response to Iranian missile attacks at the start of October. Oil prices experienced wild swings this month on rising geopolitical risks in the Middle East, although Israel’s retaliation was more restrained and proportionate than markets feared, raising hopes of further de-escalation in regional conflict. On the demand side, signs of weak economic activity in top consumer China continued to weigh on sentiment, with weekend data pointing to a decline in industrial profits despite recent government stimulus. Elsewhere, market participants are watching for potential output adjustments from OPEC+ and the implications of the US election.
US natural gas futures dropped over 7% to below $2.4/MMBtu, mirroring other energy markets as supply concerns eased following Israel’s retaliatory strikes on Iran, which avoided crude and nuclear sites. Additionally, meteorologists forecast warmer-than-normal temperatures across the Lower 48 states through at least November 9, allowing utilities to inject more gas into storage than usual for this time of year. Also, LNG feedgas supply is expected to stay below record levels for the next few weeks due to maintenance at facilities in Louisiana, including Cheniere Energy and Cameron LNG. On the supply front, average natural gas output in 2024 is projected to decline for the first time since 2020.
Oil & Gas Prices - Oct 28
Oil & Gas Prices - Oct 28
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Oil & Gas Prices - Oct 28
Energy Sector Analyst's comments below:
Oil prices slumped by more than 6 percent in the Sunday night session. The declines follow Israel’s limited strikes against military targets in Iran this weekend, which expressly avoided oil-related infrastructure. The price movements also occur in the context of lackluster demand for heating fuels due to warm weather across the Northern Hemisphere and a general caution among economic agents to make binding commitments ahead of the uncertain outcome of the U.S. presidential election on November 5.
In sum, oil prices today are weighing three absences: (1) lack of destructive force against Iranian oil assets, (2) lack of cold temperatures as November begins this week, and (3) lack of clarity about how the U.S. elections will unfold.
We expected the first absence. The second portends substantial but fluid risk for oil prices through a channel that is neither supply nor transportation demand. The third absence carries significant risk of lingering past election day.
Where, then, might energy prices go from here?
In the chart below we update our assessment of year-end spot price risk for WTI crude oil, gasoil, and Henry Hub natural gas. The histogram for oil (bar chart, top left) shows that a price between $65 and $80 remains the most likely outcome. However, the chance of slipping below $65 is rising (line graph at bottom left). Since last week, odds of landing above $80 have decreased from 28% to 20%. Odds of a price below $50 have increased from 4% to 6%.
We know the warm temperatures are already presenting a headwind for oil because we can also see a comparable effect on the path of risk in the natural gas market.
Following the recent 80-degree temperatures from Boston to San Francisco, the probability of a yearend Henry Hub natural gas price below $3.25 now exceeds 50% (line graph, bottom right in chart above). We assessed this risk at less than 40% a month ago and at just one-in-four in June 2024. Likewise, the risk of a sub $700 per mt gasoil price at yearend now exceeds 70%. This risk had been below 45% for most of this calendar year (middle line graph in chart above).
It’s still early innings for the 2024-25 winter. Temperatures could move surprisingly colder as the count of heating degree days moves from its left tail (today) to its peak in 1Q2025. This too is evident in the upside tail risk shown in the gas histogram in the chart above. The probability of a yearend Henry Hub price above $4.50 is 15%. This outcome could arrive through cold temperatures in the United States, a heightened call from Europe for US LNG exports, or other vectors.
This morning, we also note the large swing in skew in the options markets for NYM WTI crude oil. The 25-deltas showed a 9-point call skew at the close on Friday, with implied vol for the call surpassing 51%. This morning the 25-deltas are in a 2-point put skew, with implied vol for the put at 41%. Strike prices for 25-delta puts at 2025 tenors now look too low to be attractive to commercial hedgers. The commercial hedgers are also not as bearish toward oil as the institutional investors (chart at bottom).
Conclusion: The overnight selloff includes substantial flows through the options and looks overdone from a flat price perspective. The most likely spot price for WTI at yearend is $71. This morning the Jan-25 NYM WTI crude oil futures contract (CLF5) is trading closer to $67 following the overnight flush. That price looks like good value relative to the risks. We anticipate investors will want to buy that contract and capture the expected 6% return on the two-month time horizon.
Colin Fenton at 22V Research
--------------------------------------
MY TAKES:
> Lots of noise will continue to impact the oil price until we know who will be the next U.S. president.
> Peace between Israel and Iran has not arrived in the Middle East.
> OPEC+ likely to extend production quota's into 2025. They will support global oil prices.
> It is way too early to know what demand for space heating fuels will be this winter.
My stock valuations are based on WTI averaging $70/bbl in Q4 2024 and $75/bbl in 2025.
Oil prices slumped by more than 6 percent in the Sunday night session. The declines follow Israel’s limited strikes against military targets in Iran this weekend, which expressly avoided oil-related infrastructure. The price movements also occur in the context of lackluster demand for heating fuels due to warm weather across the Northern Hemisphere and a general caution among economic agents to make binding commitments ahead of the uncertain outcome of the U.S. presidential election on November 5.
