FTSE eases back from post-pandemic high

Mixed start for stocks following a solid performance in the prior session and a mixed one in the US. After a slow start European stock markets – the Stoxx 600 and DAX – eked out fresh records Thursday and the FTSE 100 managed to hit its highest level in 20 months. In the US, the Nasdaq and S&P 500 rose but the Dow was dragged into the red by Disney. This morning, the FTSE 100 is down 0,3% and the rest of the major bourses are trading a little firmer. No sign yet of any major drawdown or volatility, but it seems too quiet.

 

Inflation is front of mind for investors this week after the US CPI report, which has driven a sharp rally in gold and the US dollar. Today’s University of Michigan inflation expectations will be closely watched, although it is unlikely to drive any material shift in the post-CPI momentum. Expectations are forecast to rise to 5% from 4.8% last month. We’re also watching the UoM consumer sentiment data and JOLTS job openings – a marker for the health of the US labour market, although these days, not such a great signal due to the massive mismatches and dislocation in the market post-pandemic.

 

Gold has pulled back from a 5-month high hit in the wake of the inflation data, holding around $1,855 in early trade. USD is solid to start the session with DXY consolidating above 95. Oil fell with spot WTI at $80 amid a resurgent US dollar and uncertainty over the path of US policy in terms of addressing higher gasoline prices. Higher case rates in Europe and Asia may also weigh – Austria heading to full medical apartheid with a lockdown for the unvaccinated. 

 

AstraZeneca shares fell 3% after earnings missed expectations, though it said it would start making a profit from its Covid vaccine from the fourth quarter onwards. ‘The Company is now expecting to progressively transition the vaccine to modest profitability as new orders are received. COVID‑19 vaccine sales in Q4 2021 are expected to be a blend of the original pandemic agreements and new orders, with the large majority coming from pandemic agreements,” the firm said in today’s Q3 trading update. Earnings per share of $1.08 was short of expectations but management stuck to its full-year guidance. Shares are up 24% YTD and it remains in a good place to tap growing demand. 

 

Shares in EV darling Rivian soared by another 22% to $123. Tesla ticked lower by just 0.4% after it filings showed founder Elon Musk had offloaded $5bn in stock. At the incredible valuation for Rivian, Musk tweetedI hope they’re able to achieve high production & breakeven cash flow. That is the true test. There have been hundreds of automotive startups, both electric & combustion, but Tesla is only American carmaker to reach high volume production & positive cash flow in past 100 years.” 

Natural gas cools as weather warms up

Prices of US-focused natural gas futures slide into the red as warmer temperatures cool off weather-driven demand gains.

Natural gas trading

Natural gas prices fall away on changing weather forecasts

Henry Hub futures have not started the week especially strongly. Activity was already subdued across the weekend and continue to trade in a bearish pattern.

For instance, US natural gas futures were trading at a high of $5.756 on Friday 5th November. As of European trading hours on the morning of Tuesday 9th November, the price was around $5.386, down -0.36% on the day.

As ever, the price drop is down to changing weather patterns. A couple of weeks ago, traders were buoyed by reports that cold Canadian winds would start sweeping down soon, bringing sleet and ice, and general high demand for heating gas.

That is likely still the case in the long term. However, near-to-mid term gas traders are seeing warmer temperatures across much of the United States.

That said, the Midwest may see some snow and ice towards the weekend, according to Natural Gas Weather. But on the whole, demand will be low to moderate throughout the continental US.

Natural Gas Weather forecasts: “National demand will remain light through Friday as high pressure with comfortable highs of 50s to 80s expands across the southern and eastern US. The West will be cool and unsettled as Pacific weather systems track inland with valley rain and mountain snow w/highs of 40s to 60s, lows of 20s-30s.

“A chilly weather system will drop out of southwest Canada and across the Midwest Thu-Fri with rain, snow, and lows of 10s to 30s, then tracking into the East this weekend into the start of next week for an increase in national demand. Overall, national demand will be LOW through Friday, then MODERATE this weekend.”

US inventories data – gas stockpiles still fall below the five-year average

As we move into winter heating season, the US is still playing catch up as regards fresh inventory injections.

The EIA natural gas inventories report for the week ending October 29th showed a build-up of 63 Bcf against the previous week. Total stockpiles came to 3,611 Bcf.

Stocks were 313 Bcf less than last year at this time and 101 Bcf below the five-year average of 3,712 Bcf.

