Daily Energy Complex Commentary 9/23/2021

Thursday September 23, 2021

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DAILY ENERGY COMPLEX COMMENTARY 9/23/2021

Risk-on supports to start but fresh bulls news is needed

OVERNIGHT CHANGES THROUGH 6:06 AM (CT): CRUDE -46, HEATING OIL -128, UNLEADED GAS -195

CRUDE OIL MARKET FUNDAMENTALS: While the November crude oil contract this morning forged a new high for the move and a 5-day high, the market has recoiled from that level ($72.18). However, the macroeconomic environment has shifted positive for commodities and a force majeure from the Canadian tar sands area provides the bull camp with several supportive issues. While the currency markets have consistently managed to rally off the shortages created by the dual hurricane hits, we think the markets now need fresh bullish fodder to take out the September highs. However, the crude oil market yesterday saw bullish developments from inside and outside market forces. Inside forces were led by a crude stock decline that was much larger than expected and from a much larger than expected jump in the year-over-year crude oil deficit. Furthermore, US crude oil stocks fell to the lowest level since October 2018 and the markets were presented with noted declines in Cushing, Oklahoma and SPR supplies. On the other hand, the energy markets are aware of the upcoming (Friday) Chinese strategic oil sale of 7.4 million barrels of crude oil, and that could be a limiting force over the coming 2 days. Outside forces lifting energy prices arose from a risk-on mentality (after the moderating of the Evergrande contagion threat), improved gasoline demand stories and reports that India posted a 14.2% increase in refinery processing last month, which in turn highlights possible growth in Indian crude demand. Furthermore, it should be noted that Indian total crude oil production for the month of August declined by 2.3% on the year and remains 6% lower than the Indian targeting for the month. It should be noted that India relies on foreign supply for all but 15% of its total consumption and therefore domestic production is extremely important. To extend the rally in crude oil straightaway will likely require another definitive global equity market risk on session. EIA crude stocks fell 3.481 million barrels and are 80.442 million barrels below year ago levels. Also, crude stocks stand 36.637 million barrels below the five-year average. Crude oil imports for the week stood at 6.465 million barrels per day compared to 5.761 million barrels the previous week. The refinery operating rate was 87.50% up, 5.40% from last week compared to 74.80% last year and the five-year average of 86.74%.

PRODUCT MARKET FUNDAMENTALS: Not surprisingly, the gasoline market lagged the rest of the petroleum complex on strength yesterday and that was likely the result of gasoline stocks posting the only "build" in inventories of the key EIA measures released yesterday. Furthermore, the gasoline market saw its yearly deficit fall by more than half from 13 million to 5 million barrels. It is also possible that this week's implied gasoline demand reading confirmed the seasonal downtrend in driving demand, but it is likely that bearish news was more than offset by the avalanche of reports that traffic/congestion/road use has returned to pre-Covid levels. Some are suggesting that record demand is not surprising considering the breakneck pace of new car sales in the years ahead of the pandemic outbreak. Another fresh supportive overnight development came from Singapore where weekly fuel inventories fell by 1.7% versus last week. The spike low from Tuesday is likely critical support at $2.0285. EIA gasoline stocks rose 3.474 million barrels and are 5.883 million barrels below last year and 5.956 million below the five-year average. Average total gasoline demand for the past four weeks was up 8.21% compared to last year. Gasoline imports came in at 1.082 million barrels per day compared to 638,000 barrels the previous week. The diesel market was supported yesterday by the 4th highest implied distillate demand reading of the year especially with the implied demand reading sitting significantly above 5-year average readings. Obviously, dual declines in distillate and diesel stocks add to the bullish look toward ULSD, as that points to the prospect of better demand, than the market is currently embracing. EIA distillate stocks fell 2.554 million barrels and stand at 46.599 million barrels below last year and 20.383 million below the five-year average. Distillate imports came in at 184,000 barrels per day compared to 164,000 barrels the previous week. Average total distillate demand for the past four weeks was up 13.17% compared to last year.