In sum, oil prices today are weighing three absences: (1) lack of destructive force against Iranian oil assets, (2) lack of cold temperatures as November begins this week, and (3) lack of clarity about how the U.S. elections will unfold.
We expected the first absence. The second portends substantial but fluid risk for oil prices through a channel that is neither supply nor transportation demand. The third absence carries significant risk of lingering past election day.
Where, then, might energy prices go from here?
In the chart below we update our assessment of year-end spot price risk for WTI crude oil, gasoil, and Henry Hub natural gas. The histogram for oil (bar chart, top left) shows that a price between $65 and $80 remains the most likely outcome. However, the chance of slipping below $65 is rising (line graph at bottom left). Since last week, odds of landing above $80 have decreased from 28% to 20%. Odds of a price below $50 have increased from 4% to 6%.
We know the warm temperatures are already presenting a headwind for oil because we can also see a comparable effect on the path of risk in the natural gas market.
Following the recent 80-degree temperatures from Boston to San Francisco, the probability of a yearend Henry Hub natural gas price below $3.25 now exceeds 50% (line graph, bottom right in chart above). We assessed this risk at less than 40% a month ago and at just one-in-four in June 2024. Likewise, the risk of a sub $700 per mt gasoil price at yearend now exceeds 70%. This risk had been below 45% for most of this calendar year (middle line graph in chart above).
It’s still early innings for the 2024-25 winter. Temperatures could move surprisingly colder as the count of heating degree days moves from its left tail (today) to its peak in 1Q2025. This too is evident in the upside tail risk shown in the gas histogram in the chart above. The probability of a yearend Henry Hub price above $4.50 is 15%. This outcome could arrive through cold temperatures in the United States, a heightened call from Europe for US LNG exports, or other vectors.
This morning, we also note the large swing in skew in the options markets for NYM WTI crude oil. The 25-deltas showed a 9-point call skew at the close on Friday, with implied vol for the call surpassing 51%. This morning the 25-deltas are in a 2-point put skew, with implied vol for the put at 41%. Strike prices for 25-delta puts at 2025 tenors now look too low to be attractive to commercial hedgers. The commercial hedgers are also not as bearish toward oil as the institutional investors (chart at bottom).
Conclusion: The overnight selloff includes substantial flows through the options and looks overdone from a flat price perspective. The most likely spot price for WTI at yearend is $71. This morning the Jan-25 NYM WTI crude oil futures contract (CLF5) is trading closer to $67 following the overnight flush. That price looks like good value relative to the risks. We anticipate investors will want to buy that contract and capture the expected 6% return on the two-month time horizon.
Colin Fenton at 22V Research
--------------------------------------
MY TAKES:
> Lots of noise will continue to impact the oil price until we know who will be the next U.S. president.
> Peace between Israel and Iran has not arrived in the Middle East.
> OPEC+ likely to extend production quota's into 2025. They will support global oil prices.
> It is way too early to know what demand for space heating fuels will be this winter.
My stock valuations are based on WTI averaging $70/bbl in Q4 2024 and $75/bbl in 2025.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Oil & Gas Prices - Oct 28
Note from HFI Research:
I will be the first to tell you that I'm glad the geopolitical nonsense is over. Ever since the traumatizing episode of 2018 where the Iranian sanctions led to one of the worst energy sell-offs, I've been a non-believer in geopolitics. To make matters worse, the 2019 Abqaiq attack, which saw crude rally sharply only to get decimated days after left a nasty taste in my mouth.
Then 2022 came along and the Russian/Ukraine invasion happened. Oil market went nuts as the Europeans and the US sanctioned Russian oil exports. IEA boldly predicted that Russia will lose up to ~3 million b/d. The result? A spike to $125/bbl destroyed oil demand, 275 million bbls of SPR was released, and zero production was lost from Russia.
So yes, I hate geopolitics. It's been nothing but a distraction, and for anyone keeping a tally, if you sold every pop from the last 6 years, you would've made a killing. I didn't.
The only rally I sold was the one in April this year when everyone warned that WW3 was coming. Thankfully, the extremely overbought technical positions gave me comfort in knowing that the rally was a bit overextended.
And with this weekend's news unfolding, it looks like Israel chose the path of non-violence. It didn't target any oil or nuclear facilities.
As for the market, this will be disappointing news. While the Washington Post leak a while back evaporated a lot of the geopolitical risk premium, I suspect there's a bit more selling left. Dr. Anas Alhajji thinks there's another $2-$3 of downside at open, and I agree.
I think we will get a gap down on Sunday followed by a slow recovery. Refining margins will move higher as crude takes the majority of the hit. This should be a signal to traders that the fundamentals are healing.
So while this provides a theoretical floor, you just never know with the oil market. It always moves to extremes, so we could see the support level around $67 tested again (-$4 from here).
I will be the first to tell you that I'm glad the geopolitical nonsense is over. Ever since the traumatizing episode of 2018 where the Iranian sanctions led to one of the worst energy sell-offs, I've been a non-believer in geopolitics. To make matters worse, the 2019 Abqaiq attack, which saw crude rally sharply only to get decimated days after left a nasty taste in my mouth.
