Energy Market Update 12-8-2023

Crude is up $1.45      RB is up 4.88 cents    ULSD is up 5.53 cents

Overview

Energies are higher as Russia and Saudi Arabia are calling for more production cuts. But, crude is still on track for its longest losing streak since 2018. This is the 7th straight week of price declines. Concerns remain about supply and demand.

The demand concern was raised to some degree after seeing Thursday's Chinese crude import figures for November, which showed them at a 4 month low, with domestic demand seen sluggish. This is somewhat a function of a shortage of export quotas for fuel oils for the refiners. The drop in imports is also attributable to the high prices that existed in September, when November's arrivals would have been purchased. November's imports were 10.33 MMBPD, down from October's level of 11.53 MMBPD. November's imports were down 9.2% year on year, which is the first annual drop seen since April. For the first 11 months of 2023 though imports were up on average 1.21 MMBPD. This is less than the IEA's forecast for 2023 of an increase of 1.8 MMBPD. Chinese consumption is expected to grow by 500 MBPD next year, according to a Bloomberg survey. (Quantum Commodities / Reuters)

The demand concern mantra may be underscored further by the continued drop in retail prices at the pump in the U.S. for gasoline and diesel fuel. The national average for gasoline today fell to $3.185 and for diesel to $4.144. Those prices one month ago were respectively $3.405 and $4.393.

Supply concerns this week were raised by the record oil production in the U.S. in September of 13.24 MMBPD issued by the EIA. In addition, the market has focused on the voluntary nature of the OPEC+ cuts in their latest agreement. "We see total production from OPEC+ countries dropping by only 350 MBPD from December 2023 into January 2024," said an analyst at Kpler.

This week's DOE data showed a drop in crude supplies, but to us much of this was due to an accounting adjustment. Supply actually was negatively impacted as net crude imports rose by over 2 MMBPD, as crude exports fell by 1.68 MMBPD on the week. Product demand was up with distillate demand of 3.756 MMBPD this week rising over the prior 2 year's level. Gasoline demand rose over last year's figure, but remained below that seen in 2021. This week's demand was up 260 MBPD to 8.466 MMBPD.

Today's Non Farm Payroll data showed an increase of 199,000 jobs. Forecasts were for an increase of 180,000-185,000 new jobs. A boost to payrolls was expected as thousands of automobile workers and actors returned after strikes as per Reuters commentary. The Fed is expected to keep rates unchanged next Wednesday. Crude oil fell back as the Euro fell versus the dollar after the payroll data.

Technicals

Crude shed 11% in the prior 6 sessions. Crude has closed every session lower since last week’s OPEC+ meeting. The crudes and RB have mean reversion set ups from Thursday's closes below their DC based lower bollinger band. Momentums for the energies are still pointing lower, though they are getting near oversold.

For WTI the lower DC bollinger lies at about 69.33. DC chart based support lies at 68.93-69.03, just above Thursday's low of 68.80. Resistance lies at 72.09-72.17.

RB's DC based lower bollinger intersects at 2.0049. Support is seen at the Thursday low at 1.9980. Resistance is seen at 2.0900-2.0923.

ULSD has resistance at 2.6332-2.6349 and then at 2.6736-2.6774. Support comes in at the 2.5468 area. Currently ULSD is having an inside day with a double top from yesterday/today at 2.6200/2.6181.

Natural Gas-NG is down 1.3 cents

NG is near unchanged with positive EIA data being offset by near term warm weather.

“For the global gas market, Winter is over, before it even began,” Bloomberg wrote this week, given that supplies are ample worldwide. Europe is currently filled to an average of 96%. Europe should exit the 2023/24 heating season with storage somewhere between 45-50% full. This is below the 56% seen at the end of last winter, but well above the five-year average of 34%. (ING/Investing.com) We still see Asia-Pacific balances quite comfortable this winter, Energy Aspects says. (Reuters)

The EIA storage data seen Thursday showed a draw of 117 BCF. Total storage fell to 3.719 TCF. This is +254 BCF/+7.3% versus last year and +234BCF/+7.0% versus the 5 year average. NatGasWeather sees the storage surplus rising to 350 BCF as warmer weather upcoming will see storage withdrawals lag prior years and the 5 year average. Celsius Energy is asking whether storage can fall below 2 TCF this winter. Most estimates we have seen are calling for storage to end near 1.800-1.850 TCF.

U.S. gas production in December has averaged  107.3 BCF/d, down from November's record output of 107.8 BCF/d.  U.S. NG demand this week is seen at 121.5 BCF/d, rising next week to 126.4 BCF/d.

Ample European storage and issues with shipping vessels through the Panama Canal to Asia have seen the Asia vs. Europe LNG spread rise to its widest level in almost two years. The spread between the Japan Korea Market (JKM), widely used as an Asian LNG benchmark, and the Title Transfer Facility (TTF), the European gas benchmark, was assessed by S&P at $2.79/MMbtu on Dec. 6, its widest since Dec. 31, 2021. Only three U.S. LNG cargoes went via Panama towards Northeast Asia/Southeast Asia in November, said an analyst at Energy Aspects. Transport costs have risen as journeys are taking 9 days longer from the U.S. to Northeast Asia. The price spread between Asia and Northwest Europe is getting close to the point where cargoes may head to Asia rather than Europe. (Reuters)

Earlier in the week, Venture Global LNG said that they expect an extended start-up at second plant. Venture Global said they see their first cargoes gong out in 2026 at the earliest. They were originally due to begin operating in Q1 2024. Then yesterday, Exxon Mobil announced that they expect their first LNG from Golden Pass plant in the first half of 2025. Originally the plant was seen being operative by Q1 2024.

Technically NG is giving us mixed signals. The daily January chart has a very low RSI of 21, which signals an oversold condition. But, the DC chart shows prices have fallen below the 200 day moving average. That average is 2.624. Prices so far since after the EIA data issued Thursday have failed to rise above the high of 2.621 seen right after the number. Resistance lies above that at 2.656-2.660. Support lies at yesterday's low of 2.489. Momentum to the downside on the DC chart basis is waning. Notable is the very large drop in January NG futures open interest on the CME as the double index roll has begun. January open interest fell by over 44,000 contracts from yesterday's activity.

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