Weekly EIA Petroleum Report In Million Barrels CRUDE OIL Stocks Imports Refinery Capacity(%) Week Of Current Weekly Change Yearly Change 5 Year Average Current Current Year Ago 9/17/2021 413.964 -3.481 -80.442 450.601 6.465 87.5 74.8 DISTILLATES Stocks Imports Demand Week Of Current Weekly Change Yearly Change 5 Year Average Current Current Year Ago 9/17/2021 129.343 -2.554 -46.599 149.726 0.184 4.424 3.959 GASOLINE Stocks Imports Demand Week Of Current Weekly Change Yearly Change 5 Year Average Current Current Year Ago 9/17/2021 221.616 3.474 -5.883 227.572 1.082 8.896 8.515

NATURAL GAS: In retrospect, the natural gas market ran ahead of its fundamentals with the early September range up explosion. In fact, the extreme heat, record prices in Europe and twin hurricanes set a very bullish stage but prices expected the bullish fundamental condition to remain in place. It goes without saying that many of the bullish fundamental themes have reversed with the winter shortage argument potentially undermined further today if weekly US natural gas storage levels post a bigger than expected injection. However, the recent lows could be fortified by reports overnight that European gas supply just ahead of the winter season is at 10-year lows! This week's Reuters poll projects an injection this week in a range of 58 and 82 BCF. Last week the injection was 83 BCF which confirms the softening of cooling demand and the potential for rebuilding of supplies before the injection season ends. More downside action is likely with the US temperature outlook bearish, prospects of another large weekly injection and seriously damaged charts. Unreliable support is seen at the Tuesday low of $4.766 and the next stopping point on the downside could be $4.633.

TODAY'S MARKET IDEAS: While the significant surge up in crude oil prices yesterday was largely dependent on a return to risk on sentiment in the world markets, crude oil, distillate, and diesel markets all presented tightening weekly inventory readings thereby extending bull market control from the supply side. Uptrend channel support in the November crude oil contract is now $70.18 with initial resistance at a recent cluster of closes around $72.37. Uptrend channel support in November ULSD is $2.1650 and resistance is seen at $2.2160.

NEW RECOMMENDATIONS: None.

PREVIOUS RECOMMENDATIONS: None.

OTHER ENERGY CHARTS:

ENERGY COMPLEX TECHNICAL OUTLOOK: Note: Data is collected using the closing values of the previous session and calculations and analysis are run at the same time. Technical commentary is based solely on statistical indicators and does not necessarily correspond to any fundamental analysis that may appear elsewhere in this report. Data sources can and do produce bad ticks that can cause computation errors. Please verify before use.

CRUDE OIL (NOV) 09/23/2021: Momentum studies trending lower from overbought levels is a bearish indicator and would tend to reinforce lower price action. A positive signal for trend short-term was given on a close over the 9-bar moving average. With the close over the 1st swing resistance number, the market is in a moderately positive position. The next downside objective is 70.07. The next area of resistance is around 72.80 and 73.38, while 1st support hits today at 71.15 and below there at 70.07.

HEATING OIL (NOV) 09/23/2021: Momentum studies are trending lower from high levels which should accelerate a move lower on a break below the 1st swing support. A positive signal for trend short-term was given on a close over the 9-bar moving average. With the close over the 1st swing resistance number, the market is in a moderately positive position. The next downside objective is 215.77. The next area of resistance is around 222.12 and 223.58, while 1st support hits today at 218.22 and below there at 215.77.

RBOB GAS (NOV) 09/23/2021: Momentum studies trending lower at mid-range could accelerate a price break if support levels are broken. The close below the 9-day moving average is a negative short-term indicator for trend. With the close higher than the pivot swing number, the market is in a slightly bullish posture. The next downside target is 202.22. The next area of resistance is around 210.29 and 212.49, while 1st support hits today at 205.15 and below there at 202.22.

NATURAL GAS (NOV) 09/23/2021: Declining momentum studies in the neutral zone will tend to reinforce lower price action. The market's close below the 9-day moving average is an indication the short-term trend remains negative. It is a slightly negative indicator that the close was lower than the pivot swing number. The next downside target is 4.683. The next area of resistance is around 4.871 and 4.980, while 1st support hits today at 4.723 and below there at 4.683.

