DAILY ENERGY COMPLEX COMMENTARY 11/01/18

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1 Thursday November 01, S. Wacker Dr., Suite 2350 Chicago, IL or DAILY ENERGY COMPLEX COMMENTARY A lack of bullish response to EIA/Equities points bearish OVERNIGHT CHANGES THROUGH 6:06 AM (CT): CRUDE -48, HEATING OIL -209, UNLEADED GAS -29 CRUDE OIL MARKET FUNDAMENTALS: The December crude oil contract spent nearly the entire trading session Wednesday within the prior sessions range, but could not completely erase the negative spillover from this week's chart damage and it also hasn't fully got out from under the threat of more selling from Chinese energy demand fears. Furthermore, with the energy markets presented with another strong US weekly crude production figure (11.2 mbpd), a 6th straight week of crude oil stock builds and another decline in the US refinery operating rate, the bear camp has a number of lingering issues in its court. In fact, the bear camp should also be emboldened further by a Reuters survey that projected OPEC October oil output to be at the highest level in over two years. On the other hand, the US Strategic Petroleum Reserve posted a 4th straight weekly decline and those stocks are now down by 40.1 million barrels since President Trump took office. In other words, it is possible that the administration has been attempting to defuse high oil prices with sales and that supply will have to be rebuilt sometime. Supportive information from this week's EIA data came from the second lowest net crude oil imports total on record with the two lowest net import figures ever registered this month. Furthermore, crude oil exports were 2.48 million barrels per day and that is the sixth highest reading ever. EIA crude stocks rose million barrels and are million barrels below year ago levels. Also, crude stocks stand million barrels above the five year average. Crude oil imports for the week stood at million barrels per day compared to million barrels the previous week. The refinery operating rate was 89.40% up, 0.20% from last week compared to 88.10% last year and the five year average of 87.44%. PRODUCT MARKET FUNDAMENTALS: In retrospect, the gasoline market will continue to be the weakest market in the energy complex with fresh and significant damage on its charts again this morning. In fact, given that the EIA data should have been construed as supportive of the product markets, the three day large range down slide yesterday suggests the market just isn't in a posture yet to embrace supportive headlines. In fact, the US refinery operating rate remains at a low enough level to keep product stocks from rebuilding in the weeks ahead. Furthermore, weekly gasoline stocks were down by 3.1 million barrels and implied gasoline demand was still fairly positive at 9.26 million barrels per day. However, gasoline stocks in this week's report were once again the highest for this "week" since 2016, and they are 13.3 million barrels above last year and 13.4 million barrels above the five year average. Countervailing the somewhat positive implied gasoline demand reading is the fact that average total gasoline demand for the past four weeks has declined by 1.4% compared to last year. Gasoline imports came in at 363,000 barrels per day compared to 331,000 barrels the previous week. The ULSD market held up better than gasoline because EIA distillate stocks fell million barrels, they are million barrels below last year and million below the five year average. It should also be noted that another decline in the US refinery operating rate could mean that winter supplies will not rise into the start of the official heating season. Distillate imports came in at 141,000 barrels per day compared to 163,000 barrels the previous week. Average total distillate demand for the past four weeks was up 14.17% compared to last year. Weekly EIA Petroleum Report In Million Barrels

2 CRUDE OIL Stocks Imports Refinery Capacity(%) Week Of Current Weekly Change Yearly Change 5 Year Average Current Current Year Ago 10/26/ DISTILLATES Stocks Imports Demand Week Of Current Weekly Change Yearly Change 5 Year Average Current Current Year Ago 10/26/ GASOLINE Stocks Imports Demand Week Of Current Weekly Change Yearly Change 5 Year Average Current Current Year Ago 10/26/ NATURAL GAS: December natural gas has pushed higher yesterday after Tuesday's weak technical action. The market continues to see/saw with large daily ranges but is having trouble giving off definitive trend confirmation. Support is seen from the National Weather Service 6-10 and 8-14 day outlooks that show below normal temperatures for the Midwest with cooler temperatures returning to the East Coast region for the first two weeks of November. The average estimate for today's inventory report is a 52 bcf injection versus the five year average of a 62 bcf increase and compared to 65 bcf last year. Total inventories are at 3,095 bcf as of October 19th. December natural gas bounced back above the 20 day moving average at $3.262 and is back in positive mode. A smallish injection in today's inventory report could be the spark the bull camp needs to extend above the October high at $ Crude oil failed to show some respect for the $65.79 level, higher supply talk continues to flow and risk on/optimism from equities has not provided as much support as would have been expected. In short gasoline and Crude oil look vulnerable to more declines in the wake of a lack of bullish reaction to bullish EIA data. In other words, a failure below $ in December gasoline and a slide in December crude oil to $64.00 appears to be ahead. OTHER ENERGY CHARTS: ENERGY COMPLEX TECHNICAL OUTLOOK: CRUDE OIL (DEC) 11/01/2018: Momentum studies are declining, but have fallen to oversold levels. A negative signal for trend short-term was given on a close under the 9-bar moving average. The close below the 1st swing support could weigh on the market. The next downside target is The market is approaching oversold levels on an RSI reading under 30. The next area of resistance is around and 67.53, while 1st support hits today at and below there at

