Gas sinks on warmer forecasts

US natural gas futures continue to reel from body blows thrown by predicted warm weather.

Natural gas trading

Warm temps return to haunt natural gas prices

Yet more weather woe for natural gas bulls this week.

Natural gas prices took a tumble across the whole of last week with lower prices continuing into trading on Tuesday morning. Henry Hub, while up 1.66% on the day at the time of writing, continues to trade around the $3.751 level.

Overall, Henry Hub futures are down 11% across the week so far.

As ever, price action has been dictated by the weather. Warm temperatures forecast for last week look set to remain in place, possibly wiping out trader expectations that a winter rally was on its way.

Natural Gas Weather states: “A cold shot will linger across the Midwest and Northeast through Wednesday w/lows of -0s to 30s for stronger national demand. The southern US remains comfortable with highs of 50s to 70s.

“After the current cold shot exits the Northeast late Wed, warm high pressure will become established over the southern and eastern US w/highs of 50s to 80s for light demand. The Northwest will be the nation’s only cool region this weekend into next week as weather systems bring rain, snow, and highs of 10s to 40s.

“Overall, national demand will be MODERATE today into Wednesday, then LOW-VERY LOW after.”

The question for natural gas traders now is how low will prices go? The lowest level discussed regarding January’s contract seems to be around $2.745. Things may get worse before they get better. The impetus is with the bears right now.

A quick look at EIA natural gas storage data

This week’s EIA gas inventories report lands on Thursday afternoon UK time, but we may get some indicators of what to expect with the most recent data.

Working gas in storage was 3,564 Bcf as of Friday, November 26th, 2021, according to EIA estimates. This represents a net decrease of 59 Bcf from the previous week.

Stocks were 375 Bcf less than last year at this time and 86 Bcf below the five-year average of 3,650 Bcf. At 3,564 Bcf, total working gas is within the five-year historical range.

This is broadly in line with market expectations. The median drawdown expected by Bloomberg and Reuters polls for the November 26th report was 58 Bcf.

Natural gas price volatility to continue into 2022?

Natural gas could be facing another volatile year in 2022 after a crazy 18 months.

We’ve seen prices swerve from record highs to record lows across the pandemic. More could be on the cards. It all depends on how the demand picture shifts across the coming months.

Europe, for example, is about to head into the winter months with the lowest level of working gas for decades. Storage facilities across the EU are at 70% capacity, compared with 85% this time last year.

No promised Russian gas is on its way. Nordstream 2 will also not start pumping gas for several months.

Asian LNG demand, on the other hand, has grown to 21 million tons this year. The APAC region has rebounded strongly from the pandemic, in terms of gas demand, so LNG export markets might remain hot.

Liquid natural gas throughput at US export terminals has been floating around record levels in recent months. Demand from Asia and Europe may help put a support under prices as 2022 progresses too.

We are talking about a weather-sensitive industry here, however. Our most recent gas coverage has shown price action affected heavily by shifts in weather patterns. Gas storage performance will be crucial if next year proves to be a cold one.

Should winter 2021/2022 prove to be colder, depleting stored gas across Europe, 2022 could be another year of volatile natural gas prices in Europe and Asia, with possible new records in sight.

Oil strengthens as Omicron fears subside

The Omicron variant’s impact may have been overstated if oil markets are anything to go by this week.

Crude oil trading

Oil outlook still strong post-Omicron

When the world first discovered the Omicron COVID-19 strain last week, danger signs started flashing globally.

Big questions were asked: would this new variant be even deadlier than those that came before? Is the world really going to have to re-enter lockdown? Will normality ever return? Although it’s still early days in Omicron’s development, it may not be the apocalypse after all.

This is all good news for crude oil.

While infections are increasing, it appears the hospitalisation rate in developed nations has not dramatically increased following Omicron’s emergence.

“Though it’s too early to really make any definitive statements about it, thus far it does not look like there’s a great degree of severity to it,” US COVID advisor Dr. Anthony Fauci said. “Thus far, the signals are a bit encouraging. But we have really got to be careful before we make any determinations that it is less severe, or it really doesn’t cause any severe illness, comparable to Delta.”

A global lockdown may not be on the way. Oil demand may still stay high into January 2022.

WTI futures were in the green as of the morning of Tuesday December 7th. The Texan benchmark is up 2.35% on the day, trading for around $71.69 at the time of writing.

