Natural Gas and Oil Forecast: WTI and Brent Retreat as Traders Monitor Middle East Supply Risks

Energy Markets Remain Constrained by Middle East Transit Risks

The crude oil industry continues to be determined by the slow recovery of Persian Gulf exports following the extended U.S.-Iran Hostilities. The Strait of Hormuz, which carries oil supply to (roughly) 20% of the world, still has traffic well under normal levels despite the resumption of intermittent diplomacy and the partial reopening of the Strait earlier in the summer. There are even more limitations to bypass the Strait of Hormuz by pipeline due to Yemen’s Houthi rebels threatening attacks on shipping in the Red Sea.

The International Energy Agency (IEA) has determined global supply is still significantly below pre-war levels, even following a partial recovery in the month of June. A significant reduction in strategic oil reserves has cushioned the negative impact of the global oil supply shortage in the countries that consume oil the most. This has resulted in low commercial oil inventory in several regions. Oil demand is inelastic.

There was some fuel switching from elevated prices and lower industrial offtake in Asia, however this was offset by seasonal summer consumption and an increase demand for oil to replenish depleted stocks. The overall supply-demand balance remains sensitive to any further disruptions in the Gulf and the potential for the rapid resumption of Gulf oil output.

Natural gas markets see similar constraints. Disruptions to LNG from Qatar and the UAE tightened global supplies and increased competition for Atlantic Basin shipments between European and Asian buyers. The International Energy Agency forecasts a small decline in global gas demand in 2023. Higher prices create a fuel switch to coal in the Asia power sector and reduce the industrial sector’s coal consumption. Europe benefits with increased renewable generation.

In the U.S., the Henry Hub market is more insulated due to robust domestic production and storage, though steady LNG exports pull gas from the domestic system. The immediate oil and gas outlook remains dependent on the pace of disrupting transit in the Middle East and the sustained demand response of the major importing countries.

Natural Gas Technical Analysis: Recovery Attempts Face Fibonacci Resistance

Natural Gas futures are attempting recovery from a bearish decline with the 23.6% Fibonacci retracement level at $2.752. Buyers continue to remain below both the 50-EMA ($2.822) and 100-EMA ($2.909) so price remains in the bearish longer-term outlook. The RSI has returned to near the 49 mark showing an improvement in momentum with the bearish outlook.

Immediate resistance is offered at $2.752 and then the supply zone near $2.849 and the 38.2% Fibonacci level at $2.805. Initial support occurs at $2.666 with stronger support at $2.600.

The short-term forecast is cautiously optimistic, as long as natural gas stays above $2.666. A confirmed breakout above $2.752 would establish a target of $2.805 and $2.849. However, if natural gas fails to hold the current levels, we could see a retest of $2.666 before approaching $2.600.

WTI Crude Oil Technical Analysis: Breakdown Below Pivot Shifts Focus to $80 Support

Since breaching $83.31, which is considered a Pivot Level, WTI Crude has broken the Level and has become bearish. The market is pushing prices to around $81.40. The most recent candlestick is a strong bearish candlestick indicating rejection from the Pivot Zone, and the formation of lower highs has been confirmed. WTI Crude has breached the $83.54 (50 day EMA) and $81.82 (100 day EMA), which suggests increasingly bearish sentiment.

The RSI has declined to approximately 41. The RSI remains below the midpoint, indicating bearish sentiment and the market is not in the oversold region. The immediate support for the market is at $80.00, then $78.27. On the upside, previous support at the Pivot Level of $83.31 is now the first level of resistance, and the 50 day EMA at $83.54 (and $84.80) provides strong resistance.

Considering WTI remains below $83.31 market sentiment is overwhelmingly bearish. A breach of $80.00 will strengthen selling pressure to the $78.27 level. A breach of $83.31 will reverse bearish sentiment and target $84.80.

Brent Crude Oil Technical Analysis: Sellers Regain Control Below Key Fibonacci Support

Brent Crude has gone bearish with the price currently at $84.80 after showing an inability to remain above the 23.6% Fibonacci retracement level at $85.68. The recent candles have indicated a decisive rejection of the 50-EMA ($87.88) and 100-EMA ($86.49). Lower highs continue to develop a short-term downtrend. The RSI has fallen to the low 40s with a confirmation of declining momentum and is still not in the oversold region.

The downtrend target is set at $82.00 with the significant swing low at $80.62. Resistance levels are at $85.68 and $88.80 with both Moving Averages. A recuperation above these would restore the bullish sentiment.

The technical forecast for Brent remains bearish below $85.68. A break below $82.00 would target $80.62. A recovery above $85.68 would target $88.80.