DAILY ENERGY COMPLEX COMMENTARY 09/14/18

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1 Friday September 14, S. Wacker Dr., Suite 2350 Chicago, IL or DAILY ENERGY COMPLEX COMMENTARY Loss of strength for Hurricane Florence could lead to more profit-taking OVERNIGHT CHANGES THROUGH 6:06 AM (CT): CRUDE +33, HEATING OIL +9, UNLEADED GAS -44 CRUDE OIL MARKET FUNDAMENTALS: Crude oil and the products saw calmer price action overnight following several turbulent sessions. The energy markets were already vulnerable to long liquidation and profit-taking coming into Thursday's action, and crude oil's inability to retest (much less take out) their mid-may highs may give some pause for thought for those expecting a longer-term extension of the current upmove. Comments by President Trump on Chinese tariffs have ramped up concerns over global demand prospects. China's crude oil output last month totaled 16 million tonnes, 0.2% higher than last year and was the first year-over-year monthly increase since October However, China's throughput during August came in at its lowest level since last December. The International Energy Agency said that global crude oil production has climbed above the 100 million barrels per day (bpd) level for the first time ever. The IEA also said that output increases from Saudi Arabia, Iraq, Nigeria and Libya have offset production declines in Iran and Venezuela. There are reports that Libyan oil production was not impacted by an attack on their national oil company earlier this week. Venezuela has started exporting their domestic crude oil to Cuba instead of purchasing Russian crude oil on Cuba's behalf, which may be a sign that their output could at least stabilize over the near term. Energy Secretary Perry met with Russian Oil Minister Novak in Moscow Thursday and after the meeting commended both Russia and Saudi Arabia for their efforts to prevent an oil price spike. This suggests that both nations may continue to increase their oil production over the next few months. PRODUCT MARKET FUNDAMENTALS: Both RBOB and ULSD finished Thursday on the defensive and have come into this morning in negative territory, as they are find additional pressure from a change in the weather. Hurricane Florence has been downgraded to a category 1 storm this morning, and while that is still powerful, it lessens the chances that it would disrupt operations on the Colonial and Plantation pipelines, which pump refined products from the Gulf to the East Coast. Keep in mind, however, that local fuel supplies in the Carolinas and Georgia were likely drawn down by residents evacuating affected areas. Average regular gasoline prices in Myrtle Beach, South Carolina have risen 10 cents since Labor Day. Energy supplies at the Amsterdam, Rotterdam and Antwerp (ARA) hub rose by more than 12% in the latest reading, but gasoline and jet fuel stocks were steady to lower. NATURAL GAS: October natural gas traded both sides of unchanged yesterday, with the market still unable to push above key moving averages. The inventory report showed a 69-bcf increase in the week ending September 7th compared to the average estimate calling for a 65-bcf increase and a five-year average increase of 74 bcf. Total inventories were 2,636 bcf as of September 7th, 19% below the five year average. Over the last four weeks, natural gas storage has increased 249 bcf. The trade will await the impact of Hurricane Florence and measure its impact on demand for power. The market is also being pressured by the waning summer cooling demand amid rising production. October natural gas again failed to settle above the longer term moving averages yesterday. The market has settled in the lower end of the range in each of the last two sessions, which could be a sign of

2 waning momentum. The market is still up roughly 1.7% on the week, with support still at $2.800, followed by $ Resistance remains at $ EIA Natural Gas Storage Report Summary In Billion Cubic Feet Week Week Total Change From 4 Week Combined Percent Change vs 5 Percent Change vs 10 Of Change Storage Last Year Weekly Change Year Average Year Average 9/7/ % -17.6% Crude oil and the products should still show sizable spec net long positions in this afternoon's COT report, and they could still remain vulnerable to additional long liquidation going into the weekend. A rebound in global risk sentiment may help energies regain upside momentum today, so the better that expected results from key Chinese data overnight and some decent US data results later this morning could help crude oil and the products finish the week on an upbeat note. Near-term support for October crude oil is at $68.15, while resistance is at $ Near-term support for October RBOB is at $1.9780, and support for October ULSD is at $ OTHER ENERGY CHARTS: ENERGY COMPLEX TECHNICAL OUTLOOK: CRUDE OIL (OCT) 09/14/2018: Momentum studies trending lower at mid-range should accelerate a move lower if support levels are taken out. A negative signal for trend short-term was given on a close under the 9-bar moving average. The market's close below the 1st swing support number suggests a moderately negative setup for today. The next downside objective is now at The next area of resistance is around and 70.97, while 1st support hits today at and below there at HEATING OIL (OCT) 09/14/2018: 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. There could be some early pressure today given the market's negative setup with the close below the 2nd swing support. The next downside target is The next area of resistance is around and , while 1st support hits today at and below there at RBOB GAS (OCT) 09/14/2018: A crossover down in the daily stochastics is a bearish signal. Momentum studies trending lower at mid-range could accelerate a price break if support levels are broken. The market's short-term trend is positive on the close above the 9-day moving average. The defensive setup, with the close under the 2nd swing support, could cause some early weakness. The next downside objective is The next area of resistance is around and , while 1st support hits today at and below there at