Brent crude futures were also up around 2% on the same day, trading hands for $75.08.

The Omicron panic-induced sell-off triggered last week may have come to a halt. Momentum is back with the bulls for now, although it might take a while for oil to reach recovery around the $75-80 level just yet.

OPEC+ sticks to the plan

If OPEC+ was worried about omicron smashing oil, the cartel didn’t let it show at last week’s OPEC-JMMC meetings.

There was much talk around the markets that OPEC members were split between keeping production increase coming or recalibrating them in line with an expected fall in demand caused by Omicron.

As it stands, OPEC and allies have committed to their now customary 400,000 bpd monthly increase. The next output hike will take place in January.

While prices recorded gains on Thursday December 2nd, following the OPEC meeting, the cartel will still have to proceed with caution. It could be creating an oil glut.

For one thing, President Biden and the US have coordinated with the UK, China, India, Japan, and South Korea to release crude from their strategic oil reserves. As much as 66 million barrels will be released onto markets following this move.

Biden has been trying to get OPEC+ to pump more oil for most of the second half of the year as American gasoline prices increased.

OPEC+ members may not be meeting their production quotas either.

A recent Reuters survey showed OPEC pumped 27.74 million barrels per day in November, up 220,000 barrels from October, but below the 254,000 increase allowed for OPEC members under the OPEC+ agreement.

Even so, Saudi Arabia appears confident in the strength of oil markets going forward. The OPEC chief and global production powerhouse hiked the price of its Arab Light blend by $0.60 earlier in the week – a sign it believes demand will stay strong as 2021 ends.

A quick look at US crude inventories data

A new EIA report is due on Wednesday this week, but ahead of that here’s a quick overview of the current situation.

According to the EIA report for the week ending November 26th, US commercial crude oil inventories decreased by 0.9 million barrels from the previous week.

At 433.1 million barrels, US crude oil inventories are about 6% below the five year average for this time of year. Total motor gasoline inventories increased by 4.0 million barrels last week and are about 5% below the five year average for this time of year.

Cryptocurrency update: Bitcoin’s $100,000 year-end dream falls away

Bitcoin is looking bearish as the year begins to wind down as Ether makes headway.

Cryptocurrency update

Bitcoin enters bear market, says goodbye to $100,000

At the start of the year there was talk that Bitcoin would hit $100,000 by January 2022. Well, as things stand, that’s look ever more unlikely. This week’s the week the bears have their picnic.

Bitcoin has been trending down since last Friday when lows hit $53,474. While it has made around $3,000 since then, currently trading at $56,660, but it looks like BTC is fully in bear mode.

The likes of Cathie Wood and other big-name investors have long claimed that Bitcoin has the potential to hit $100,000. I don’t think this is a pipe dream. Sooner or later, the world’s most popular crypto will probably hit that level. It just won’t happen in 2021.

According to research from AMB Crypto, over 10,000 Bitcoin tokens were sold on December 2nd – valued at a cool $575 million – as fear, uncertainty and doubt ramps up in the crypto space.

It seems Omicron-variant doubt is creeping into cryptocurrency traders’ minds. It’s been the same on equities markets, despite the scientific community’s belief that this new COVID strain is no more deadly than others.

Other tokens aren’t fairing quite so bad. Ethereum, for example, could be poised for a spectacular breakout.

ETH reached a new all-time on November 10th at $4,878 and is currently trading at $4,612. The $5,000 level is getting closer and closer. What’s more, at $557bn, Ethereum now represents 20% of the whole crypto economy. For context, Bitcoin used to represent over 50%, but has now slide below the 40% mark.

Ethereum is up 668% across the year.

If any token is poised to end 2021 on a high note, it’s Ethereum. Bitcoin still has a lot of work to do before it crosses the $100,000 barrier. It’s yet to cross $70,000. Q4 is traditionally a strong time for the token, so it probably has some legs left in it just yet, but the rise to $100,000 will be a marathon, not a sprint, in this writer’s opinion.

Facebook unbans crypto advertising

In what’s probably very good news for the whole crypto sector, Facebook has unbanned digital token advertising on its social media platform.

This is likely one of the steps the social media giant, now operating under the parent company Meta, is taking to create the metaverse.