Will the US have enough gas to keep it going through winter? With the advent of shale gas deposits, the US turned net exporter a couple of years ago, but tight global and domestic supplies mean it may have to look overseas for gas.

Gas production is actually up for another consecutive week. Baker Hughes has reported that more gas rigs have come back online too. Rig counts have been increasing for the past eight weeks.

According EIA reports, the US’ average total supply of natural gas rose to 99.9 Bcf per day for the week ending October 29th. That represents a minimal increase of 0.1%. The energy agency also reported the vast majority of fresh gas was delivered via dry natural gas production.

Oil gets boost as OPEC refuses to budge from output quotas

Despite calls from some big players to pump more crude, OPEC and allies aren’t budging just yet. Still, good news for oil prices.

Oil trading

OPEC+ sticks to its oil production guns

Sometimes a little dose of stubbornness can be a beautiful thing.

Across the past month, President Joe Biden has been calling on OPEC and allies to open their taps further, releasing a flood of crude to sweep across the world and into the fuel tanks of your average working class American.

OPEC+ isn’t budging. At last weeks November OPEC-JMMC meeting, the cartel committed to its now-familiar monthly crude production hike: an extra 400,000 bpd will be pumped in December.

In terms of prices, the WTI and Brent benchmarks made solid ground over the weekend. As of Tuesday morning, however, price action had remained pretty much flat.

At the time of writing WTI futures were trading for around $82.34.

Brent crude futures were exchanging hands at the $83.86 level.

To be honest, Saudi Arabia, Russia and the other key members of the cartel probably couldn’t care less about the plight of the average working class American. There are oil prices to protect here. It’s obvious that out of all the nations on Earth, OPEC+ members stand to gain the most from high oil prices. That’s why the taps will open as wide as the cartel wants them to open – no more, no less.

Saudi Arabia recently upgraded its crude oil pricing for Asian customers in December.

Essentially, Biden will have to look elsewhere, and should maybe look at pushing ahead with reopening and expansion of US shale and Gulf infrastructure, should he need to plug gaps in America’s crude supply.

It doesn’t appear OPEC is budging any time soon.

Infrastructure bill, jobs report puts support under oil prices

Helping support oil prices from the end of the week onwards were two key events in the US.

Firstly, the US nonfarm payrolls jobs report showed an estimate-meeting rise in the number of new roles created in October.  531,000 new positions were created in October, ahead of the 425,000 Wall Street predicted.

In terms of oil prices, more people in work means more economic activity means higher demand for gasoline and other petroleum products.

US Democrats have also passed Joe Biden’s centrepiece $1 trillion infrastructure bill into law. A nationwide construction programme, focusing on updating power supply networks, roads and highways, railways, and much more besides, will now sweep across the US.

Good news for oil prices then? That level of activity will no doubt require substantial levels of crude to pull off. Demand should be even higher.

US crude inventories show high build-up, but gasoline stocks drop

In the EIA report for the week ending 29th October, US crude stockpiles rose 3.3m barrels. That’s roughly 1.1m barrels higher than market analysts polled by Reuters had forecast. Total crude in storage now stands at 434.1m barrels.

However, gasoline stocks dwindled. According to the report, gasoline stockpiles fell by 1.5m barrels for a total of 214.3m barrels. Levels have sunk to a four-year low.

Muted start for equities, inflation in focus

Mixed, flattish start to trading for European stock markets after a record again on Wall Street as the S&P 500 closed above 4,700 for the first time. Gains of about 0.1% for the DAX and FTSE 100 keeping risk just in the green but the Stoxx 50 is flat. For US stocks it’s been a straight line up since the middle of October and whilst there is always this sense that ‘it must pull back soon’, that is sometimes when it’s finding the path of least resistance to the upside. Talking of which, Bitcoin has made a fresh all-time high and now could generate further upside now that resistance has been cleared. Read across to Coinbase, Microstrategy and other crypto stocks. Infrastructure stocks performed well as the market reacted to the passing of the $1tn infrastructure spending bill.

 

Risks are starting to take shape around rising covid cases in mainland Europe and the possibility of new lockdowns – something to watch in the coming days as it could play out with weakness for European equities. German infection rate at the highest since the pandemic started. Meanwhile the inflation threat looms as large as ever – tomorrow’s CPI numbers for the US will be closely assessed. Today we get the PPI numbers which are going to show ongoing supply chain pressure and pass through of costs to consumers, with the consensus at +0.6% for the headline number and +0.5% for the core PPI. Recent PMI surveys point in one direction for prices and that’s up.

