In case you had any doubts about whether or not something very wrong was going on in the energy markets today (Monday), just take a look at the TTF Natural Gas benchmark for Europe, down ~7% in a day, while Cheniere Energy (LNG), whose revenues are highly correlated to TTF, closed the day ~2.5% higher in the last session.
We know Europe is entering the winter season with dangerously low stockpiles of Natural Gas, and we know that supply from Russia or Qatar is going to be close to zero, which is why TTF has been steadily rising since August. However, in the past 7 days, the TTF benchmark is down ~13%. Strangely, the WTI price (including the reference contract roll from October to November) is down ~13% as well over the past 7 days.
Another very odd thing that happened on Monday: despite the sharp drop in crude oil and natural gas, gold and silver not only haven’t experienced much volatility, but even closed slightly red.
What was surely very bullish was the price action of “RISK ON” assets like stocks and crypto. What triggered that? Trump's latest TACO, definitely.
Is there a silver lining connecting all of these? Trump calling off the strikes on the Houthis? Reuters claiming, based on Kepler data on “non-observable ship traffic”, that Saudi ARAMCO is exporting, so far in September, 4 times the amount of crude oil per day it exported on average in August, while Kepler itself stated SOH transits dropped from 35 to 13 a day (118 the pre-war level FYI)? According to Kepler, again, STS oil exports in Hormuz are ~2.5mb/day currently, HIGHER than the crude oil amount they claimed ARAMCO ALONE has been exporting through Hormuz. Objectively speaking, there are quite a few inconsistencies in the last Kepler report that allegedly triggered Monday's sharp correction in energy prices, which followed a correction that started exactly a week prior.
Some people argue the market is already pricing a new SPR release from G7, forgetting that in the ongoing IAE plan agreed in March, there are still ~100mb of crude oil left to be dumped in the market. But that argument still would not explain the move in the Natural gas market.
Sorry to make you feel dizzy, but I have one last thing to share. While Energy futures have been crashing in the past 7 days, Diesel and gasoline prices at the pump across the globe have been going UP. Diesel in the US is up ~5% in the past 7 days in particular.
While the market was making many heads twist today, I shared already in the general chat my findings about the options activity on CL that, combined with the futures tape, strongly suggest an effort to trigger a reverse gamma squeeze in the market. I suspect something very similar has been happening across other major energy benchmarks.
During my flight to Europe, I had a lot of time to think and could not get my head away from going back to 2020 when the whole market was heavily long oil, assuming the COVID crisis would have been temporary and not shut the whole global economy for months, as in reality occurred. Because of that particular setup, on the 20th of April those who were long futures received so many requests to deliver, rather than cash settle the contracts, that the market quickly realized there was not enough storage available, and longs started panic selling, ultimately driving crude oil prices all the way to minus 30$ that day. Can the exact opposite occur?
The exact opposite can occur, in theory, and the market has already shown smaller versions of it whenever Cushing inventories approached the operational floor in 2000, 2008, and 2023. The only missing ingredients for a mirror-image “plus $30 or $40 in a single session” event would be an unusually large remaining short open interest into expiry coinciding with a genuine inability to source barrels at the hub. In practice, those who are short have the option to decide whether to cash settle or deliver. Is the reason why the crude oil price has been slammed so hard into tomorrow's WTI Oct contract last day of trading to reduce as much as possible the cash bleeding of short positions as much as possible? That’s my strong suspicion. Hilariously, so to speak, last week in the Markets chat I flagged that the options positioning suggested an extreme scenario where CL could be pushed all the way down to 90$. Those options expired on Thursday, but nevertheless, the crude oil price is still being pushed all the way down to 90$. Shall we prepare for another big crude oil slam tomorrow, then? I am afraid that is a strong possibility. But at the same time, the US just announced that on Wednesday it will sanction all Iranian airlines, aiming to restrict them from flying across the globe. Iraq already said it will comply and close its airspace to Iranian planes starting on Wednesday. So far, Iran has not said anything on the matter, but I doubt they won’t retaliate from their side. How? I cannot think about much else than going after the STS oil transfer system in the SOH.
Because of the UN General Assembly starting in NYC and Chairman Xi's visit to DC starting right after, another reason why Trump decided not to order an attack against the Houthis was also not to spoil the diplomatic agenda. But I still believe there are the perfect conditions for this week's actions in the market to be very messed up, and the Monday session somewhat reinforced my belief.
Now you understand why I am sitting tight on my PR trade expiring in less than 4 weeks. Especially when crude oil inventories across the globe are not only making new multi-year record lows, but at this time of the year they are supposed to be rising, not still trending lower.
On the contrary, after mulling quite a lot over it, I decided to exit the CRAK trade because I think that even if refineries still have potential to go higher, the large part of their move because of the oil crisis has occurred, and their margins are now heavily squeezed by skyrocketing shipping costs and soon potentially by crude oil repricing higher.
It was hard not to notice the strength in Sugar today; that should have gone lower big following crude oil, but it did not. Why? Because, as I said earlier, the prices of gasoline and diesel in the real world are going higher, with France being the first G7 country already reporting widespread shortages of fuel. This is pushing the price of ethanol higher, and the costs of shipping Ethanol are also a fraction of crude. The combination makes it very attractive for sugarcane refineries in Brazil to shift a significant amount of refining of sugarcane to Ethanol versus sugar and potentially suddenly impact the price of sugar in the market in the near future.
I am still monitoring the LNG trade, especially when TTF is being pushed down so much at the moment, but I believe we are not the only ones who are increasingly aware of this opportunity, considering the strong bid for Cheniere on such a bloody day for the energy space.