What is the metaverse? Well, the tech buzzword de jour very basically means creating a digital/physical ecosystem where users work, socialise and play using augmented and virtual reality technologies.

The crypto industry will now be able to harness Facebook’s formidable advertising power to reach an audience of around 3 billion globally.

Crypto adverts were banned by Facebook in 2018 as part of a general crackdown on “misleading or deceptive promotional practices”. Whether or not you believe Facebook is capable of adequately fighting such practices is a different matter entirely.

In a statement regarding its decision, Facebook said: “We’re doing this because the cryptocurrency landscape has continued to mature and stabilise in recent years and has seen more government regulations that are setting clearer rules for their industry.

“This change will help make our policy more equitable and transparent and allow for a greater number of advertisers, including small businesses, to use our tools and grow their business.”

Meta and Facebook clearly sees digital finance, including non-fungible tokens (NFTs), as part of its general pivot to the metaverse.

Last month, Morgan Stanley said the metaverse represents an $8 trillion investing and trading opportunity. Its development could help spur on mainstream acceptance of digital currencies, as well as help strengthen prices.

Jack Dorsey goes all in on crypto

After stepping down as Twitter CEO, Jack Dorsey is turning all his effort towards his payment platform Block.

Previously called Square, Block’s name change indicates a significant interest in crypto and decentralised finance for the former Twitter bod.

Some believe this rebranding exercise signals a wholesale shift from standard online payment platform to full-on blockchain and crypto company.

Dorsey has long been a crypto evangelist. For the past five years, he’s shown significant interest in its development. In one of his last acts as Twitter CEO, he gave the greenlight for platform accepting “tips” paid in Bitcoin for tweets its users feel are deserving of more than a simple like and retweet.

Dorsey was also one of the driving forces behind the Bitcoin Lightning Network, and supported Bitcoin developers directly through a unit called Square Crypto. Square was also one of the first digital payment systems to integrate crypto functionality.

This appears to be part of the growing acceptance of DeFi and cryptocurrencies in general amongst the mainstream. What long-term effects this will have on token price action remains to be seen, but it appears Jack Dorsey is the next major tech head to fully embrace digital tokens.

Warm weather sends Natural gas into the red

Natural gas prices tumble on shifting weather patterns.

Natural gas trading

Natural price drops on warmer forecasts

Warm weather forecasts and natural gas price drops: name a more iconic duo.

Yes, it’s that time of the week again where we reverse last week’s natural gas outlook – all thanks to changing weather patterns.

No one can control the way temperatures flow and weather changes. However, this does make natural gas prices difficult to predict on a week-by-week basis. It appears the weather is the most important factor when determining price action at the moment.

We’re meant to be in winter. The UK and parts of Europe had snow early this week, but it appears the US will have to wait before seasonal temperatures reach expected norms.

The latest weather outlook from Natural Gas Weather says: “A cool shot lingers across the Great Lakes and Northeast this morning w/chilly lows of 10s to 30s. However, most of the rest of the US will be mild to nice w/highs of 50s to 70s for light demand.

“By Wed-Thu, almost the entire US will be warmer vs normal w/highs of 40s-50s North and 60s to 70s South as upper high pressure rules for very light national demand. A weather system/cold shot will push into the Midwest late this weekend into early next week w/lows of 10s to 30s for a minor increase in national demand.

“Overall, national demand will be LOW to VERY LOW.”

The weather has put natural gas traders in a bearish mood. Henry Hub natural gas futures are down over 5% as of Tuesday 30th November, trading for around $4.614. What a difference a weekend makes. For comparison, Friday 26th November saw gas futures reach a high of $5.515.

Perhaps this might give US stockpiles some relief? We’re supposed to be transitioning into the winter months where high consumption is on the cards. US gas stockpiles are lower than this time last year, according to EIA data, so perhaps it’s a good thing demand will remain on the low-end of the scale before temperatures really start to drop.

A quick look at EIA natural gas inventories data

Thursday sees the release of the most up-to-date EIA gas storage numbers, but we can get a look at the situation stateside with the previous report.

Working gas in storage was 3,623 Bcf as of Friday, November 19, 2021, according to EIA estimates. This represents a net decrease of 21 Bcf from the previous week. Stocks were 320 Bcf less than last year at this time and 58 Bcf below the five-year average of 3,681 Bcf. At 3,623 Bcf, total working gas is within the five-year historical range.