 

On the whole inflation/rate hike theory…Yesterday, Fed mouthpiece Richard Clarida said conditions for rate rise likely to be met by end of 2022. Markets currently pricing for one by the middle of next year, so the Fed remains ‘behind the curve’. An alternative way to put this – as last week showed – is to say the market is ahead of itself.  

 

He also pointed out there is about $2tn in unspent free money accumulated during the pandemic that is yet to wash through the economy. Does that make inflation likely to be more or less transitory…? 

 

Yet more sticky signs: In August, Jay Powell noted that “if wage increases were to move materially and persistently above the levels of productivity gains and inflation, businesses would likely pass those increases on to customers, a process that could become the sort of ‘wage–price spiral’ seen at times in the past”. 

 

“Today we see little evidence of wage increases that might threaten excessive inflation,” he added. 

 

Well, the latest NY Fed median projected year ahead household income growth jumped to 3.3% in Oct from 3% in September. That’s just as productivity in the US plunged 5% in the third quarter to its lowest level in 40 years. Ok, so some of it is supply chain-related, but the picture is not the one that the Fed has been describing. Meanwhile, median one-year ahead inflation expectations rose 0.4% to 5.7% in October, reaching a new high for the survey launched in 2013. Clarida noted that the Fed had not anticipated the depth and breadth of the global supply shock. I guessed that but the question is – are you going to try to contain inflation expectations or not?

 

Charts: Sterling has found some near-term support and trying to now hold the 61.8/38.2% levels where there is clear near-term resistance to the bounce – eyes on the speeches of Bailey and Broadbent today.

GBPUSD Chart 09.11.2021

Gold: real rates under pressure again with 10yr TIPS out to –1.11%, testing the first area of resistance at the 38.2% retracement around $1,827, with further resistance at $1,833, the Jul and Sep peaks. Breach to the upside here may call for $1,875. Persistently high inflation and a dovish/patient Fed is a good setup for the metal – the sharp fall real yields since last week’s meeting tells you that. Weaker dollar also a factor with DXY down under 94 again to test its 20-day SMA after once again failing to break out above 94.60 area last week, just as it failed in Sep and Oct.

Gold Chart 09.11.2021

Tesla shares down after Elon Musk Twitter poll

Kind of unusualIf you were the CEO of a large listed company and decided you might like to sell some stock would you a) do it quietly and file it appropriately, or b) ask millions of people on Twitter whether you ought to? Obviously, Elon Musk chose the latter. Ok, so he’s often doing dumb stuff on Twitter and sometimes doing dumber things that regulators should probably look at. And occasionally he does really dumb stuff that regulators do look at.  

 

So, when he asked his Twitter followers over the weekend whether to sell 10% of his stock, lots of us laughed. I mean it’s sort of weird – why not just start selling some tranches, without the fanfare and attention-seeking…hahaha. You could say he just wants to sell some stock now because the valuation has rocketed lately, cash out while the going is good. It’s hard to criticise someone for doing that, is it? And rather than get berated by his fans for selling down his holdings, he can say ‘look, you told me to do it!’. Either way, Musk was due to start selling soon anyway as he faces a monster tax bill on some of his stock options. And since he takes no salary or bonus from being Tesla CEO (he likes to remind us), the only way to cover would be to sell some shares. Seems fair enough, but does it need all the fintwit showbusiness?  

 

Tesla shares in Frankfurt are off about 7% this morning and indicated to fall about 6.66% (!) in US pre-market trading. Now Musk would be aware that advertising his plans to sell $21bn (at Friday’s price) in stock would lead to a fall. It’s a simple bit of supply and demand economics on show. But he probably reckons on it being short term in nature or doesn’t particularly care at these insane valuations which he must think are ‘too high IMO’. Whatever he has said before the stock has risen in the end, and this way he controls the narrative of what amounts to a pretty massive stock sale, which is ultimately at the behest of the taxman. ‘Followers urge Musk to sell 10% of his stock’ sounds way better than ‘Musk dumps 10% of Tesla holdings, cash in at all-time highs, leaves investors as bagholders…et, etc’. I’m not 100% on where this fits, but you could again make a case of sorts for making market-moving statements that you shouldn’t really be doing. Hard to say it’s manipulation, but it’s not normal.