3 HEATING OIL (DEC) 11/01/2018: A bearish signal was triggered on a crossover down in the daily stochastics. 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. The downside closing price reversal on the daily chart is somewhat negative. It is a slightly negative indicator that the close was under the swing pivot. The next downside objective is now at The next area of resistance is around and , while 1st support hits today at and below there at RBOB GAS (DEC) 11/01/2018: The daily stochastics have crossed over down which is a bearish indication. Daily stochastics are trending lower but have declined into oversold territory. The close below the 9-day moving average is a negative short-term indicator for trend. The outside day down is somewhat negative. The market is in a bearish position with the close below the 2nd swing support number. The next downside target is More downside action may be limited by the RSI under 20 putting the market in extremely oversold territory. The next area of resistance is around and , while 1st support hits today at and below there at NATURAL GAS (DEC) 11/01/2018: The daily stochastics have crossed over up which is a bullish indication. Stochastics are at mid-range but trending higher, which should reinforce a move higher if resistance levels are taken out. The cross over and close above the 18-day moving average indicates the intermediate-term trend has turned up. Market positioning is positive with the close over the 1st swing resistance. The next upside target is The next area of resistance is around and 3.352, while 1st support hits today at and below there at DAILY TECHNICAL STATISTICS 9 DAY RSI 14 DAY RSI 14 DAY SLOW STOCH D 14 DAY SLOW STOCH K 4 DAY 9 DAY 18 DAY 45 DAY 60 DAY CLOSE ENERGY COMPLEX CLAZ CLAF HOAZ HOAF RBAZ RBAF NGAZ NGAF Calculations based on previous session. Data collected 10/31/2018 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 CLAZ8 Crude Oil CLAF9 Crude Oil HOAZ8 Heating Oil HOAF9 Heating Oil RBAZ8 RBOB Gas RBAF9 RBOB Gas NGAZ8 Natural Gas NGAF9 Natural Gas Calculations based on previous session. Data collected 10/31/2018 Data sources can & do produce bad ticks. Verify before use. DAILY COCOA COMMENTARY

4 Big production to absorb; especially if good weather Stronger global equities are helping to shore up cocoa's demand outlook and helped to offset bearish supply news from West Africa this week. While the market has held its ground near the upper end of its October uptrend, cocoa may need more bullish supply-side developments to extend the gains. In addition to stronger equities, a rebound in the British Pound helped to fuel arbitrage buying on ICE cocoa versus the London cocoa contract that is denominated in Pounds. Reuters reported that a group of industry players have forecast 2018/19 Ivory Coast production at 2.2 million tonnes. This would be a 10% increase on last season, and also would be 8.9% above Ivory Coast's record high output during the 2016/17 season. Decent weather over the past few months and strong early port arrivals may support their optimistic estimates, but continued wet weather over the next few weeks could slow down bean arrivals and could lead the spread of disease while an El Nino weather event could result in lower production during the late stages of their main-crop harvest. The Indonesian Cocoa Association has partnered with US-based Mars in order to boost next year's cocoa production up to 300,000 tonnes which would be their highest total in several years. We are skeptical that Ivory Coast can reach 2.2 million tonnes of cocoa production this season with an El Nino on the way and authorities starting to remove trees in their protected forest areas. If and when West African output starts to ease off, cocoa prices should be able to regain and sustain upside momentum. December cocoa will find near-term support at 2184 and 2167, with resistance is at 2276 and COCOA TECHNICAL OUTLOOK: COCOA (DEC) 11/01/2018: Daily stochastics turning lower from overbought levels is bearish and will tend to reinforce a downside break especially if near term support is penetrated. The close above the 9-day moving average is a positive 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 The next area of resistance is around 2261 and 2279, while 1st support hits today at 2207 and below there at DAILY COFFEE COMMENTARY May see more short-covering; exchange stocks decline The market is showing some signs that a low may be close at hand. Global equities were able to maintain a positive tone for a second session in a row which provided some benefit to coffee's lukewarm demand outlook. While there are few doubts now that Vietnam will have a big 2018/19 crop, harvesting over the next month will provide a clearer gauge on whether they will reach a record high total above 30 million bags. After the end of November, however, market focus will shift towards the 2019/20 season which will include an "off-year" Brazilian crop, an El Nino-fueled dry spell for Vietnam as well as a likely global supply deficit. ICE exchange coffee stocks fell by a hefty 8,139 bags on Wednesday, but finished the month of October at million. This would be an eighth monthly increase in a row, and would be the highest month-end total since July of 2014.