3 NATURAL GAS (OCT) 09/14/2018: Daily momentum studies are on the rise from low levels and should accelerate a move higher on a push through the 1st swing resistance. A negative signal for trend short-term was given on a close under the 9-bar moving average. It is a slightly negative indicator that the close was lower than the pivot swing number. The next upside objective is The next area of resistance is around and 2.870, 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 CLAV CLAX HOAV HOAX RBAV RBAX NGAV NGAX Calculations based on previous session. Data collected 09/13/2018 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 CLAV8 Crude Oil CLAX8 Crude Oil HOAV8 Heating Oil HOAX8 Heating Oil RBAV8 RBOB Gas RBAX8 RBOB Gas NGAV8 Natural Gas NGAX8 Natural Gas Calculations based on previous session. Data collected 09/13/2018 Data sources can & do produce bad ticks. Verify before use. DAILY COCOA COMMENTARY Demand concerns persist; consolidation continues Cocoa prices continue to have trouble sustaining upside momentum for more than one session in a row, but have consolidated in the upper portion of their recent trading range. If improving global risk sentiment can soothe demand concerns, cocoa has a good chance at finishing this week's trading above both its 50-day and 200-day moving averages. Ghana's cocoa regulator Cocobod completed their official purchases for the 2017/18 season on Thursday, with some sources pegging their full-season total around 870,000 tonnes. While this is above their government target, this is below the 900,000 tonnes that the International Cocoa Organization forecast in their latest quarterly supply/demand update. The US Climate Prediction Center adjusted their forecast for an El Nino weather event to occur during the North American fall to 50%-55% (versus 60% last month) and during the North American winter to 65%-70% (versus 70% last month). The latest COT report will be released after today's close and will reflect a 48 point price decline (2.1% lower) between measuring dates, which should result in a moderate decline to cocoa's net spec short position and could put the market in a roughly balanced position.

4 An El Nino may not occur during the early part of the West African main crop harvest, but there is a strong chance that an El Nino will negatively impact late main crop and early mid-crop production. Near-term support for December cocoa is at 2278 while resistance is at COCOA TECHNICAL OUTLOOK: COCOA (DEC) 09/14/2018: The downside crossover (9 below 18) of the moving averages suggests a developing short-term downtrend. Declining momentum studies in the neutral zone will tend to reinforce lower price action. The market's close above the 9-day moving average suggests the short-term trend remains positive. It is a mildly bullish indicator that the market closed over the pivot swing number. The next downside objective is The next area of resistance is around 2338 and 2360, while 1st support hits today at 2292 and below there at DAILY COFFEE COMMENTARY Resumption of downtrend with funds active sellers; next While oversold and fund traders are holding a near record net short position, the market needs some type of catalyst to spark a short-covering technical bounce. The market seemed to have the positive outside market forces to rally yesterday, but futures closed lower and near the lows of the day. Open interest is creeping higher which would suggest that fund traders are selling more coffee. December coffee traded down to as low as on the session, down over 1.5% on the day. For the week so far, the market is down 1.85%. Brazil's coffee sales were estimated at 45% complete as of September 12th according Safras & Mercado. This compares to 44% a year earlier and compared to the five year average of 45%. The total sales equivalent is estimated at million bags based on output of 60.5 million bags. Arabica coffee exchange deliverable stocks held in ports increased by 11,390 bags to million bags as of September 13th, according to ICE. Producer selling remains active enough out of Brazil (who just finished harvesting a record crop) to keep speculative fund sellers active. The Vietnamese harvest should begin next month with traders looking for a record harvest. Close-in support for December coffee comes in at and is not holding this morning. If support gives way, is the next downside target on a continuation of the downtrend with close-in resistance at COFFEE TECHNICAL OUTLOOK:

5 COFFEE (DEC) 09/14/2018: A crossover down in the daily stochastics is a bearish signal. Momentum studies trending lower at mid-range should accelerate a move lower if support levels are taken out. The market's shortterm trend is negative as the close remains below the 9-day moving average. The market's close below the 1st swing support number suggests a moderately negative setup for today. 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 Consolidation continues; traders await storm damage reports The market closed lower for the third session in a row yesterday, right in the face of potential significant damage to the southeast cotton crop. News that the hurricane strength is down from a few days ago plus news from the USDA on Wednesday that cotton production is up 560,000 bales from expectations helped to more than offset what traders feel the damage might be from the storm. For example, if the hurricane destroys 25% of the North Carolina crop, this would be a loss of 201,500 bales. Net weekly export sales for cotton came in at 81,700 bales for the current marketing year and 17,700 for the next marketing year for a total of 99,400 bales. This was seen as disappointing. As of September 6th, cumulative cotton sales stand at 60.5% of the USDA forecast for the 2018/2019 (current) marketing year versus a 5 year average of 40.3%. Sales of 123,000 bales are needed each week to reach the USDA forecast. News from India shows a sharp drop in the number of pink worm infestations from India which is also seen as a negative force. Potential hurricane damage and news of trade talks with China were not enough to offset the jump in US planted area and higher than expected production plus the downgrade of the hurricane. December cotton resistance is at and 82.86, with as next downside target. COTTON TECHNICAL OUTLOOK: COTTON (DEC) 09/14/2018: A bearish signal was triggered on a crossover down in the daily stochastics. Stochastics trending lower at midrange will tend to reinforce a move lower especially if support levels are taken out. The close under the 18-day moving average indicates the intermediate-term trend could be turning down. The swing indicator gave a moderately negative reading with the close below the 1st support number. The next downside target is now at The next area of resistance is around and 83.00, while 1st support hits today at and below there at COTTON (MAR) 09/14/2018: A negative indicator was given with the downside crossover of the 9 and 18 bar moving average. A crossover down in the daily stochastics is a bearish signal. Momentum studies trending lower at mid-range should accelerate a move lower if support levels are taken out. The close below the 18-day moving average is an indication the intermediate-term trend has turned down. The market's close below the 1st swing support number suggests a moderately negative setup for today. The next downside target is now at The next area of resistance is around and 83.37, while 1st support hits today at and below there at DAILY SUGAR COMMENTARY

6 Short-covering is not a good foundation for extended rally After challenging the June highs yesterday, December white futures are down sharply overnight and this helped to pressure March New York futures to a loss of 3.4% this morning. The short-covering rally continued yesterday with another strong trading session. On the strong upmove on Wednesday, open interest went down 31,823 contracts and open interest is now down 186,026 contracts since the August 22nd lows. The fundamental news is a little less bearish as EU production is down, Brazil is still heavily concentrating on ethanol production and India plans to use excess sugar supply on ethanol production as well. Brazilian ethanol stocks are expected to reach a record high soon and prices are starting to ease. Center-south cane millers sold 2 billion liters of hydrous ethanol in August as compared with 1.4 billion last year which is a record for any one-month sales. In addition, the market has received some support with two typhoons headed toward China which supported a 1.6% advance in Chinese futures yesterday. Rains in center-south Brazil are seen as beneficial to next year's crop. March sugar managed to close above the 100-day moving average for the first time since January 11th. Volume on Wednesday jumped to 403,554 contracts, the second highest ever. Short covering from speculative funds has been active with managed money trader's short 157,481 contracts as of September 4th. Since September 4th, open interest is down 135,252 contracts. The market is extremely overbought after the recent surge higher as short-covering is very active. While there has been some fundamental reasons for the bounce, the market does not seem to have the fundamental set-up for an extended run higher. Watch for technical signs of a near-term top. The next key resistance zone is at the to zone for March sugar. There is some close-in resistance at Support is at and then SUGAR TECHNICAL OUTLOOK: SUGAR (OCT) 09/14/2018: Studies are showing positive momentum but are now in overbought territory, so some caution is warranted. A positive signal for trend short-term was given on a close over the 9-bar moving average. The market has a slightly positive tilt with the close over the swing pivot. The next upside target is The 9- day RSI over 70 indicates the market is approaching overbought levels. The next area of resistance is around and 11.93, 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.