 

Markets 

 

Stocks are largely flat to start the session in Europe after a positive day Friday saw fresh cycle highs. Weak handover from Asia as Chinese import figures indicated weaker domestic demand. US futures are steady after another round of all-time highs on Friday. Earnings are better than were expected, jobs growth is picking up and the Fed’s carried off the taper without undue alarm. Pfizer’s antiviral announcement on Friday is a major positive: Dr Scott Gottlieb said the US is ‘close to the end of the pandemic phase’. After last week’s round of policy meetings, this week we get a lot of jawboning from the likes of Powell, Bailey and Macklem on equality and diversity. We’ll also be watching the US CPI numbers on Tuesday and UK growth numbers for the third quarter on Thursday. 

 

Bond yields are lower than they were last week with US 10s at 1.48%. The UK 2yr gilt yield is now back to 0.42% after trading as high as 0.76% on expectations the Bank of England would be more hawkish than it turned out to be. 

 

Real rates have fallen further with 10yr TIPS down to -1.09% on Friday, lifting gold to break out of the recent range and hit its highest since September. No breakout just yet but looking to the area at $1,827-1,833 to provide near-term test as this corresponds to the 38.2% retracement of the longer-term decline and the Jul/Sep peaks where we saw three attempted breakouts fail.

Gold Chart 08.11.2021

Crude prices are higher but just running into the resistance of the 20-day SMA. Late on Friday Aramco raised selling prices for its crude, whilst the passing in the US of the Biden infrastructure bill is also supportive. 

Oil Chart 08.11.2021

Risk-on pile-on to end week as Pfizer delivers the good news

There is a big risk-on push to end the week as Pfizer delivered what could be the knockout blow to Covid. Reopening stocks are bid – IAG +4%, TUI +7%, EasyJet +5%, Wetherspoons +4% … you get the picture. In the US, Carnival, Royal Caribbean, MGM Resorts, Wynn Resorts, Las Vegas Sands, Delta, Southwest led the charge higher. It’s a pile-on for reopening stocks. Mega cap momentum (FANG+ index) lags XLE and XLF. Disney +3% to Netflix -2% tells the story of going out vs stay-at-home neatly. Drug manufacturers off strongly except Pfizer. Semis are having a good day.

All three of the major Wall Street indices posted fresh record highs, with gains of around 0.5%-0.9%, whilst the Russell 2000 showed up with a +1.8% rally. Vix being crushed to take a 15 handle as bears seem to be throwing in the towel. However, this is the kind of extended level at which I’d expect volatility to creep back in and stocks to pull back….but timing is everything and for now the bears are in hiding. In Europe the FTSE 100 made a new post-pandemic high at 7,332.45, trading up 0.5%. Euro Stoxx 50 also at a record high and trades +0.75% this afternoon.

The Pfizer anti-viral cuts risk of death and hospitalisation by 89%. It’s a game changer, for sure. The stock itself is +7% whilst Moderna is –19% on expectations that we won’t be needing booster jabs every few months. Coming after the Merck announcement it’s a very positive sign that we are through the worst of the pandemic now and won’t need to rely on vaccines + restrictions.

A strong US jobs report added to the sense of optimism. The headline 531k was a beat to expectations and revisions to Aug and Sep added a further 235k. Stronger jobs numbers indicate the US economy is reopening and healthier than at any point since before the pandemic, whilst it’s also been a positive for the dollar as it could draw the Fed into being more comfortable raising rates in line with market positioning, i.e. a tad sooner. At the other end, subtler wage growth – down to +0.4% from +0.6% in September – was a positive that wage spirals won’t lead to more permanent inflation.

The dollar found bid and hit its highest in a year before paring some of the gains. GBPUSD is weaker but off its lows. Several BoE members have been on the wires today trying to clear up some of the communications mess left by yesterday’s non-hike, but it’s not any clearer. They’re saying they will act, that the labour market will get tighter, and inflation will rise above 5%…so why not hike already? Yields are generally falling post FOMC and BoE, with the 10-year Treasury falling a one-month low at 1.467%. Bit of a yield flattener today with markets assuming perhaps a slightly quicker Fed taper but that could crimp long-run growth.

