Off Balance. The Energy Report 01/09/2024

Volatility is high and if you don’t like the price just stick around. Oil prices are off balance trying to recover after plummeting yesterday on a cut in the Saudi oil official selling price, a surging speculative short oil position, and the fact that commodity index funds must sell to rebalance their indices based upon the recent drop in the oil price. Yet prices are bouncing back because the selling is out of balance. Oil demand fears in the US seemed to be out of step with the resurgent stock market. Demand concerns in China are out of step with reports that China sold 2.27 million passenger cars in December which was 8.3% higher than the year before. I do not think they were all electric.

Speculative selling also is out of balance with historical norms as the specs continue to push the short envelope to near-record levels. Reuters reported that, “Hedge funds and other money managers sold the equivalent of 66 million barrels in the six most important petroleum futures and options contracts over the seven days ending on January 2. Sales were concentrated in crude (-63 million barrels), distributed roughly equally between NYMEX and ICE WTI (-33 million) and Brent (-30 million). There were only minor sales of European gas oil (-5 million barrels), minor purchases of U.S. gasoline (+1 million), and no change in U.S. diesel.

They could be front-running the Index funds.  Oil analyst Brynne Kelly pointed out that commodity funds tracking the Bloomberg Commodity Index and the S&P GSCI are likely to sell about $2 billion worth of WTI in the coming days, Citigroup Inc. estimates, as the annual realignment of their portfolios takes place.

Then we have the weather! Winter is here with a vengeance. Fox Weather reports 49 states under weather alerts as powerful winter storms pack blizzard, flooding, and severe storm threats. They warn that a powerful storm is bringing snow, flooding and severe weather to parts of the U.S. this week. Blizzard conditions are likely in the Plains, as severe storms, flooding, and power outages are all possible from the South through the Northeast.

Funds are not just picking on oil. Karen Braun at BWX reported that soybeans have tumbled 4% so far in 2024 – beans’ worst start to a year in exactly 40 years. Monday’s low of $12.36 bushels, the most-active contract’s lowest since Dec. 2021. Beans are now in oversold territory per the relative strength index. Money managers have posted a record-fast selloff in CBOT soymeal futures & options since late 2023. Meal futures are more than 20% off their mid-Nov peak, unusually steep losses, particularly for this time of year.

After yesterday’s big sell-off, it looks like we’re getting a turn around Tuesday! Oil and grains might make a snap back.

Natural gas prices are rallying even though we are well supplied. Prices are looking like they’re going to turn the corner. If we get some of these record-breaking cold temperatures some forecasters are predicting, then we could see some big spikes.

It’s amazing how quickly a market that seems to be oversupplied can quite quickly flip when the fundamentals change. The market has not priced in winter, and if we get a winter then beware and be prepared. If we see record-cold temperatures going to stay around for a while we could see a significant increase in the price of both grains, natural gas as well as oil.

Make sure you stay tuned to the Fox Business Network because they are Invested in you! FOX Weather is doing a great job keeping us up to the minute with the storms across the country.

Also call to open your futures and options on futures account. Call Phil Flynn at 888-264-5665 or email me at pflynn@pricegroup.com.