Energy Market Update 10-26-2023

Crude is down $2.63    December RB is down 4.07 cents  December ULSD is down 5.19 cents

Overview

Energies are down today on the back of the build in crude supplies in Wednesday's DOE data, a stronger U.S. dollar, and no "spiraling' of tension in the Mideast conflict as per Reuters reporting, even as Israeli forces made a limited run into Gaza territory today.

DOE data seen Wednesday showed a build of 1.372 MMBBL in crude supplies. This was worse than forecast and worse than the API data. The Reuters forecast was for a build of 0.24 MMBBL. API data had shown a draw of 2.67 MMBBL. Net crude imports rose by a small amount. They rose 539 MBPD to a total 1.18 MMBPD. Gasoline and distillate demands fell on the week. Distillate demand fell by 347 MBPD to 4.069 MMBPD. This is still about 200 MBPD better than the prior 2 years' figures. Total national distillate supplies are 12.9% below the 5 year average, which a colleague says is the smallest deficit seen since April, which he adds confirms that tightness has eased, which is indicated by the loosening of the HO curve seen of late. He adds that the East Coast distillate supplies remain 34 % below the 5 year average. And on a further positive note, U.S. distillate exports were over 1 MMBPD this week, rising by 200 MBPD for the week.  Gasoline demand fell by 79 MBPD to 8.864 MMBPD. This is slightly below last year's demand, but almost 500 MBPD below that seen in 2021.

Israel today launched a limited ground raid into Gaza to attack Hamas targets. It said the operation was “preparation for the next stages of combat” and that “the soldiers have since exited the area and returned to Israeli territory”. (Guardian) Israel had agreed to delay an expected ground invasion of Gaza to allow the United States to move air defense systems into the region, the Wall Street Journal reported Wednesday, although later in the day the Israeli Prime Minister said that they were preparing for a ground invasion, but he gave no time frame.

The Yen has weakened to a 3 decade low, crossing the 150 Yen/dollar level. (Bloomberg) The 10 year U S Treasury Note yield remains near 5%. The yield hit a 16 year high on Monday over 5%. On Thursday, the first estimate for third-quarter gross domestic product was expected to reflect a 4.7% rise, according to a Dow Jones estimate. The number came in at +4.9%. Crude oil did not really react to the number, having already been more than $2.50 lower on the day.

Technicals

Momentum is negative for the energies. There are double tops in the crude oils from yesterday/today, but the contracts are having inside trading ranges today versus yesterday.

WTI has its double top at 85.56-85.59 on the DC chart. We see some resistance below that at 84.65-84.67. Support comes in at 82.08-82.15 and then at 80.87-80.88.

December RB support is seen at 2.2105-2.2119. Resistance lies at 2.2840-2.2866.

December ULSD has support at 2.8766 and resistance at the overnight high at 2.9618-2.9627.

Natural Gas -December NG is up 2.1 cents

NG has been underpinned the past day by the impending cool weather coming.The first subfreezing cold shot of the season is sweeping across the northern and central US this weekend into next week," NatGasWeather.com says.  A weather forecaster says that the Oct.29 to Nov. 2 temperatures will be the 3rd coldest since 2000 and the 11th coldest since 1960 based on national gas-weighted heating degree days. (Atmospheric G2)

Platts yesterday reported how more U.S. LNG cargoes are heading to Europe than Asia, even as the Asian market commands a premium. Delays at the Panama Canal are seen as a main culprit. Backlogs and limited ship passage slot availability is causing cargoes to head to Europe.  This comes even as the JKM December valuation is seen at $18.54/mmbtu versus the TTF December futures valuation near $14.44/mmbtu. Freight rates from the Gulf Coast to NW Europe are said to be roughly $1.63. The rate to Japan/Korea is said to be $3.41. Sources pointed to waiting times at the Panama Canal ranging anywhere between five to 15 days, making selling cargoes to Asia less economical than to Europe. Milder temperatures in China and across Europe have been keeping the current fight for US volumes in check, Platts adds. Sources suggest that once a cold snap strikes Asia the price competition between the regions will intensify and both Europe and Asia will have to begin pricing higher to attract the necessary volumes for winter should storages deplete quickly.

Today's EIA NG storage data is seen as a build of 79 to 80 BCF. This is more than last year's build of 61 BCF and the 5 year average build of 66 BCF.

Today is the last trading day for the November NG options with a very large amount of open interest in the $3 strike. This suggests to us that the November futures may be pinned near the $3 mark for today's settlement. Yesterday's rally in the spot futures over $3 came though in very light volume on the CME. Does this suggest a lack of interest or lack of conviction in the upswing ?

Technically, December NG futures have momentum that looks poised to turn positive. With an eye to next week, when the December contract becomes the spot month, we see the potential for an island bottom. There is a gap on the DC chart from 3.185 to 3.203. Thus, when December becomes the spot contract, pricing over 3.203 would leave an island below in its wake on the DC chart.

For now, there is a double top in December futures from yesterday/today at 3.406-3.411. Resistance over that is seen at the 3.47 area. Support comes in at 3.317.

Disclaimer

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