Dollar index: Fresh one-year highs but 94.80 is the big test, the 38.2% retracement of the longer-term peak to trough move. Chart maybe looks a bit toppy, but the bullish MACD crossover is in play.

Dollar Index 05.11.2021

Despite stronger USD, gold is bid and back above $1,800 as rates fell. US 10s down to 1.47% and real rates getting crushed. Struggling to gain much momentum above $1,800 but eyeing retest of the Oct high at $1,813. Support at 20-day SMA at $1,783.

Gold chart 05.11.2021

Oil is up 2% for the session but still set for a $3 fall this week. WTI holding the lower Bollinger but still looking bearish and heading for more bearish fundamental outlook.

Oil Chart 05.11.2021

Stocks flat ahead of Fed taper announcement, Tesla stutters

Stock markets were mixed at the open in Europe as investors look ahead to the Federal Reserve announcement later. A rather flat start to the session saw the FTSE 100 test the 7,250 area before easing back towards the flatline around 7,275. The DAX was similarly flat as a pancake after 30 mins of trading – clearly investors are sitting on their hands until the Fed later.

Wall Street closed a new record high for a fourth-straight session as earnings continue to underpin confidence in fundamentals. It appears that fears about inflation eroding margins are so far unfounded. Whilst markets may have concerns about the Fed’s tapering and eventual tightening, these seem to have been well telegraphed thus far with the Fed chasing to catch up with bond markets and not the other way around.

Oil slackened as API inventories were soft – stocks rose by 3.6m barrels last week, well ahead of the 1.5m expected. EIA inventory data is due later, expected to show a build of 1.9m barrels. OPEC+ meets on Thursday amid calls for it to raise output further. Specifically, there seems to be some pressure coming from the White House as Joe Biden blamed the cartel for higher oil and gas prices, saying in Glasgow that he was reluctant to explain what he would do if OPEC doesn’t increase output – presumably he doesn’t mean kill off investment in US fossil fuels?

Shares in high street bellwether Next were down as the cautious outlook remained despite a very strong performance in the last few weeks. Full price sales in the 13 weeks to the end of October were up +17% versus two years ago. In the last 5 weeks full price sales rose 14%, ahead of the 10% expected. Nevertheless, the company stuck to its Q4 full price sales guidance at +10% and full year profit before tax at £800m.

Although Next continues to perform very well, it remains inherently cautious due to slowing demand, partly due to inflation; as well as the well-worn supply chain issues and labour shortages. The company says pent-up demand will slacken over time and warned that price increases will hurt sales despite consumer finances in decent shape. It also cautioned that while the availability of stock has improved, it “remains challenging, with delays in our international supply chain being compounded by labour shortages in the UK transport and warehousing networks”. Next is always super cautious but continues to deliver strong free cash year after year.

Taper time

The focus today is squarely on the Fed. It’s certain to announce the start of tapering, and push against interest rate hikes. Sounds easy enough but there are details which could affect the market reaction later. The 10yr Treasury yield sits above 1.53% ahead of the Fed statement, whilst 2s are back down around 0.45% having traded above 0.5% for the first time in 18 months in recent days. The dollar index is holding 94 after a stronger session yesterday, though is a tad weaker this morning.

Key questions relate to the pace and timing of tapering, and comments about the path of inflation and jobs from chair Jay Powell.
The Fed is likely to begin tapering its $120-a-month QE programme this month, or potentially wait until Dec. I don’t think this matters a huge amount, though delay could be marginally negative for the dollar and good for risk. It’s the pace of the tapering that really counts as this will determine when bond buying ends and could help shape expectations for when the Fed will begin raising rates. It’s expected that the Fed will reduce asset purchases at a rate of $15bn-a-month, which would mean the taper takes 8 months to complete. However, the Fed could go ahead at $20bn-a-month, ending two months earlier. Markets would likely see $20bn as more hawkish and suggest an earlier rate hike. There is no accompanying dot plot this month, but Powell is likely to reiterate that « a different and substantially more stringent test » is required for interest rates to move up.

Clearly, inflation is proving less transitory than the Fed had originally thought. In his last press conference Powell avoided referring to inflation as being transitory, and recent remarks have generally indicated greater concern about sustained price hikes. If Powell expresses greater concern in Nov than Sep over inflation – which has remained stubbornly high (4% core CPI and 3.6% core PCE are both well above the Fed’s 2% target) – then the market may see this as a tacit acceptance that rates are likely to move higher by the middle of next year. Markets currently forecast a two-thirds chance of a hike by June next year, earlier than current FOMC projections. It’s hard to imagine Powell not sounding more worried – ie hawkish – on inflation.

