Energy Market Update 1-8-2024

Crude is down $2.76     RB is down 7.88 cents      ULSD is down 5.48 cents

Overview

Energy prices are lower as Saudi Arabia cut the OSP for its flagship A-Light crude to Asia more than expected.  News wires also tout the increase in OPEC production in December for the drop in energy prices today. Rb is leading the down move today with a weak U.S. retail gasoline price.

The A-Light grade crude oil OSP to Asia for February was cut by $2, more than the estimates for a cut of $1.25/$1.70 that we saw. The OSP for A-Light delivered to Asia for February at a $1.50 premium over Oman/Dubai quotes is the lowest in 27 months (since November 2021). The price cut was the largest in 13 months. (LSEG)  OSP prices to all regions were cut by $1.50 to $2.00. Refiners said that OSPs had been set on the high side in the previous two months, as per a quote from Quantum Commodities.  Refiners called for competitive prices from Saudi Arabia comparing to crude oil supplied from other Middle Eastern producers and the arbitrage cargoes from the Atlantic Basin, as per a comment from LSEG. "Saudi crude is still relatively more expensive compared to other regional crude." said a trader with a North Asian refinery.

The down move in energy futures prices today comes even as Libya's NOC on Sunday declared force majeure on supplies from their El Sharara field with renewed protests shutting in production from the field that has a capacity of 300 MBPD. (Reuters)

OPEC pumped an average of 28.05 MMBPD in December, as per a Bloomberg survey. This was unchanged from November's level. This was ahead of the 900 MBPD cuts set to take effect this month. OPEC crude oil production increased 70 MBPD to average 27.88 MMBPD during December, according to a Reuters survey.

A colleague points put, as we have suggested, that the drop in crude supplies seen the past few weeks is a year end tax play. Since 1997, the level of crude oil inventories in December has declined from November's levels in 23 out of 27 years. But, conversely, the level of inventories in January has risen from December's levels in 20 out of 27 years. He also adds that some of the product build seen this week may have been due to refiners cracking more crude oil, so as to reduce their crude inventories given the year end tax play. He thus insinuates that product supplies may tighten in January. Reuters adds that some of the gasoline stock build may have been due to retailers likely having ordered fewer and smaller fuel deliveries, because of the shorter work period during the Christmas/New Year holidays, causing stocks to back up in the primary system.

The Iraqi government is forming a committee to prepare the closing down of the U.S.-led international coalition's mission in the country, the Prime Minister's office said on Friday. The Prime Minister's statement came a day after a U.S. strike killed a militia leader in Baghdad, prompting anger among Iran-aligned groups which demanded the government end the presence of the coalition in Iraq. (Reuters)

The CFTC COT report issued Friday, for the week ended Tuesday January 2nd, showed money managers added a lot of new shorts in WTI on the CME thus reducing their net total long position on ICE/CME by 33,051 contracts. In the same week, money managers added a small amount of length in RB & ULSD. RB length rose by 1,476 contracts and ULSD by 215 contracts. One analyst says that the net long RB position held is now nearly the largest money managers have had in the past 3 years.

The Baker Hughes oil rig count added 1 unit in Friday's report.

The EIA's monthly Short Term Energy Outlook (STEO) is set to be issued tomorrow Tuesday Jan. 9. OPEC's monthly report is due Wednesday Jan. 17 followed the next day by the IEA's report.

Technicals

Momentum for the crude oils and RB point downward.

The ULSD spot futures contract shows a wall having been formed over the past 4 sessions with highs bunched in the area of 2.6232 to today's high of 2.6300. Resistance is seen below that even at 2.5956-2.5967. Support lies at 2.5333-2.5336 and then at the recent double bottom at 2.5075/2.5108.

WTI spot futures have resistance at 72.60-72.62 and then at the overnight high at the $74 area. Support lies at 70.30-70.35.

RB February support at 2.0323-2.0333 has been pierced and the support at 2.0184 was almost tested with a low today of 2.0190. Some suggest that a test of $2.00 for February Rb is forthcoming. Resistance lies at the 2.08 area. The overnight high is 2.1157.

Natural Gas--NG is down 17.8 cents

NG prices are much lower today as some waffling in the European weather model has arisen, possibly reducing the 11-15 day period's colder forecast for the U.S.

Index fund rebalancing begins today with some information we received last week suggesting a large scale amount of buying to be done over the 5 day period, notably in the March contract month we were told.

CFTC data seen Friday showed money managers reduced their net short position in the week ended Tuesday January 2. Their net position fell to its lowest level since Nov.14, as per Celsius Energy analysis. Money managers added new longs and covered shorts to drop their net position by 26,311 contracts to a total 78,451 contracts.

Asian and European NG markets are weak. Asian spot LNG prices slipped to a five-month low last week, extending losses that began in mid-November as mild winter weather and high inventories curbed demand. The average LNG price for February delivery into north-east Asia dipped by 50 cents on the week to $11.20/mmBtu, industry sources estimated, its lowest levels since Aug. 4. The price level fell even as Asia's imports of LNG rose to a record in December; yet, LNG spot prices remained subdued as shipments from top exporters Australia and the United States also hit all-time highs. The rebound in imports was driven largely by China, which reclaimed its title as the world's largest LNG buyer in 2023 from Japan. (Reuters) Storage facilities in Europe were 87% full as of the turn of the year, versus a level seen a year ago of 83%. (Rystad Energy/Reuters) Today's TTF February futures are down 2.581 Euros now at 31.970 Euros/Mwh, which translates to $9.37/mmbtu.

The Baker Hughes NG rig count seen Friday showed a decline of 2 units.

Technically NG forged to a fresh high since November 17 on the opening of the overnight session last night. The momentum for the February NG on the daily chart basis though has turned downward from an overbought condition. Resistance for spot NG futures lies at 2.863-2.870. The overnight high is 2.963. Support lies at the double bottom from Thursday/Friday at 2.681. Below that support lies at 2.595-2.600.

Disclaimer

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