Then 2022 came along and the Russian/Ukraine invasion happened. Oil market went nuts as the Europeans and the US sanctioned Russian oil exports. IEA boldly predicted that Russia will lose up to ~3 million b/d. The result? A spike to $125/bbl destroyed oil demand, 275 million bbls of SPR was released, and zero production was lost from Russia.
So yes, I hate geopolitics. It's been nothing but a distraction, and for anyone keeping a tally, if you sold every pop from the last 6 years, you would've made a killing. I didn't.
The only rally I sold was the one in April this year when everyone warned that WW3 was coming. Thankfully, the extremely overbought technical positions gave me comfort in knowing that the rally was a bit overextended.
And with this weekend's news unfolding, it looks like Israel chose the path of non-violence. It didn't target any oil or nuclear facilities.
As for the market, this will be disappointing news. While the Washington Post leak a while back evaporated a lot of the geopolitical risk premium, I suspect there's a bit more selling left. Dr. Anas Alhajji thinks there's another $2-$3 of downside at open, and I agree.
I think we will get a gap down on Sunday followed by a slow recovery. Refining margins will move higher as crude takes the majority of the hit. This should be a signal to traders that the fundamentals are healing.
So while this provides a theoretical floor, you just never know with the oil market. It always moves to extremes, so we could see the support level around $67 tested again (-$4 from here).
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Oil & Gas Prices - Oct 28
More from HFI Research:
The US Election is next Tuesday and for those of you who have been hammering my inbox about the Biden administration being relentless on lower oil prices, you have been proven right so far. And with the Israel/Iran escalation looking like it is over in the near term (at least before the US election), geopolitical risk premiums are evaporating from the oil market.
From now to the end of 2024, these are the key focus points for readers:
US election results (Trump or Harris).
OPEC+ policy in early December.
US oil production capex guidance (November).
Oil inventory balance in Q4.
China's fiscal policy announcements.
I'm glad we are finally past the geopolitical distractions. It's time for everyone to go back to the fundamentals and focus on balances for 2025.
In our last week's WCTW, we wrote that Trump would likely be victorious. And fast forwarding to today, his odds of winning have increased further according to ElectionBettingOdds.com to 61.7%. < If Trump wins PA, Harris has almost zero chance of winning.
The US Election is next Tuesday and for those of you who have been hammering my inbox about the Biden administration being relentless on lower oil prices, you have been proven right so far. And with the Israel/Iran escalation looking like it is over in the near term (at least before the US election), geopolitical risk premiums are evaporating from the oil market.
From now to the end of 2024, these are the key focus points for readers:
US election results (Trump or Harris).
OPEC+ policy in early December.
US oil production capex guidance (November).
Oil inventory balance in Q4.
China's fiscal policy announcements.
I'm glad we are finally past the geopolitical distractions. It's time for everyone to go back to the fundamentals and focus on balances for 2025.
In our last week's WCTW, we wrote that Trump would likely be victorious. And fast forwarding to today, his odds of winning have increased further according to ElectionBettingOdds.com to 61.7%. < If Trump wins PA, Harris has almost zero chance of winning.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Oil & Gas Prices - Oct 28
Trump never led in an National Poll in 2016 or 2020. Kamala needs to take the national poll by 6% to move the needle in the swing states. Hillary got the popular vote, but lost all the states below. Trump underperformed in his polls during 2020 by an average of 6%. Biden was to take Wisconsin by 7%, he allegedly won by less than 1% or 0.634%. These numbers should increase significantly on election day.
The internal polling (more accurate, not good to lie to yourself) has moved Harris from "Joy" back to "Nazis and Hitler," a similar route that Hillary took along with her insulting 50% of the voters with the "Basket of Deplorables" comment.
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The internal polling (more accurate, not good to lie to yourself) has moved Harris from "Joy" back to "Nazis and Hitler," a similar route that Hillary took along with her insulting 50% of the voters with the "Basket of Deplorables" comment.
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Re: Oil & Gas Prices - Oct 28
Trump will no doubt win the most votes. Whether he wins the vote count is a whole different matter. Prepare ,again for a massive, illegal vote onslaught with the DOJ and Lawfare winning again in the kangaroo courts. Nothing in election law has been done in four years in my state of Arizona. The Supreme Court of AZ (McCain RINOs) have given the Democrats an opening lead of 200,000 votes before voting began. The AZ legislature has been neutered by the courts and the Secretary of State has control of the ballot boxes. Wash ,rinse, and repeat in Michigan and Pennsylvania. Einstein was right on insanity.
Re: Oil & Gas Prices - Oct 28
Next Tuesday is a national IQ test. IMO Kamala Harris is the most unqualified person to EVER run for Commander-in-Chief of the U.S. military. This is why most men will vote for Trump even if they tell their wives they will vote for Harris. I'm fairly sure that my two brain dead sisters will vote for Harris and both of their husbands will vote for Trump.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Oil & Gas Prices - Oct 28
Millions of illegal aliens flood into the country registering to vote and receive government benefits, Dominion voting machines still in place, challenges to election results "have no standing", "lawfare", blah, blah, blah. I am afraid the most colossal "steal" of all time is coming. Praying I am totally wrong.