Overall, today should be fairly straightforward for the Fed and Powell to communicate a taper which has been telegraphed for several months. The problems start to arrive if inflation remains at 4% next year and into the second quarter of 2022.

Electric cars

Electric cars are good, and internal combustion engines are bad, right? Nothing about the lifespan of batteries or the scarcity of rare earth metals or the fact that right now it takes a lot of fossil fuels to charge the batteries … anyway let’s leave all that to the green cops in Glasgow. I am sure they know what is best for us since they usually do.

Anyway, electric car uptake is kind of presumed – it’s just not clear how quickly nor who’s going to win the race. So when a major EV maker seems to get into bed with one of the world’s top car rental firms it is important for the stock of both companies. Tesla stock surged last week and the company hit a $1 trillion market cap for the first time after Hertz announced it was expanding its battery-electric vehicle fleet with “an initial order of 100,000 Teslas by the end of 2022”.

It turns out Tesla has not signed a deal with Hertz to supply the rental firm with 100,000 cars. So, it seems like the rally in Tesla and Hertz shares over the last week or two has been built on a fake news story? Who’d have thought that such a thing could happen in today’s markets…I mean it’s not like Tesla, and Elon Musk, don’t have previous here. Whilst the original statement came from Hertz, it’s not like Musk or anyone else at Tesla refuted it outright when they had the chance. I guess that is what happens when you do not have a public relations team and rely on your CEO’s tweets to deliver corporate messaging.

So, when Musk tweets all innocently yesterday, a full seven days after the Hertz claim, you have to raise an eyebrow at least. In reply to a fan post about the stock price rally, Musk tweeted: “If any of this is based on Hertz, I’d like to emphasize that no contract has been signed yet. Tesla has far more demand than production, therefore we will only sell cars to Hertz for the same margin as to consumers. Hertz deal has zero effect on our economics.”

So, Hertz doesn’t actually need a contract – if Musk is genuine here and Hertz are paying full whack then they can just buy the cars like anyone else would – as such it doesn’t materially alter the fact that Hertz is buying 100,000 Teslas – we just don’t know how or when. Matt Levine makes this point well in his Money Stuff newsletter.

But it does kind of leave you with a sense that they are not playing with the full face of the bat here. Tesla stock is up more than 28% since the Hertz order news broke. There has not been a heck of a lot of other news around the stock so I’d say at the minimum it’s a factor, and probably go as far to say a major one. Analysts got all giddy about the implications for the deal, which is important too. Here’s fanboy Dan Ives of Wedbush: “The Hertz deal we believe will be viewed as a tipping point for the EV industry … We believe this is the biggest transformation to the auto industry since the 1950′s with more consumers heading down the EV path over the coming years.”

Does it matter if it’s a contract or Hertz staffers ordering cars individually? I don’t know, but you could imagine a world close to our own where the SEC thinks that maybe these kind of opaque statements that drive significant increases in stock price valuations amounts to manipulation of some sort, or just carelessness? I don’t think this would be allowed by the FCA.

Yesterday Hertz responded indirectly to the Musk tweet by saying that “deliveries of the Teslas already have started”. The company added: “We are seeing very strong early demand for Teslas in our rental fleet, which reflects market demand for Tesla vehicles.”

Tesla shares fell, Hertz stock trading OTC initially dropped 10% before rallying 7%.

Talking of rental car companies – shares in Avis (CAR) surged in another kind of meme-stock-crazy-type move. The move came as Avis – one of the most talked about stocks on Reddit’s WallStreetBets thread – delivered a record quarterly profit and sales of more than $3bn. Earnings rose to $674 million, or $10.45 a share, in the June-September quarter, up from just $45 million, or 63 cents a share, a year before. Avis closed over 108% at $357, having at one point traded above $545 amid a frenzied day of trading that saw the stock halted on more than one occasion.

Natural gas waits for the cold winds to blow

Last week, natural gas bulls were salivating at the thought of cold Canadian winds supporting prices through winter. Now it seems they’ll have to wait a little longer for bullish price action to return.

