Energy Market Update 11-10-2023

Crude is up 80 cents     RB is up 2.79 cents      ULSD is up 3.67 cents

Overview

Energies are higher today. Barron's says that this is due to tight fundamentals, although the front spread in WTI does not suggest such seeing as it has fallen into contango. The contango is the first seen in the spot contract for WTI  since July. The contango comes even as crude oil stockpiles at the WTI delivery point of Cushing remain relatively low at 21.5 MMBBL. Tank storage of below 20 MMBBL is considered close to operational low, say traders.

ING suggests that the Saudi Minister's comments yesterday about demand being healthy is supporting prices.  ING also suggests that fundamentals are tight. ING writes that middle distillates remain tight despite the more recent weakness in cracks. Gasoil inventories in the ARA region fell by 47kt last week to 1.72mt, according to data from Insights Global. This leaves inventories at similar levels to those seen at the same stage last year, and around 24% below the 5-year average. The middle distillate market remains vulnerable as we head deeper into the northern hemisphere winter. ING adds. Gasoil spot futures today are worth about $822.50. At this time last year, the price was near $1,000.

Reuters says that Europe’s crude and feedstock inventories were essentially flat in October at 435 MMBBL. Stocks were -34 MMBBL (-7% ) below the seasonal average but the deficit was little changed from January 2023 when it stood at -33 million barrels (-7% ). The price for WTI in January was over $80 for much of the month.

Gasoil and ULSD dropped quite a bit in mid-morning (U.S. time) trading Thursday. This was likely due to the news that Russia plans to lift its fuel export ban next week. The ban had started on September 21, although some restrictions had been lifted almost one month ago on October 6, when diesel exports via pipeline had been allowed. Thus, the news seen Thursday had more to do with gasoline exports being allowed. A source said that a gasoline glut had emerged because of the restrictions. (Reuters) The distillate prices rebounded well off the lows.  RB prices did not react to the Russian news; actually quite the opposite, they rallied to a new high for the day in the mid-morning N.Y. time Thursday.

Saudi Aramco has notified at least four North Asian buyers that it will supply full contractual volumes of crude oil in December. But refiners in China, the largest buyer of Saudi crude oil, have slightly trimmed their nominated volume for December, totaling around 46 MMBBL, comparing to about 47 MMBBL for November and around 50 MMBBLfor October,  trading sources said. The lower nomination comes as Chinese refiners reduce their refining runs over thinning margins and a shortage of product export quotas which discourages plants from raising output for the rest of 2023. (Reuters)

India's crude imports fell 6.9% in September to 17.42 million mt (4.3 MMBPD), according to the latest provisional data from the country's Petroleum Planning and Analysis Cell. Analysts said the decline in crude imports for the fourth straight month was because of higher crude prices and lower domestic demand from seasonal factors like monsoons. But analysts expect India's crude imports to pick up in the quarter to December, riding on the seasonal festive demand in Asia's third largest economy. India's oil demand rose 5.5% month on month to 19.26 million mt (4.9 MMBPD) in October, the PPAC data showed, reflecting the first rise in three months on improved economic activity as monsoon rains waned. October oil demand was up 3.7% year on year.(Platts)

UBS, adding its voice in oil price forecasting, says prices should recover to trade in the $90-$100/b range due to lower inventories, although prices are expected to remain volatile in the short term. "While oil demand growth is slowing down due to base effects after a strong first half of the year, we think the current price weakness is primarily driven by supply factors,".  UBS points to strong US and Brazilian crude output, as well as Iranian production hitting a five-year high along with a recovery in September and October OPEC export volumes. On the demand side, UBS pointed to weakness in the European market but said demand growth in the US, China, and India remained firm. (Quantum Commodities)

Gasoline prices at the pump continue to slide. The national average in the U.S. today is $3.390, as per AAA data. Gas prices are now below $3 a gallon in eight states,  according to fuel tracker GasBuddy. "While the national average is now at its lowest since March, the decline is likely to continue for at least another couple of weeks, with California likely soon falling below $5, while more states fall under $3," the head of petroleum analysis at GasBuddy, said. He noted that prices have fallen for seven consecutive weeks. To be sure, gas prices often drop near year-end as gas stations switch to a winter-blend formula that's cheaper for refineries to produce, the CBS News article opined.

Technicals

There are double bottoms in the RB from Wednesday/Thursday and in ULSD from yesterday/today. Also, supportive is that momentums for the energies are trying to turn positive from nearly oversold condition.

In RB spot futures, the double bottom lies at 2.1220-2.1224. Support is seen even above that at today's overnight low at 2.1527-2.1537. Resistance lies at 2.2220-2.2230.

ULSD spot futures has a double bottom from today/yesterday at 2.6960/2.6980. We see support above that even at 2.7220. Resistance lies lightly at 2.7913 and then better at 2.8365-2.8403.

WTI for December is framed for now by the high and low seen 2 days ago. Support lies at 74.91 and resistance at 77.13-77.23.

Natural Gas--NG is down 4 ticks

NG pierced $3 overnight as the narrative remains of strong production and benign weather. Meteorologists projected the weather would remain mostly warmer than normal through Nov. 24 as per Reuters reporting.

LSEG said average gas output in the Lower 48 U.S. states has risen to 107.0 BCF/d so far in November, up from a record 104.2 BCF/d in October. On Thursday, LSEG pegged demand for this week at 101.6 BCF/d and 107.8 BCF/d for next week. Thursday's estimates were different from those seen earlier in the week. Monday's estimates were 101.5 and 109.2 BCF/d.

With regard to storage, a few sources estimate that the data for the week ended last Friday Nov. 3 would show a drop of 7 BCF in total storage. That number will be revealed next Thursday by the EIA, along with data for the week ending today. In regard to storage, we wish to add that November is a month in which the total amount of gas in storage may not differ too much from the beginning of the month to the end of the month. Looking at the prior 5 years' data, we see that the changes for the 4 week period from the end of October to the end of November ranged from a withdrawal of 217 BCF in 2018 to a build of 20 BCF in 2020. The other 3 years saw withdrawals of between 18 and 138 BCF.

NG prices are seen falling "as low as $2.75--possibly within a week" as per one prominent analyst quoted in WSJ commentary. There is a gap on the DC chart from the expiration of the October 2023 contract. That gap lies from 2.820 down to the October expiration high of 2.781.

Again on Thursday CME open interest rose quite a bit. It looks like new shorts were added in the January 2024 contract, as well as likely in May 2024.

Technically, prices are not oversold with momentum remaining negative on the DC chart. Support below is seen at 2.954-2.958. Below that, the next best support seen is at 2.876-2.880. Resistance comes in at 3.092-3.099. Above that resistance lies at the 3.16 area. On the December daily chart, momentum is getting near oversold on the daily chart. NG prices have been riding the lower bollinger band on the December daily chart the past few days. That bollinger was tested again today. The bollinger on the December daily chart lies near $2.99.

Disclaimer

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