Natural Gas and Oil Forecast: Saudi Supply Risk Eases as Qatar LNG Shortage Deepens

Oil market conditions eased on Wednesday with the resumption of operations on Saudi Arabia’s East-West pipeline. The pipeline provides an land route to bypass the Strait of Hormuz. It had been shut down since September 11 after drone attacks damaged three of the pipeline’s pumping stations. Saudi Aramco has begun reducing the pipeline flow to evaluate how to increase it back to the 4 million barrels a day it carried prior to the attacks. A full increase in pipeline flow is expected to take 6 to 8 weeks. In the interim, the port of Yanbu has begun increasing shipments of crude oil. The attacks and subsequent disruption of pipeline flow through Hormuz increased the cost of transporting oil. Benchmark tanker rates between the Persian Gulf and China exceeded $30 a barrel. Saudi Arabia increased Gulf exports to make up the difference. The added shipments, along with ship-to-ship transfers near Oman, added to Hormuz’s overall exports. The resumption of operations on the East-West pipeline removes a short-term supply restriction for Saudi Arabia. It is expected that Saudi Arabia will reduce ship-to-ship transfers near Oman. Hormuz still faces threats. On Monday, just two ships carried commodity trade across the strait, compared to ten the day prior. Despite being attacked, a crude tanker and an LPG carrier continued to operate.

Natural gas supply is even more disrupted. QatarEnergy stated that the recent attacks on Ras Laffan have wiped out 17% of Qatar’s LNG output, and that the two affected plants would take three years to repair. Additionally, the disruptions to Hormuz are likely to impact the next phase of Qatar’s LNG expansion. Moving crude is much easier and less constrained than moving natural gas.

Fundamentally biased neutral to moderately bullish for Brent and WTI; moderately bullish for natural gas.

NatGas recently broke out above our bearish trendline and the $2.996 resistance area, and is currently trading at $3.02. From a short-term perspective, $2.996 and the 100 & 200 hour MA’s have been major barriers for NatGas, but given the bullish breakout above those barriers, they are now major areas of support. The next major upside target for NatGas is the $3.05 area. Beyond that, the next major areas of resistance rest at $3.10 and $3.16. If the breakout begins to reverse, the $2.996 area will be the first area of support, followed by the $2.96 and $2.93 areas. RSI is currently in overbought territory, so a short-term pullback may be expected. If NatGas is able to trade and close below the $2.996 area, this analysis would also change in a major bearish way. On the other side, a break above $3.05 would open the $3.10 and $3.16 areas.

WTI is currently trading near $88.95. It is currently below the moving averages and within a descending channel. Price has been unable to break above the channel and has also been unable to close above $91.37. I am looking for price to test $88.68 first. A break below $88.68 would have support at $86.49 and then $84.17. If price is able to move above the descending channel and close above $91.37, resistance would then be expected at $93.89 and then $96.89. Based on the location of the moving averages and the current price of WTI, the channel appears to be Descending. The RSI is also within the channel and is also moving down. Until WTI is able to break above $91.37 and the d...