DAILY TECHNICAL STATISTICS 14 DAY 14 DAY 9 DAY 14 DAY SLOW SLOW 4 DAY 9 DAY 18 DAY 45 DAY 60 DAY CLOSE RSI RSI STOCH D STOCH K M AVG M AVG M AVG M AVG M AVG ENERGY COMPLEX CLAX21 71.98 62.32 59.46 77.41 74.82 71.11 71.00 69.83 68.78 69.14 CLAZ21 71.63 62.74 59.86 77.84 75.64 70.72 70.60 69.47 68.30 68.59 HOAX21 220.17 62.98 59.98 79.05 77.82 2.19 2.18 2.15 2.12 2.12 HOAZ21 219.52 62.61 59.71 78.51 76.90 2.18 2.17 2.15 2.11 2.11 RBAX21 207.72 51.26 52.01 59.33 46.43 2.08 2.10 2.08 2.06 2.06 RBAZ21 204.28 53.10 53.07 61.77 50.17 2.04 2.06 2.04 2.02 2.02 NGAX21 4.797 46.04 52.56 64.37 46.74 4.95 5.14 4.90 4.40 4.23 NGAZ21 4.911 48.91 54.75 65.61 49.39 5.08 5.25 5.00 4.50 4.33 Calculations based on previous session. Data collected 09/22/2021 Data sources can & do produce bad ticks. Verify before use.

DAILY SWING STATISTICS Contract Support 2 Support 1 Pivot Resist 1 Resist 2 ENERGY COMPLEX CLAX21 Crude Oil 70.06 71.14 71.72 72.80 73.38 CLAZ21 Crude Oil 69.68 70.78 71.37 72.47 73.06 HOAX21 Heating Oil 215.76 218.21 219.67 222.12 223.58 HOAZ21 Heating Oil 215.28 217.65 219.01 221.38 222.74 RBAX21 RBOB Gas 202.21 205.14 207.35 210.29 212.49 RBAZ21 RBOB Gas 199.27 201.96 203.91 206.60 208.55 NGAX21 Natural Gas 4.682 4.722 4.831 4.871 4.980 NGAZ21 Natural Gas 4.807 4.842 4.945 4.980 5.083 Calculations based on previous session. Data collected 09/22/2021 Data sources can & do produce bad ticks. Verify before use.

DAILY COCOA COMMENTARY 9/23/2021

Smaller production outlook, better demand tone supports bounce

While the market received some badly-needed positive demand-side news, cocoa was also strengthened by bullish developments from West Africa. The market has nearly recovered Monday's sizable loss, and should benefit if global risk sentiment continues to improve. A positive start to a holiday-shorted week for Chinese equities along with a de-escalation of Evergrande default prospects helped to soothe Asian near-term demand concerns, and that provided the cocoa market with significant underlying support. While the Chinese economy has shown signs of slowing, Asian grindings came in well above last year's totals during the first half of 2021, and should maintain that pace as long as risk concerns in the region remain subdued.

A Reuters poll of traders and analysts for the upcoming 2021/22 season had a median forecast for a global supply deficit of 125,000 tonnes, which gave an additional boost to cocoa prices. The Reuters poll projected Ivory Coast 2021/22 production would come in at 2.20 million tonnes (versus 2.23 million this season) but estimated Ghana's production at 775,000 tonnes which would be a sharp drop from this season's 1.05 million. Ghana's Cocobod has projected 2021/22 official cocoa purchases of 950,000 tonnes, which compares to this season's total of 1.045 million that was a 10-season high.

TODAY'S MARKET IDEAS: There is a growing consensus that major West African producers will see lower 2021/22 production, and that should help to underpin cocoa prices. While Asian demand concerns have been soothed, the global near-term outlook remains in doubt. Near-term resistance for December cocoa is at 2664, with support at 2632.

NEW RECOMMENDATIONS: None.

PREVIOUS RECOMMENDATIONS: None.

COCOA TECHNICAL OUTLOOK: Note: Data is collected using the closing values of the previous session and calculations and analysis are run at the same time. Technical commentary is based solely on statistical indicators and does not necessarily correspond to any fundamental analysis that may appear elsewhere in this report. Data sources can and do produce bad ticks that can cause computation errors. Please verify before use.