5 Coffee will likely need a recovery in the Brazilian currency to maintain upside momentum, but the market should still have a sizable net spec short position that can fuel additional short-covering. If there are early signs that Vietnam will not reach the 30 million bag production threshold, coffee may be able to sustain a recovery move. Near-term support for December coffee is at the 100-day moving average of and then Resistance found at and COFFEE TECHNICAL OUTLOOK: COFFEE (DEC) 11/01/2018: Declining momentum studies in the neutral zone will tend to reinforce lower price action. The close below the 9-day moving average is a negative short-term indicator for trend. The upside closing price reversal on the daily chart is somewhat bullish. The market tilt is slightly negative with the close under the pivot. The next downside objective is now at The next area of resistance is around and , while 1st support hits today at and below there at DAILY COTTON COMMENTARY Focus shift to supply next week may support bounce The market inched lower in quiet trade yesterday. Choppy trade for the grain markets failed to cause much of an influence. Sellers may have been distracted with the surge higher in the stock market. However, the late break in the stock market after the close could leave the financial market volatility as an uncertainty which keeps buyers on the sidelines. The market clash between a bearish tone on demand with the potential for lost production from late season rains and storms continues. Traders will monitor the weekly export sales news today for any indication that the recent lower price might have attracted new buying interest. Focus may shift the November USDA Crop Production and Supply demand report by late this week or early next week. Traders are likely to believe a significant adjustment lower due to hurricane damage and poor harvest conditions. In early October, US crops rated good/excellent were at 42% which is at 35% in the last update and poor/very poor crops were at 25% in early October and at 35% in the last update. Some very cold weather will hit the key China growing region into Friday/Saturday which might provide some uncertainty on any unharvested crops. India production for the 2018/19 season was pegged at 28.5 million bales from 29 million last year, according to the USDA FAS office. This is below the official USDA estimate of 28.7 million bales. Exports are expected to drop to 4.3 million bales from 5.2 million last year. Holding above the lows from last week at is a positive factor for December cotton and as the focus shifts from demand to supply next week, the market may see some type of recovery bounce. It will take a move over and especially to spark much of a rally with as key resistance. Support is currently and

6 COTTON TECHNICAL OUTLOOK: COTTON (DEC) 11/01/2018: Momentum studies trending lower at mid-range could accelerate a price break if support levels are broken. The market's short-term trend is negative as the close remains below the 9-day moving average. The market's close below the pivot swing number is a mildly negative setup. The next downside objective is The next area of resistance is around and 77.36, while 1st support hits today at and below there at COTTON (MAR) 11/01/2018: 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. The market's close below the pivot swing number is a mildly negative setup. The next downside objective is The next area of resistance is around and 78.75, while 1st support hits today at and below there at DAILY SUGAR COMMENTARY May see more back and fill with weak energy sector Sugar remains on the defensive as it continues to be pressured by long liquidation from recent buyers, fueled by a sizable net spec long position. The market is showing signs of finding near-term support, however, and can regain upside momentum if key outside markets turn back to the upside. In addition to a sluggish Brazilian currency, sugar was pressured by a pullback in crude oil and RBOB prices following the weekly EIA US stocks report. Indian mills have already agreed to 850,000 tonnes of sugar exports during the 2018/19 season, but it may be difficult to reach the government's target of 5 million tonnes of subsidized exports. Many mills in the state of Maharashtra have their sugar pledged to lending institutions that they will not release for export until prices are higher. EU sugar exports were seen at 2.6 million tonnes, down 21% from the previous year. EU sugar production for 18/19 was seen at 19.2 million tonnes, which compares to 21.1 million the previous season just after output quotas were lifted. With energy prices slumping, sugar may see early downside follow-through even with a rebound in the Brazilian currency. With doubts over India's exports as well as lower Brazilian and EU production, however, sugar prices may be able to find their footing fairly soon. Close-in support for March sugar is at the 200 day moving average of with near-term support at 12.93, while resistance is at and SUGAR TECHNICAL OUTLOOK:

7 SUGAR (MAR) 11/01/2018: Momentum studies trending lower at mid-range should accelerate a move lower if support levels are taken out. The close below the 9-day moving average is a negative short-term indicator for trend. It is a slightly negative indicator that the close was under the swing pivot. The next downside target is The next area of resistance is around and 13.45, while 1st support hits today at and below there at ***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.