US LNG in high demand

Throughput at US liquid natural gas export terminals is up month-on-month. With Europe running low on gas, and Asia with a big LNG appetite, it appears American LNG is in high demand worldwide right now.

Inflows at export hubs hit 11.4 Bcfd in November so far – a considerable increase against October’s 10.5 Bcfd. Those numbers put the United States on course to match the monthly record of 11.5 Bcfd registered in April of this year.

Colder temps heat up natural gas but outlook is mixed

Natural gas prices got a slight bump on Tuesday morning ahead of the week’s colder temperatures, but the run into December could bring unseasonable warmth.

Natural gas trading

Short term colder weather on its way to the USA…

We write about this every week. Temperature changes and forecasts have a big impact on natural gas prices. If you’re a gas trader, you’ll already know this. Last week, prices fluctuated on changing weather predictions, and they’ve done the same again at the start of this one.

At the time of writing, Henry Hub natural gas futures were up 3.89% on the day, trading over the $5.00 level. Some solid progress has been made by natural gas at time when more bearish analysts were saying a $4.50 market correction was likely on the cards.

Cold weather systems are on their way this week.

Natural Gas Weather says: “A chilly weather system with rain and snow will track across the Great Lakes and East Mon-Tue w/highs of 30s to 40s and lows of 10s to 30s. Most of the rest of the US will be mild to nice w/highs of 50s to 70s.

“A mild break is expected across the East mid-week w/highs of 40-60s for a swing back to lighter demand. However, a fresh cold shot will drop into the Midwest and track across the East Fri-Sat w/lows of 10s to 30s for a swing back to stronger national demand. Overall, national demand will swing between MODERATE and HIGH every few days over the next week.”

…but early December forecasts put traders in a bearish mood

The life of a natural gas trader eh? Warmer temperatures might be on their way in December.

“The change is a result of a deeper trough over the eastern Pacific, alongside waning of the North Atlantic block,” Maxar Weather Desk said in its latest forecast. “This allows for a much warmer pattern for most of the U.S. and Canada, where bellows are limited to the East Coast at the start of the period.”

Natural Gas Weather backs this up. Almost all of the US is expected to see temperatures be much warmer than usual between the 1st and 7th of December.

“The focus this week is likely to turn to how long the coming warmer than normal early December U.S. pattern lasts, because the further into December it takes for blue weather maps to return, the more pressure it puts on bulls to reduce risk,” NatGasWeather said.

That market correction might still be on the cards then. Price movements are so tied in with the weather that it makes it tough for traders to really get a grasp on things. At the start of the month, all forecasts suggested an icy blast was on its way and that December would be chilly, thus pushing up US natural gas futures prices.

To summarise: short term gas demand for the week up to 26th November: moderate to good. After that? Probably weaker.

A quick look at US gas inventories

US working gas in storage was 3,644 Bcf as of Friday, November 12, 2021, according to EIA estimates. This represents a net increase of 26 Bcf from the previous week.

Stocks were 310 Bcf less than last year at this time and 81 Bcf below the five-year average of 3,725 Bcf. At 3,644 Bcf, total working gas is within the five-year historical range.

COVID sinks crude oil

It’s a continued slide into the red for crude oil prices at the start of this week.

Oil trading

Crude oil prices start the week on a weak footing

Crude prices took a bit of a beating over the weekend. Slight gains were made on Monday, where highs topped out at around $77 for WTI and $80 for Brent. As of Tuesday morning, however, both benchmarks had slumped back into the red.

WTI futures are currently trading for around $75.79 and are down 0.92% on the day.

Trading 0.52% lower are Brent Crude futures. They are trading for roughly $78.84 at the time of writing.

There is plenty going on that explain the current drop in oil prices.

Firstly, COVID. Rising case numbers across Europe has caused fresh lockdowns in the likes of The Netherlands, Austria, Germany, and Slovakia. These nations could be used as lockdown bellwethers as we head into the winter months. Remember how cases surged last year around this time? We could be looking at that again.

Some countries, like the UK, are banking on high vaccine take up and natural immunity to prevent further restrictive movement measures across the festive season.

Either way, oil traders are feeling cautious. Higher COVID caseloads resulting in widespread lockdowns is likely to put a dent in oil demand for at least the next month. Given we’re trading December contracts, it might be a smart play. Winter is coming.

