Natural Gas and Oil Forecast: Iran Diplomacy Eases Crude Risk as LNG Stays Tight

Oil markets seemed more balanced on Thursday as the potential for a return of Iranian and Gulf exports added to the supply outlook. The Strait of Hormuz remains one of the world’s most strategically important choke points. Iranian President Masoud Pezeshkian said Iran would be willing to end its confrontation with the U.S. and other countries to restore peace. The comments come after Iran refused to surrender to the U.S. demands. If the U.S. and Iran were to come to some kind of understanding to allow for the unconstrained flow of ships through the Strait of Hormuz, the risk premium in both Brent and WTI crude prices would be positively impacted. In the short-term, prospects for peace and renewed oil flow through the Strait of Hormuz remain elusive. On Wednesday, just seven vessels transporting oil and other commodities passed through the strait. That number is well below the recent 10-day average. In 2019, prior to the Iran-U.S. confrontation, the Strait of Hormuz was estimated to have transported about 20 percent of the world’s daily supply of crude oil and liquefied natural gas (LNG). Currently Saudi Arabia is making up lost ground by using other means of transportation. Once the East-West pipeline restarted and the ship to ship transfers off the coast of Oman began, crude oil shipments began flowing again, making a supply shortage less likely. Also, recent information from the U.S. energy sector gives a bearish outlook. According to a recent EIA report, U.S. crude oil inventories increased by 3.6 million barrels, and the rate of refinery utilization fell. Lower inventories of finished products keep the market tight. Internationally, the outlook for natural gas remains tighter. Recent attacks on LNG production facilities in Qatar reduced that country’s LNG capacity by approximately 17%, and repair estimates for the affected production units are 3 years away. Interruption of Hormuz production and shipment of natural gas would also affect Qatar’s North Field Project. Looking at these international factors, our outlook for natural gas is moderately bullish, while our outlook for both Brent and WTI crude oil is neutral. Natural gas is trading at $3.06 on the 2 hour chart after breaking above the $3.01 resistance and the falling trendline. I like the current trade set up as natural gas is trading above both the 100 and 200 hour moving averages after expanding from the $2.82 to $2.91 area. There is resistance at $3.10, and above that $3.16 and $3.21. If the price is trading below $3.01, then $3.01 would be support, and below that $2.96 and $2.91 would be support. RSI is at 70, which shows that an overbought condition is occurring. I am bullish as long as natural gas trades above $3.01, but would consider the trade set up bullish below $2.96. If the $3.10 resistance is broken, then $3.16 and $3.21 would be potential upside targets. WTI crude oil is currently trading at $92.64. It recently bounced from $88.68. $88.68 is a key support level that I will be watching. For now, I like the bullish setup here. Because price recently bounced from $91.37, and is currently trading at $92.64, I like the potential for it to retest $93.89. As mentioned previously, I will also be watching $91.37 on the downside. If price is able to break below $91.37, then I will have a bearish bias. Rising RSI is also telling me that the price may rise f...