When prices move little, we are encouraged to keep our Factors unchanged. Still, a few are worth some attention.
We still acknowledge the combination of OPEC+ Cuts, Production Decline, and Middle East Hotspots is a bullish force that, if unwound, would pressure prices lower. We’re concerned about Libya’s 1 MMBbl/d of production returning, U.S. shut-ins coming back, and OPEC+ failing to keep its new agreement intact.
Storage Capacity. In PADD 3 (Gulf Coast states), storage builds continue, but the market is like ¯\_(ツ)_/¯. Per EIA estimates, there is still a lot of storage capacity available on the coast. This remains a potential bearish surprise.
Storage Level. Prices rose in the last two weeks on some lower storage injections and hotter weather forecasts. We anticipate many traders are now less concerned about reaching storage limits in October or November. We suggest storage capacity is still a bearish risk that needs respect. We moved this Factor higher to represent it as a potential bearish surprise.
Power. Demand for electricity has soared, but it’s not as bullish as you might think. When controlled for temperature, power demand is still suppressed. Fortunately, gas continues to be a preferred fuel. We maintain this as a bullish Factor, but it has limits.
Oil Price. Some heavy resistance at $40 has kept WTI as a modest bullish Factor for NG. The longer Cal ’21 NG remains low, the more potential production losses from BOTH associated gas and dry/rich-gas plays could cause supply shortages in 2021.
COVID-19/Recession. COVID-19 and it’s increasing upheaval is driving price and yield action in almost all markets. This has become a larger factor in slowing down the economic rebound and keeping yields lower.
Treasury Issuance. Congress will have to pass it’s next fiscal support and recovery act soon, which will be in the range of anywhere from $1 trillion to $3 trillion. This will all be funded by new Treasury issuance, increasing government debt and putting pressure on Treasury yields to rise, just as some significant long-term buyers (particularly pension funds and insurance companies) have reduced their demand. Hence, Treasury issuance will become a larger factor and potentially lead to higher yields and rates.
Money Supply. The Federal Reserve is the largest buyer of U.S. Treasury debt. With the expected next spending steps by Congress, more money will be printed to purchase this newly issued debt, making money supply a larger factor toward higher interest rates.
Stock Market. With the equities markets falling off their highs and trading sideways along with increasingly concerning and disruptive COVID-19 news, the stock market rebound is on pause and has become less of a threat to overheat the economy.