Natural Gas and Oil Forecast: Oil Supply Risks Rise as U.S. Gas Output Hits Record

Oil News: Gulf Fighting Revives Supply Risk as U.S. Gas Output Hits Record

The tentative creep of oil basics away from demand and towards supply has rekindled with outbreaks of the conflict between the U.S. and Iran. The recently reignited threats of more strikes on Iran, along with the indefinite closure of the Strait of Hormuz, has restricted tanker flow in the region. Prior to the latest conflict, the Strait conducted about 20% of global oil trade. With another military conflict, a direct threat to U.S. crude and Brent linked international supplies will hit the U.S. hard.

These conflicts will hit the U.S. harder than they did before due to less emergency stock supply. The U.S. is now running its Strategic Petroleum Reserve at 286.6 million barrels, its lowest supply since 1982. With Washington’s inability to absorb a long term Gulf supply shock with big releases, the U.S. will be hit harder than before.

These supply disruptions will affect the refined product markets as well. Russia has extended their diesel export ban through the end of September after the recent Ukraine drone attacks slowed their refinery operations. In the latest data, Russian gasoline production fell to roughly 70% of domestic demand in late August, a stark contrast to normal operations.

The supply of natural gas in the U.S. has seen some dramatic changes as well. New EIA data show in June, U.S. dry gas production hit a record high of 112.33 Bcf/d, representing a 4.5% increase year over year. Total gas exports for the U.S. were up 19.1%, to 27.47 Bcf/d, while LNG exports reached an all time high for the month of June at 17.37 Bcf/d.

The global supply of liquefied natural gas (LNG) is still significantly impacted. QatarEnergy has pushed its force majeure on supply to Edison in Italy into early November and has halted about 29 cargoes, representing 3.8 billion cubic meters.

Under the current circumstances, the global supply of crude oil and LNG will most likely remain under pressure due to the renewed conflict in the Gulf as well as disruptions to refineries. However, as the largest domestic producer of natural gas, the U.S. has a large supply of natural gas.

Natural Gas Technical Analysis: NG Holds Above $2.90 as Breakout Structure Remains Intact

Natural Gas is trading for $2.93 on the 1-hour chart after reclaiming the resistance zone of $2.87 – $2.90 as support. The structure of the breakout is still bullish as price is trading above the previous downward trend line and is supported by an uptrend line from the lows of August.

RSI is at 60 and on the bullish side with room to go up. Resistance levels are at $2.99, $3.06. Support levels are $2.87 – $2.90, $2.82, $2.78, and $2.73.

In my opinion, bullish trading of natural gas is maintained as long as it trades above $2.87 – $2.90. An uptrend above $2.99 suggests we are heading toward $3.06. A downtrend breaking below $2.87 indicates the breakout is invalid and trading focus is then directed to $2.82.

WTI Crude Oil Technical Analysis: WTI Breaks Higher Toward $87.71 as Momentum Strengthens

WTI crude oil is currently trading at $86.92 on the one-hour chart after breaching the August descending trendline. The breakout also cleared the previous resistance at $85.73, leaving it as new support. WTI is currently trading above both the short-term moving averages, confirming that price is in the control of the buyers after the recent reversal from the $80.05 support region.

The Relative Strength Index (RSI) currently sits in the mid 60s, showing strength in the bulls, but not to the extent that it is in an overbought situation. Air resistance currently sits at $87.71, $90.67, and $92.79. On the other side, support sits at $85.73, $83.26, and $80.05.

I think that WTI has reverted back into a bullish short-term structure. As long as WTI is trading above $85.73, the focus is on $87.71. A clear break out toward $87.71 would target $90.67. A break back below $85.73 would negatively impact the breakout and put resistance at $85.73.

Brent Crude Oil Technical Analysis: Brent Targets $92.01 as Rising Trendline Supports Recovery

Brent crude is currently trading at $91.54 on the one hour chart and extending its recovery from the support region at $85.33. Price continues to respect an uptrend line and is currently approaching the resistance level at $92.01, which is the next significant level for this market. The nature of this recovery is still bullish as price remains above the 50-EMA and 100-EMA and pullbacks continue to form higher lows.

RSI in the low 60s shows some positive momentum that isn’t yet in overbought territory. There is resistance at $92.01 and support at $90.13. $90.13 will be a breakdown and invalidation level for price action to hold above the rising trendline and be bullish for Brent. If it breaks above $90.13 and the rising trendline, bullish momentum will carry price action to the $92.01 level. Any level above $92.01 is strong enough to pullback and possibly reach support at $90.13. A potential retracement below $90.13 will target $88.36, $87.23, and $85.33.