COCOA (DEC) 09/23/2021: Momentum studies trending lower at mid-range could accelerate a price break if support levels are broken. The intermediate trend could be turning up with the close back above the 18-day moving average. The market setup is supportive for early gains with the close over the 1st swing resistance. The next downside target is 2598. The next area of resistance is around 2675 and 2691, while 1st support hits today at 2629 and below there at 2598.

DAILY COFFEE COMMENTARY 9/23/2021

Perhaps building a base of support; 191.75 resistance

Coffee prices have held within a 9 cent range over the past 2 weeks as near- term demand concerns and sluggish global risk sentiment has kept the market from maintaining an uptrend. A professor at Brazil's Federal University of Lavras said that their nation's upcoming 2 coffee crops (2022/23 and 2023/24) will be negatively impacted by drought and frost damage, and that helped to underpin prices. In addition, a rebound in global risk sentiment helped to improve coffee's demand outlook in many regions of the world. Global demand should continue to improve as more restaurants and retail shops return to full operations.

There are early signs that China may avoid a debt default crisis, and that should help to shore up Chinese demand prospects during the fourth quarter. ICE exchange coffee stocks fell by a sizable 19,082 bags on Wednesday and with 6 sessions to go in September are firmly on track for their third monthly decline in a row. The entire daily decline occurred at warehouses in Antwerp, Hamburg and Bremen, and that bodes well for European fourth quarter demand. August Nicaraguan coffee exports were 21% above last year's total, but their full-season 2020/21 export total is 8.1% behind last season's pace.

TODAY'S MARKET IDEAS: Brazil's weather issues will impact 3 of their crops (this season and the next two), which will have a significant impact on global supply and will help to underpin the market. Near-term support for December coffee is at 183.10, with resistance at 189.45 and 191.75.

NEW RECOMMENDATIONS: None.

PREVIOUS RECOMMENDATIONS: None.

COFFEE TECHNICAL OUTLOOK: Note: Data is collected using the closing values of the previous session and calculations and analysis are run at the same time. Technical commentary is based solely on statistical indicators and does not necessarily correspond to any fundamental analysis that may appear elsewhere in this report. Data sources can and do produce bad ticks that can cause computation errors. Please verify before use.

COFFEE (DEC) 09/23/2021: Daily stochastics declining into oversold territory suggest the selling may be drying up soon. The market's close below the 9-day moving average is an indication the short-term trend remains negative. With the close higher than the pivot swing number, the market is in a slightly bullish posture. The next downside objective is now at 181.68. The next area of resistance is around 186.64 and 188.87, while 1st support hits today at 183.05 and below there at 181.68.

DAILY COTTON COMMENTARY 9/23/2021

Upside looks limited and harvest to get more active; weak

December cotton was up for the second day in a row yesterday and the market is higher this morning, but was still confined to Monday's big range down move. Traders cited mill buying in the aftermath of Monday's selloff as a source of support. The dollar was up sharply, which may have limited the gains in cotton. Traders will be looking to the weekly export sales report for direction. Last week's report showed net sales of 284,813 bales for the 2020/21 (current) marketing year for the week ending September 9, down from 453,042 the previous week but the second highest for this marketing year August 5.

Shipments last week totaled 237,495 bales, up from 155,270 the previous week and the highest since July 22. Cumulative sales for 2021/22 have reached 43% of the USDA's forecast for the marketing year versus a 5-year average of 51%. The 6-10 and 8-14-day forecasts call for below normal precipitation in the Delta and southeastern US and above normal in Texas. The Delta and southeast could benefit from the dryout.

TODAY'S MARKET IDEAS: With the very large open interest, and fund traders holding a hefty net long position, sellers are likely to turn active on a technical recovery bounce. Significant damage has been done on the charts. Selling resistance is at 91.32 and 91.91, with 88.55 and 86.02 as support.

NEW RECOMMENDATIONS: None.

PREVIOUS RECOMMENDATIONS: None.

COTTON TECHNICAL OUTLOOK: Note: Data is collected using the closing values of the previous session and calculations and analysis are run at the same time. Technical commentary is based solely on statistical indicators and does not necessarily correspond to any fundamental analysis that may appear elsewhere in this report. Data sources can and do produce bad ticks that can cause computation errors. Please verify before use.