President Biden and strategic oil reserves

Word is President Biden is tapping up other nations to get them to dip into their strategic oil reserves.

We already saw last week’s US supply concerns trip crude oil up.

US gasoline prices are up 60% this year. Crude oil prices are heading lower, so gasoline prices should start to drop off too (in theory). However, that hasn’t stopped Democrat voices in the Senate pushing Biden towards the strategic oil reserve. Who else will think about all those working-class Americans in their gas-guzzling pickups?

Reports say Biden has reached out to China, India, South Korea, and Japan to coordinate efforts to cool global energy prices. All of the above are major, major crude importers and are no doubt feeling the heat from high energy prices.

The moves comes after Biden previously reached out to OPEC+ to get it to pump more oil. OPEC said no. The cartel is sticking with its 400,000 bpd monthly production increases. Having said that, it does appear OPEC+ is not reaching those 400,000 bpd levels anyway.

In October, it was revealed that OPEC members had jointly increased production by 217,000 bpd. On the other hand, the cartel pumped 650,000 bpd in September, so perhaps October’s fall away was to cover the excess from the previous month.

Still, Biden seems fairly displeased with the cartel of oil production nations. There is even talk of resurrecting the old No Oil Producing and Exporting Cartels Act (NOPEC). It’s unlikely to ever become law, but NOPEC would give the White House the power to sue OPEC+ members for perceived market manipulation. That is kind of OPEC’s job though.

The latest EIA crude oil inventories report is published on Wednesday this week. The previous week’s report, with date for week ending November 12th, showed a two million barrel drawdown.

At 433.0 million barrels, US crude oil inventories are about 7% below the five-year average for this time of year.

Stocks limp into weekend, tech bid, bond yields lower

Week-end run-down:

  • Stocks are ending the week in a bit of a mixed mood, but more half empty than half full. Value/cyclicals on the back foot with bond yields down, tech bid for the same reason. Losses in Europe running around 0.3-0.5% for the main bourses. Looks like the sluggishness in Europe is driving some profit-taking in the US outside of the tech space, energy under pressure from residual weakness in oil.

 

  • Austria’s lockdown and likely lockdowns in Germany put European stock markets into a downwards gear shift earlier in the session and we are holding losses into the close. Austria is also going to make vaccination mandatory, which has so far not inspired much concern about civil liberties from the people you normally hear from when government’s overreach. Across the pond the House has passed Biden’s BBB social spending plan.

 

  • US markets are mixed – Big Tech lifting Nasdaq up 0.5% to a record high and helping the S&P 500 fend off any meaningful decline. Dow is down 0.7%.

 

  • Bonds are telling the story at the moment – 5bps drop in the 2yr is the biggest drop since March 2020 – which seems to be down to the Austria lockdown read across. 10s declined to 1.52%. That move lower in rates only supports growth/tech etc so Nasdaq record high = good for US, but it’s headwind for Europe – which prefers higher rates and is more value sensitive.

 

  • More mixed messages from the Bank of England as chief economist Huw Pill said he doesn’t know which way he will vote in Dec…is there much more data to come before then? Seems odd, only reinforces the unreliable nature of the BoE comms and uncertainty around the future path of monetary policy. If you don’t have something useful to say don’t say anything. GBPUSD is chopping around the 1.3450 area after pulling back from the 1.35 area earlier in the session, 1340 offering near-term support.

 

  • Oil tried to rally today but WTI (Jan) is back to a $76 handle – likely mainly on the lockdown situation in Europe, but sentiment remains bearish amid broader concerns of oversupply.

 

  • Euro is weaker – Lagarde comments earlier + lockdowns cement belief in ECB being slowest to normalise and potential for anti-Goldilocks scenario for Europe into 2022. Anti-Goldilocks but not sure if big bear or little bear…are you playing weaker euro and weaker EZ stocks…or just one? Normalisation of real yields next year ought to be supportive for value/cyclicals, particularly autos and banks, but this is definitely not what we are seeing today. Weaker euro on CB divergence + economic divergence between the US and EU has been and remains the simplest play.

EURUSD is off the lows of the day but still under pressure at 1.13 and conspicuously made a fresh 16-month low.

