** NEW Quarterly Overview**

Q2 Overview 2022 – Q3 Outlook 2022 PDF

Q2-2022 Quarterly Commodity Spreadsheet


Energy

Energy Weekly Component Report PDF-08.03.2022

Energy Weekly Component Report Spreadsheet-08.03.2022

Comments:

Energy prices posted across the board losses since July 26. WTI and Brent crude oil futures fell, with Brent outperforming the WTI. Gasoline and heating oil futures fell and underperformed crude oil, pushing crack spreads lower. Ethanol, coal, and the volatile natural gas futures moved to the downside over the past week.

Inventory data from the API and EIA showed increases in crude oil stockpiles for the week ending on July 29. The SPR release of 4.6 million barrels for the week ending on July 29 was higher than the stockpile increases. The API reported marginal declines in gasoline and distillate stocks, while the EIA said gasoline inventories edged higher and distillate stockpiles fell. The US SPR continues to fall and was at the 469.9-million-barrel level as of July 29, the lowest level since the mid-1980s. According to the EIA, US oil production stood at the 12.10 mbpd level for the week ending on July 29, unchanged from the previous week.

Natural gas prices were volatile over the past week but posted a 3.37% loss. The EIA will report natural gas inventory data on August 4 for the week ending on July 29. The current expectations are for a 29 bcf injection. As of July 22, natural gas in storage across the US was 10.8% under last year’s level and 12.5% below the five-year average. Russia continues to squeeze Europe’s natural gas supplies, which has added to the price variance. Hot temperatures in the US and Europe increased cooling demand, which is bullish for the natural gas futures arena and pushed the price of the continuous contract to new high of $9.72 per MMBtu on July 26 before correcting below the $9 level. Natural gas was trading on either side of $8 per MMBtu over the past sessions.

The number of US oil rigs operating moved six higher to 605 for the week ending on July 29 while natural gas rigs increased by two from the previous week to the 157 level.

Ethanol and thermal coal for delivery in Rotterdam, the Netherlands, declined with oil and gas since July 27. OPEC told markets it would increase daily output by 100,000 barrels on August 3, which is a drop in the bucket considering the US daily SPR release is around the one million bpd level.  

Trends:

Crude oil was trending lower with the price of WTI futures just over the $90 per barrel level. Gasoline was trending lower while distillate prices are consolidating at the bottom end of the trading range. Gasoline and heating oil refining spreads are sitting at the bottom end of the recent trading ranges.

Natural gas volatility remains elevated. Approach all energy markets with a risk-reward plan as two-way price variance is likely to continue. The price action in coal and ethanol remains bullish from a long-term perspective.

Natural gas is bullish, with the price making a new fourteen-year high two weeks ago before correcting. The natural gas market will shift its focus to the upcoming winter season in September and October.

Recommendations:

  • We are long the OIH ETF. I rate the oil services product a hold at $231.89 per share.
  • We are long PBR, the Brazilian oil company. I rate the stock a hold at $13.76 per share.
  • We are long half the original long position in APA Corporation after taking some profits. I rate the stock a hold at $34.43 per share.

I favor the leading oil companies, including CVX, BP, XOM, and the XLE ETF product. The prices have rallied significantly in 2022, and higher highs are likely on the horizon. I am holding a portfolio of these companies at current prices but have no specific price recommendations as I rate them a hold instead of a buy at current levels. I will add to long positions at lower levels. I am on the sidelines with very small positions, with plenty of room to add if the elevator continues to fall.

I am using BOIL and KOLD for short-term natural gas trades on the long and short side. These products are leveraged, so they are only appropriate for short-term trades. Use price and time stops when dipping a toe into the natural gas arena on the long or short side. Be very careful in the wild natural gas market!

A Final Note

Markets are now in the summer doldrums, with the potential for increased price volatility as liquidity has declined. The geopolitical landscape remains a mess, with Russia accusing the US and NATO allies of participating with Ukraine against the Russian military. Nancy Pelosi, the Speaker of the US House of Representatives, traveled to Taiwan this week, infuriating China’s leadership. Markets across all asset classes reflect the economic and geopolitical landscapes. When it comes to economics, inflation continues to cause the Fed to take a hawkish monetary policy approach. Still, the Q2 decline in GDP could cause some second thoughts as rate hikes will weigh on economic growth and could exacerbate recessionary pressures.

Watch the risk-reward dynamics of any new long or short positions. Expect periodic volatility, and you will not be disappointed.

 

Thank you for your continued support!

Warm regards,

Andy Hecht

 

 

 

Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal.  This document does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.