COTTON (DEC) 09/23/2021: Daily stochastics are trending lower but have declined into oversold territory. A negative signal for trend short-term was given on a close under the 9-bar moving average. It is a mildly bullish indicator that the market closed over the pivot swing number. The next downside objective is 89.53. The next area of resistance is around 91.46 and 91.88, while 1st support hits today at 90.28 and below there at 89.53.

COTTON (MAR) 09/23/2021: Momentum studies are declining, but have fallen to oversold levels. The close below the 9-day moving average is a negative short-term indicator for trend. It is a mildly bullish indicator that the market closed over the pivot swing number. The next downside target is 88.83. The next area of resistance is around 90.66 and 91.03, while 1st support hits today at 89.56 and below there at 88.83.

DAILY SUGAR COMMENTARY 9/23/2021

Continued advance in energy may draw cane supply for ethanol

If key outside markets and global risk sentiment can maintain a positive tone, sugar can extend this current recovery move. Global market anxiety was dialed back following a positive start to their holiday-shortened week for Chinese equities, and that provided sugar with an early boost as this can shore up global demand prospects during the fourth quarter. China was either the world's largest or second largest sugar-importing nation over the past 5 seasons and accounted for 7% to 9% of global sugar imports during that timeframe. Energy prices remained fairly strong following the weekly EIA report, and that provided the sugar market with carryover support as that should help to shore Brazilian ethanol demand.

August Center-South domestic ethanol sales came in below last year's total, which was their first monthly year- over-year decline since February. Crude oil and RBOB gasoline prices are in close proximity to multi-year highs, so further strength in energies could encourage Center-South mills to shift a portion of their crushing from sugar production over to ethanol production. Forecasts for dry conditions over Brazil's Center-South cane-growing regions should help out with harvesting and crushing this season's crop, but it will also have a negative impact on the region's late-harvested cane, and that in turn has given sugar prices an additional boost.

TODAY'S MARKET IDEAS: India's mills are holding off on new export deals for the 2021/22 season due to higher domestic prices, which comes as China may start to ramp up their imports again. Brazil's sizable production decline this season continues to provide support, and can help sugar prices maintain upside momentum. Near-term support for March sugar is 19.93, with resistance at 20.32. A close through resistance will leave 21.56 as next upside target.

NEW RECOMMENDATIONS: None.

PREVIOUS RECOMMENDATIONS: Long December Sugar 20.50 call from 65 with an objective of 135. Risk to 40.

SUGAR TECHNICAL OUTLOOK: Note: Data is collected using the closing values of the previous session and calculations and analysis are run at the same time. Technical commentary is based solely on statistical indicators and does not necessarily correspond to any fundamental analysis that may appear elsewhere in this report. Data sources can and do produce bad ticks that can cause computation errors. Please verify before use.

SUGAR (MAR) 09/23/2021: The cross over and close above the 40-day moving average is an indication the longer-term trend has turned positive. A bullish signal was given with an upside crossover of the daily stochastics. Momentum studies are trending higher from mid-range, which should support a move higher if resistance levels are penetrated. The close above the 9-day moving average is a positive short-term indicator for trend. A positive setup occurred with the close over the 1st swing resistance. The next upside target is 20.37. The next area of resistance is around 20.24 and 20.37, while 1st support hits today at 19.90 and below there at 19.68.

***This report includes information from sources believed to be reliable and accurate as of the date of this publication, but no independent verification has been made and we do not guarantee its accuracy or completeness. Opinions expressed are subject to change without notice. Any information or recommendation contained herein: (i) is not based on, or tailored to, the commodity interest or cash market positions or other circumstances or characterizations of particular investors or traders; (ii) is not customized or personalized for any such investor or trader; and (iii) does not take into consideration, among other things, risk tolerance, net worth, or available risk capital. Any use or reliance upon the information or recommendations is at the sole discretion and election of the subscriber. The risk of loss in trading futures contracts or commodity options can be substantial, and traders should carefully consider the inherent risks of such trading in light of their financial condition. Any reproduction or retransmission of this report without the express written consent of Zaner Group, LLC. is strictly prohibited.