The energy sector of the commodities asset class fell 12.9% in Q3 2024 and was 3.8% lower over the first nine months of this year. In my mid-July Barchart article on the energy sector in Q2, I concluded:

The ongoing wars in Ukraine and the Middle East will impact the traditional energy sector over the second half of 2024. Any escalation could ignite substantial rallies as OPEC+ continues to dominate global pricing. The Chinese economy is critical for the path of least resistance of prices. If China emerges from its economic malaise, increasing energy demand would support higher prices. Meanwhile, the November U.S. election will determine energy policy over the coming years.  

Crude oil, oil products, and ethanol prices moved lower in Q3, while natural gas and coal for delivery in Rotterdam moved higher. Seasonality, as the summer ended and the winter is on the horizon, has impacted prices, while the other geopolitical factors remain a clear and present danger causing price variance. 

Crude oil prices decline

Nearby NYMEX WTI crude oil prices dropped by 16.4% in Q3 and were 4.86% lower over the first three quarters of 2024. 

 The ten-year chart shows that the continuous NYMEX crude oil futures contract settled at $68.17 per barrel on September 30 and was over $5.50 higher in mid-October. 

The continuous ICE Brent crude oil futures contract was down 17.02% in Q3, slightly underperforming WTI futures. Brent also underperformed the NYMEX crude oil futures over the first nine months of 2024 with a 6.98% decline.

 The ten-year chart shows that the continuous Brent crude oil futures contract settled Q3 at $71.70 per barrel. 

December Brent futures rallied in early Q4 and were over the $77 per barrel level in mid-October. 

Oil products follow crude and underperform the raw energy commodity

Prices of the leading oil products, gasoline, and heating oil, declined in Q3. Gasoline led the way on the downside for seasonal reasons, as the end of the driving season during the summer leads to weaker demand. Nearby NYMEX gasoline futures fell 22.64% in Q3 and were 8.13% lower than the 2023 closing price at the end of September. 

The chart dating back to 2014 shows the continuous RBOB gasoline contract settled Q3 at $1.9351 per gallon wholesale. Gasoline prices were higher in early Q4.

Meanwhile, heating oil futures declined 14.95% in Q3 and were 21.59% lower over the first nine months of 2024.

The chart shows the continuous heating oil futures contract settled Q3 at $2.1544 per gallon wholesale. Like crude oil and gasoline, heating oil futures recovered and were higher in mid-October. 

Since the products underperformed crude oil on a percentage basis, crack spreads, or the refining margin for processing petroleum into gasoline and distillates (heating oil is a proxy for distillates like jet and diesel fuel), declined in Q3 and over the first three quarters of this year. The drop in refining spreads was a sign of weak demand for oil products, which also weighed on shares of companies that refine crude oil into products. For example, VLO, a leading U.S. oil refining company, fell in Q3. 

Ethanol declines

The nearby Chicago ethanol swap price fell 19.8%in Q3 and was 5.7% lower over the first three quarters of 2024.

As the monthly chart highlights, on September 30, nearby ethanol swaps settled at the $1.58 per gallon wholesale level. The biofuel swaps were only marginally lower at the $1.55 level in mid-October. 

Natural gas and coal rally

While oil, oil products, crack spreads, and ethanol prices fell, natural gas and Rotterdam coal prices increased in Q3. Seasonality is a powerful force, and as the 2024/2025 winter and peak heating demand season approaches, gas and coal prices posted gains. 

Nearby NYMEX natural gas futures moved 12.4% higher in Q3 and 16.3% higher over the first three quarters of 2024. 

The ten-year natural gas chart highlights the extreme volatility in the combustible fuel. The nearby NYMEX contract settled at $2.923 per MMBtu on September 30 and was lower in mid-October. 

Rotterdam coal futures in Europe rose 14.7% in Q3 and were 10.2% higher than the end of 2023 closing price on September 30. 

The chart shows that nearby Rotterdam coal futures settled Q3 at $119.40 per metric ton and were slightly higher in early Q4 as the winter approaches. 

Expect lots of volatility as the election and ongoing wars are critical factors over the coming weeks and months

The following factors will impact traditional energy markets over the coming weeks and months:

• The escalating war in the Middle East could cause sudden price spikes if supply or logistical concerns rise. 
• OPEC+ has said it will increase production, which is a bearish factor. 
• Chinese stimulus could increase demand, which is a bullish factor. 
• Natural gas and coal prices will respond to the weather conditions during the peak winter heating season. 
• Crude oil and biofuel are on the ballot early November election in the U.S. U.S. oil policy could determine if oil and oil product prices head higher or lower based on climate change versus energy independence policies.

The bottom line is that bullish and bearish factors are pulling crude oil and traditional energy products in opposite directions in Q4 2024. Expect elevated of volatility in the energy sector over the coming weeks and months. In mid-October, crude oil’s path of least resistance remains a coin toss. 

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