Natural gas trading

A subdued start for natural gas prices this week

Natural gas was trying to recover from losses made towards the weekend on Monday but instead slumped into the red. As of Tuesday morning, Henry Hub futures were in the green again, but it will take some time for price action to swing back up to the highs seen across September.

As of Tuesday morning, natural gas had gained 2.4% against Monday’s close. Henry Hub futures were trading for $5.340 at the time of writing.

A price slide in European gas, based on more Russian gas entering supply chains this winter, seems to have been matched by United States gas traders.

But this is natural gas. Weather sensitivities and patterns can make or break price action. Forecasts are all important.

Weather forecasts change blunting natural gas’ advance

Last week, it looked like natural gas prices could be going through a second spike. Meteorological reports suggested cold winds from Canada could be hitting the US soon – as far down as Texas – and that winter heating demand would skyrocket.

This is all still plausible in the mid-to-long term, but as it stands temperatures are fairly mild across much of the United States.

Well, it depends on who you ask really. Bespoke Weather Services said: “Warmer changes ruled the models over the weekend, with the changes coming after this week.

“A turn back warmer as we move into the middle third of November…generally looks to be on track. Given that we are into the time of year when weather becomes a dominant force in price action, this keeps things rather uncertain.”

Natural Gas Weather is leaning more towards more mild conditions, particularly in the eastern half of the US later in the week and early in the next.

It appears we’re still waiting for those forecast Canadian winds to surge down from the Great White North. That’s not to say they aren’t coming, but it appears the States will experience milder-to-warmer temperatures across the coming weeks.

A quick look at US stockpiles

As we wave goodbye to October and stub out the candles in our Jack o’ Lanterns we should be heading into winter heating season. November is traditionally when the switch occurs, but how much did the United States manage to squirrel away to tackle cold temps?

Working gas in storage was 3,548 Bcf as of Friday, October 22, 2021, according to EIA estimates. This represents a net increase of 87 Bcf from the previous week.

Stocks were 403 Bcf less than last year at this time and 126 Bcf below the five-year average of 3,674 Bcf. At 3,548 Bcf, total working gas is within the five-year historical range.

Not a good look when the US is meant to be sat on top of enough gas to last the winter. However, much of the United States’ production and transmission capability was shuttered earlier in the year due to the Texas Freeze and the again when Hurricane Ida tore through the Southern States. Soaring global gas prices also couldn’t have helped.

There are now 100 operational natural gas rigs in the US, according to Baker Hughes.

Oil prices start the climb once again but the power is in OPEC’s hands

Prior to OPEC’s November meeting, prices are on the rise – but their trajectory relies on the cartel’s response.

Oil trading

Oil prices restart upward trajectory

Even with the background of the COP26 talks, and governments coming to save the world, crude oil prices start the week in a sprightly mood.

Gains were capped last week on US supply concerns and the perceived market threat of a new Iran oil deal. Moving onto Monday and Tuesday, both WTI and Brent benchmarks were in the green again.

West Texas Intermediate futures closed Monday at $84.86 and is currently trading for around $84.27.

Brent Crude showed similar performance, ending Monday’s session at $84.50. As of Tuesday morning, Brent futures were trading for around $85.09.

Goldman Sachs has changed its oil price outlook once again. The investment bank is now betting on an $100 per barrel price of WTI by the end of 2021.

It presents an interesting dichotomy between global government plans and perhaps a stark vision of where the world actually is regarding fossil fuels. At COP26, world leaders are stressing the urgent need to move away from hydrocarbons.

But with figures like President Biden coming out and asking Russia and OPEC+ to give more crude to “help the American working class”, there’s a bit of disparity between fantasy and reality.

OPEC-JMMC meets on Thursday

OPEC and allies are back for another set of talks on Thursday 4th November as important customers plead for more crude.

Markets weren’t expecting any changes from the 400,000 bpd per month increase the cartel has been sticking to across 2021. However, a Reuters survey showed OPEC+ members delivered an extra 190,000 bpd in October, falling short of the target.

According to Reuters, this was due to local outages in some of OPEC’s smaller constituents offsetting higher output in Saudi Arabia and Iraq.

As such, we might see an extra bump in OPEC+ output in November to cover the deficit.

Let’s be clear: if any increase in oil production does come, then it will be because of OPEC internal discussions – NOT outside pressures.

The cartel has made it abundantly clear to commentators like Biden that it will only raise output on its own terms.