EURUSD Chart 19.11.2021

Finally, notable that The Economist is leading with something about how no one predicted all this inflation, which is simply untrue. So I leave you with this from me, dated August 26th, 2020: 

 

I find this idea of AIT [average inflation targeting] being a better anchor for inflation expectations problematic. Whilst I don’t pretend to being an economist, regular readers will be familiar with my view that a sharp bounce back in growth (albeit to a level still below pre-pandemic potential) combined with unlimited Fed accommodation, a vast increase in the money supply (if not yet the velocity of money) and a massive fiscal put is basically inflationary. Remember, as Friedman put it “inflation is always and everywhere a monetary phenomenon that arises from a more rapid expansion in the quantity of money than in total output”. The rate of expansion in the monetary base is consistent with past bouts of high inflation in the 1930s, 1940s and the 1970s. Whilst post-GFC QE led to money printing, it was gobbled up by a financial system hungry for capital and balance sheet repairing. The fiscal stimulus this time makes it a very different environment. 

 

Layer on top of that the disruption to supply chains and fundamental shift in deglobalisation trends, and you create conditions suitable for inflation to take hold. If the Fed also indicates it does not care if inflation overshoots for a time – indeed is actively encouraging it – there is a risk inflation expectations become unanchored as they did in the early 1970s, which led to a period of stagflation 

 

…My concern would be that once you let the inflation genie out of the bottle it can be hard to put back in without aggressively tightening and likely as not engineering a recession. Nonetheless, this seems to be the way the Fed is going.   

 

Paul Tudor Jones put it best back in May when he said that the question of whether the current bout of money printing will ultimately prove inflationary comes down to how reasonable is it to expect that in the recovery phase the Fed will be able to deliver an increase in interest rates of a magnitude sufficient to suck back the money it so easily printed during the downswing? Most agree it won’t be easy – in fact AIT would effectively kick the can down the road for many years. The Fed is not even thinking about thinking about sucking the money back in. This ought to stoke inflation, but it could be more than the Fed wants – the genie is coming out. 

Natural gas fluctuates on weather forecasts but still way off October highs

Weather trends continue to weigh heavily on US natural gas futures this week but shifting patterns could give Henry Hub a bump.

Natural gas trading

Shifting weather patterns confuse the markets

It was a poor weekend for natural gas prices. US gas futures fell to around the $4.749 level at their lowest on Friday afternoon.

Henry Hub futures have made their way back above $5 again, currently trading at around $5.151 as of Tuesday November 16th. However, they are still down 23% against October’s highs.

Weather outlooks continue to shift. That’s the nature of weather, I suppose, but forecasts have been pulling natural gas traders all over the shop recently.

At the start of the week, we were told that weather patterns were bringing unusually warm temperatures to most of the US. Now, the likelihood is cold Canadian winds, which were forecast weeks ago, are starting to finally sweep down into the continental United States.

Perhaps we should let the experts explain.

Natural Gas Weather states: “One weather system will exit New England, leaving behind chilly lows this morning of 20s and 30s. A second system is bringing rain and snow to the Northwest and Mtn. West with lows of 20s-40s.

“Most of the rest of the US will be mild/warm and dry w/highs of 60s to 80s for light demand. The system over the Northwest will track across the Midwest late in the week, while tapping colder Canadian air w/lows of 10s to 30s.

“Weather systems will continue across the northern US this weekend, while mild to nice elsewhere. Overall, demand will be LOW Tue-Thu, then MODERATE-HIGH late in the week.”

There’s quite a bit of uncertainty at the moment, so if you’re a gas trader, keep watching the skies for rain and snow in the US.

Rising US gas output may pressure prices too

US production floated around the 95 Bcf during the week ending November 12th – near to 2021 levels. What’s more, two more gas rigs came online during the last week too. US natural gas rigs are now at their highest levels since September 2020 at 102.

More US gas could be on the way – but we’ve got to keep watching the weather. Otherwise, the market could run into a high supply/low demand scenario, sending prices down again.

That said, stocks are still someway below the five-year average. The EIA’s inventory numbers for the week ending November 5th showed stocks were 308 Bcf less than last year at this time and 119 Bcf below the five-year average of 3,737 Bcf. For reference, inventories rose by 7 Bcf at this time for a total of 3,618 Bcf.

If the above scenario proves true, then the US could also turn some of that excess production towards export markets. Exports averaged 9.8 Bcf per day in October – an 0.3 BcF increase over September’s levels – according to the EIA.

