Energy Market Update 2-22-2024

Crude is down 54 cents   April RB is down 3.21 cents   April ULSD is down 3.40 cents

Overview

Energies are lower after rallying overnight. The rally was supported by a weaker U.S. dollar and continued attacks on shipping near the Red Sea, even as ceasefire talks are seen resuming. The pullback is due to weak API data for crude oil and gasoline.

API             Forecast         Actual

Crude Oil    +3.2/+4.4       +7.17

Gasoline        -2.1             +0.415

Distillate      -1.4/-1.7          -2.9

Cushing       +0.694          +0.700

Runs         +0.8/+0.9%       n/av

The Federal Reserves' FOMC minutes issued Wednesday did not give a clear indication of any change in interest rate policy. They said "policy rate likely at its peak" , but "they want to see more progress towards 2% inflation target before cutting rates" A couple of officials noted downside risks to keeping rates too high. (Dow Jones news wire) 

Two missiles were fired at a vessel off the southeast coast of Yemen on Thursday, causing a fire onboard, British maritime agencies said, as Houthis keep up attacks on shipping to show support for the Palestinians in the Gaza war. (Reuters) Meanwhile, Israel is reportedly planning to attend another high-level summit in Paris on Friday, with an Israeli cabinet minister commenting that there were early signs of progress on releasing the remaining hostages. However, he said on Wednesday if a deal is not reached, Israel will invade the southern Gaza city of Rafah. (Quantum Commodities)

Product prices fell quite a bit on Wednesday with the front end curves weakening considerably. This seems due to the return of some refineries that had experienced problems recently. BP's 435 MBPD refinery in Indiana, the largest in the U.S. Midwest, will return to full production in March, after a power outage from Feb. 1. Total Energies' 238 MBPD refinery in Port Arthur, Texas, is also working to complete a restart, though it is still operating minimally following a weather-related power outage. (Reuters) Marathon Petroleum is restarting units at its 363 MBPD refinery in LA after a power outage. (Quantum Commodities)

The front spread in Brent is near $1 premium for April, widening over the values just above 90 cents seen last October. The price has risen following an outage on a UK crude oil pipeline, forcing the Grangemouth refinery to take in more Forties crude. Grangemouth is the only operating crude oil refinery in Scotland. (Quantum Commodities) The crude curves have been tightening of late, before this outage, as the Red Sea transit issues have disrupted the normal flow of barrels.

Technicals

Momentum for the products is negative and that for the crude oil is looking as if it is turning downward.

The rollover gap on the WTI DC chart to 77.67 from the March expiration was filled Wednesday. Resistance at 78.44-78.47 was almost tested with an overnight high of 78.42. Support comes in at 76.31-76.32.

ULSD for April sees support at 2.6055. Resistance lies at 2.6873-2.6892, below the overnight high of 2.6936.

RB for April sees support at 2.4825-2.4830 and then at 2.4739-2.4755. Resistance lies at 2.5475-2.5500, just above the overnight high of 2.5457.

Natural Gas- April NG is down 6.2 cents

March and April NG prices have retreated after the sharp rally seen Wednesday. A less than average EIA storage withdrawal expected today is a likely culprit for the retreat. But, many analysts tout their belief that the low is in for NG prices after they fell to $1.522 Sunday evening.

The EIA storage data is seen as a draw of 63 to 66 BCF. This compares to last year's draw of 75 BCF and the 5 year average draw of 168 BCF.  In the past few days, analysts have raised their end of withdrawal season inventory expectations. They seem to agree that the total of gas in storage will exceed 2 TCF. The EIA earlier this month, in its STEO, forecast storage to be at 1.905 TCF at the end of March.

On Wednesday, LSEG forecast U.S. gas demand in the Lower 48, including exports, would fall from 130.0 BCF/d this week to 119.3 BCF/d next week. This was up 1.5 BCF/d in total versus Tuesday's estimate, but basically was even to the estimate seen at the end of last week. 

NGI wrote Wednesday that the Chesapeake news was " providing a dose of bullish momentum for a market deprived of upside catalysts."  The demand side of the NG price equation does not look like it will be supportive for now. A weather forecaster wrote the following Wednesday : "The cold intrusions seen across the Great Lakes and the Northeast during the next seven days  may be the last we see until November." Highlighting the lack of weather demand : " Power prices for Wednesday at ERCOT North in Texas, which includes Dallas, fell to $10 per megawatt hour, their lowest since May 2017 when prices dropped to a record low of $8.32." (Reuters) 

In addition, Celsius Energy wrote that feed gas volume on Wednesday stood at 12.95 BCF/d, up just +0.2 BCF/d vs 2023 & down -2.2 BCF/d from record highs. Reuters says that feedgas in February has averaged 13.6 BCF/d so far, down from 13.9 BCF/d in January and a monthly record of 14.7 BCF/d in December.

Reinforcing the loss of NG production seen of late that we had written about yesterday, Reuters reported that on a daily basis, output over the past six days was on track to drop by 2.2 BCF/d to a preliminary three-week low of 103.8 BCF/d on Wednesday.

A colleague offered the following comments yesterday : "this is a headline driven move for sure ; not taking the announcement lightly on Chesapeake cutting back 2024 budget, but this will take some time to materialize and will need others to also follow suit ; I agree with the market sentiment in that this is more of a peak summer risk in addition to forward curve as LNG growth hits." ( his reference to peak summer risk was citing the greater up move seen early Wednesday in the June thru October strip versus front month pricing). He added : " Production may be slow to respond back up if significant CAPEX budgets are slashed in 2024." He concluded : " i think the floor is in at the $1.50 area in prompt, but I don't think it just continues to rapidly move higher from here ; this does provide an opportunity to take measured risk from the buy side now though against (the recent) low's  on any pullbacks.

"With regard to the possible production cuts, one analyst wrote : "we are keeping a close eye on matching or similar production-reduction comments from the other majors,". "If those come in the next week or so we could see summer push towards $3 and winter make a drive for $4." June through August 2024 NG settled Wednesday at an average of $2.367, while the December 2024 through March 2025 settled at an average of $3.445.

Notable in Wednesday's trading was the fact that the June through October 2024 strip rose by 25.8 to 28.0 cents basis settlement, while March and April NG were up 19.7 and 21.7 cents respectively.

Technically NG has positive momentum. Support for April NG lies at 1.744-1.749 and then at 1.704-1.707. Resistance lies at the double top of today/yesterday at 1.868/1.877.

Disclaimer

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