Frankly, it’s a bit naïve of Biden to use the “American working class” and comments about US citizens unable to drive to work as an attempt to shift the emotions of OPEC members and allies. Why would Russia, for example, care about the plight of working Americans?

Either way, the cartel appears happy to keep its output restricted. Prices are still high and look like they’re travelling upward again. It’s horses and carts for the US working class, I’m afraid, if you believe Biden’s rhetoric.

US oil supplies raise eyebrows in Washington

US crude oil stockpiles rose by 4.3 million barrels in the week ending October 22nd, according to the EIA. However, throughput at the Cushing, Oklahoma depot dropped dramatically. Something’s not right here.

There are millions of barrels of crude sitting in storage across the United States but it’s apparently not reaching consumers. Perhaps this is why Biden is so dogged in getting OPEC and its allies to loosen the taps a little more.

At 430.8 million barrels, US crude oil inventories are about 6% below the five year average for this time of year.

Despite this, crude oil imports were up in the same period. Over the previous four weeks up to October 22nd, crude oil imports averaged about 6.3 million barrels per day, 15.2% more than the same four-week period last year.

Something’s rotten in the heart of the United States’ oil infrastructure.

One possible solution would be for the US to get its own house in order. More production facilities could be bought online. Of course, this is no easy thing. It’s not as simple as just flicking a switch.

Despite this, Baker Hughes reports that rig counts are up for the fifteenth consecutive month in October. There are now 444 operational US oil rigs – an 84% increase over this time last year. Never mind OPEC, Mr Biden, get your own taps flowing.

Natural gas rides cold winds as prices shoot up on fresh weather forecast

Natural gas prices got a big boost at the start of the week. Are we looking at a new weather-led rally?

Natural gas trading

Cold winds heat up natural gas price action

There were hints the natural gas rally was over. Prices had fallen away from early October’s three-year highs. The game was up, despite record-high wholesale prices in Europe. But then Monday rolled around, and Henry Hub prices were shooting up again.

Natural gas gained 11% on Monday, taking futures above the $6.10 mark for the first time since the start of the month. Prices peaked at around $6.20. As of Tuesday, action had cooled a little, with Henry Hub futures trading for around $6.05.

Is natural gas back?

The weather plays a huge role in natural gas markets. Dedicated forecast services exist just to track weather patterns relevant to gas consumption and demand. Well, the latest predictions are in and they’ve painted a brighter demand picture for gas than previously thought.

The National Oceanic and Atmospheric Administration’s (NOAA) Climate Prediction Centre released its official winter outlook earlier this week. It has confirmed that La Niña conditions will be in place from December to February.

Remember the Texas Freeze? We could be seeing that again. Cold air from Canada is expected to drift down through the United States and form what’s called a Ridge Trough pattern. There should be warmer than average temperatures in the Southwest and cooler than normal in the northeast and mid-West.

It’s this kind of weather pattern that led to Texas, and a substantial chunk of US natural gas infrastructure, ending up under snow and ice last winter.

We could see a repeat. The timing of the first freezing blast is everything. The NOAA expects the first Canadian cold winds to touch the US by early November then extend from there. One for your diary, gas traders.

Colder temperatures in these US regions should lead to higher demand, hence the massive price jump we saw at the start of the week. It’s the old supply and demand relationship.

Also helping support prices was a marginal increase in US natural gas rig counts. Gas rigs increased by 1 in the week ending October 15th. The total now stands at 99 operational units, according to Baker Hughes.

How do inventories look ahead of withdrawal season?

We are still technically in injection season until the end of the month. October 31st, Halloween aside, is the end of a sustained period of inventory building. Gas stockpiles should be rising in line with expected winter heating demand.

November is traditionally when injections stop and withdrawals begin.

So how are we looking in October 2021? US working gas in storage was 3,461 Bcf as of Friday, October 15, 2021, according to EIA estimates.

This is a 92 Bcf increase from the previous week. Stocks were 458 Bcf less than last year at this time and 151 Bcf below the five-year average of 3,612 Bcf.

From this point of view, it appears the US is still playing catch up. Remember much of its domestic production and transmission capability was shuttered in the wake of Hurricane Ida earlier in the year. That could play a big role in limiting injections this year, alongside higher export volumes for Asian and European clients.

There is still work to be done. Otherwise, the US could be looking at lower-than-needed supply levels. Bad news for consumers – good news for natural gas bulls.

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