Russia is already starting to let the gas flow to Europe and, if they prove steady, could eliminate the need for US LNG across Europe this winter.

 

Oil takes hit on supply expectations

Oil prices continue trending downward as supply worries start to seep into traders’ minds once more.

Oil trading

Prices slide as supply outlook shifts

Oil weakened over the weekend and continued to edge lower on Monday morning this week. Supply-side issues are contributing to a bearish atmosphere for oil traders right now.

Taking a quick look at the WTI and Brent benchmarks shows how the current scenario is weighing on price action.

WTI, for example, drifted below $79 on Monday although it did climb back over $80 in early trading on Tuesday morning.

Brent crude hit a low of $80.66 on Monday morning. As of Tuesday 16th November, the North Sea benchmark had climbed back to $82.60.

One of the bi catalysts for the poorer price activity is supply issues. America isn’t getting enough oil and consumers are starting to feel the pinch at the pumps.

The US holds a pretty privileged position and thinks it deserves low gasoline. You would have thought the 1973 oil crisis, which should really have been the death knell for gas guzzlers, would have been a wake-up call, but nearly 50 years later and Joe Sixpack still thinks his Ford Ranger V8 requires the cheapest gas available.

As such, the US may need to start dipping into its strategic gasoline reserve. President Biden is being urged by Senate Majority Leader Chuck Schumer to open up those stored barrels and let the crude flow.

“No industry is spared. But fuel gasoline is the worst of all,” Schumer said. “Let’s get the price of gas down right now. And this will do it.”

If that does occur, then crude prices may drop.

Baker Hughes’ rig count showed four more US rigs came online in the week ending November 12th – hinting at higher American supply. Maybe the US just has to be patient?

We’ve also seen OPEC+ modify its supply outlook somewhat. The cartel slashed its Q4 demand outlook by 330,000 bpd last week. That said OPEC+ is allegedly not worried about the US heading into its strategic oil reserve. Oman’s Energy Minister Mohammed Al-Rumhi has indicated the group of oil-producing nations won’t be moved by Biden’s pleas for more crude.

However, there are signs from some top OPEC players 2022 might be a difficult year for oil.

Russia and Saudi Arabia fear crude oil oversupply next year

“Everybody is predicting a surplus of supply starting from the first or second quarter,” next year, Russian Deputy Energy Minister Pavel Sorokin told Bloomberg at Adipec, the oil industry event in Abu Dhabi, this week. “Inventories have stopped drawing, which shows there is no deficit at the moment.”

That said, everyone who spoke to OPEC insiders at Adipec said the cartel was essentially sticking to its guns. OPEC+ will keep raising crude oil production by 400,000 bpd until April 2022 at the earliest. The crude must flow.

But he who controls the crude controls the universe. For many in the oil trading world, that He is Saudi Arabia. What’s the word from the OPEC+ top dog? 400,000 bpd is “enough”.

“We need not to panic,” Saudi Energy Minister Prince Abdulaziz bin Salman said. “We need to be calm.”

We saw last week oil get a boost from OPEC+’s decision to keep its production increases steady and not bow to outside pressures.

A glut would be bad news for oil prices – especially in the wake of rising global COVID-19 cases. China is tackling its largest Delta variant breakout to date while parts of Europe have sunk back into local lockdowns. Danger signs are starting to flash again. As we head into the winter months, there’s a real danger cases could rise exponentially across the Northern Hemisphere. That would weigh very heavily on oil demand.

Gold jumps on hot CPI

Well, this is a mess, an inflation report so bad even the Fed might actually do something about it? Hohoho, I joke of course…

Inflation way ahead of forecast and exceeding 6% on the headline number, highest in 30 years, core month-on-month accelerated to +0.6%. Yet Fed still sticks to its ‘transitory’ narrative.

Gold has blown past resistance and the path to $1,875 is clear. Stocks offered and the dollar is bid. Bonds sold off with US 10year yields jumping above 1.480%. 30 year real yields (TIPS) touched a record low -0.595%, whilst 10yr TIPS fell to I think a record low of -1.224%. Stocks are paring losses as of send time and the USD is paring gains – so far only really gold holding onto the spike with real rates the biggest loser from all of this. Well, after the Fed’s credibility.

Gold Chart 10.11.2021

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