Energy Market Update 2-7-2024

Crude is up 54 cents     RB is up 2.26 cents    ULSD is up 4.40 cents

Overview

Energies are higher, led by distillates. API data showed a bigger than expected drop in distillate supplies and a lower than expected increase in crude supplies. Also supporting prices is the EIA signaling U.S. crude production growth is slowing.

In its monthly STEO issued Tuesday, the EIA cut its outlook for domestic oil output growth by 120 MBPD to 170 MBPD, sharply lower than last year's 1.02 MMBPD output increase. U.S. crude production is seen averaging 13.10 MMBPD in 2024. The EIA also forecast U.S. production would not exceed the December 2023 record of more than 13.3 MMBPD until February 2025. The EIA kept its U.S. demand figure unchanged at 20.4 MMBPD for 2024 versus last month's estimate. Global output and demand were little changed in this month's outlook. The WTI and Brent average price forecasts were lowered by a small amount. WTI is seen averaging $77.68, down from last month's estimate of $77.99. The average for WTI for 2025 was unchanged at $74.98. Brent is seen averaging $82.42 in 2024 versus January's estimate of $82.49. The 2025 estimate was kept unchanged at $79.48.

API             Forecast       Actual

Crude Oil    -1.3/-1.9      +0.674

Gasoline       +0.3          +3.652

Distillates     -2.0            -3.699

Cushing        n/av          +0.49

Runs           +0.4%          n/av

U.S. crude oil exports to Asia tumbled to 1 MMBPD in January, the lowest in over two years as high freight rates and more competitively-priced Middle Eastern oils slashed shipments as per Refinitiv reporting. Overall, U.S. oil exports fell to 3.8 MMBPD, the lowest in a year. January typically sees weaker exports as onshore inventories rebuild after a seasonal outflow in December. Some of the lost exports to Asia were redirected to Europe. Research firm Energy Aspects said it expects U.S. exports in February to increase to 4.4 MMBPD as prices of U.S. light sweet crude were competitive versus North Sea and West African grades. Exports to Asia, however, will likely remain tepid as the cost for U.S. West Texas Intermediate crude arriving in May remains more expensive than Abu Dhabi's flagship Murban crude, two traders said. (Refinitiv)

In the Middle East, reports indicated that Israel was set to reject the conditions offered by Hamas officials for a temporary ceasefire and prisoner/hostage exchange, while commercial shipping continued to come under attack from Houthi rebels this week.(Quantum Commodities)

The IEA projects that India will be the key driver to oil demand growth through the rest of the decade. India's oil demand is seen increasing by almost 1.2 MMBPD between 2023 and 2030, accounting for more than one-third of the projected 3.2 MMBPD of global increases in the period, the IEA said in a report. The single largest basis of India's oil consumption will be diesel fuel, accounting for almost half of the rise in the nation's demand. The agency forecast India's demand would reach 6.6 MMBPD in 2030, up from 5.5 MMBPD in 2023. (Reuters)

BP’s Whiting refinery is still shut after the power loss seen last week, the cause of which is unknown. "We do not know exactly when they'll be back up but the early estimates are a couple of weeks. I'm sure production would be limited at first." ,the mayor of Whiting said. BP has called back employees to work at the refinery, the largest in the Midwest with a production capacity of 440 MBPD. Some contractors have said they've been told they won't be called back to work for a few weeks. (NWI times.com)

German industrial production fell more than expected in December, the federal statistics office said on Wednesday, marking the seventh monthly decline in a row and highlighting weakness in the backbone of Europe's largest economy. Industrial production fell in December by 1.6% compared with the previous month. Analysts polled by Reuters had predicted a 0.4% fall. "High energy costs and weak domestic and external demand will cause German industrial output to decline further in 2024," one economist writes.(Reuters)

Technicals

Momentum is negative, but as we pointed out yesterday, the energies seem to have found near term ranges.

WTI spot futures see support at  72.38-72.44 and resistance at 74.91-74.98.

March RB sees support at the overnight low at 2.2106-2.2124 and then at 2.1970-2.1980. Resistance lies at 2.2423-2.2436, tested with a high of 2.2446. Above that resistance lies at the 2.26 area.

ULSD for March sees support at 2.7400-2.7425 and resistance at 2.7863-2.7900, tested with a high of 2.7905. Above that resistance lies at 2.8220-2.8230.

Natural Gas--NG is up 9 ticks

NG prices are higher after testing $2 twice in the past 16 hours as the mantra is that "While the longer-term weather forecasts are turning colder, it seems it’s too little too late," to have prevented a move to the new low.

In its monthly STEO seen Tuesday, the EIA reduced this year's NG production estimate, while also increasing its demand estimate. U.S. gas production was lowered to 104.37 BCF/d, down from last month's figure of 105.0 BCF/d. This production figure, though, is still a record. In 2023, NG production was 103.75 BCF/d. U.S. demand this year was raised to 90.64 BCF/d, from January's estimate of 89.9 BCF/d. This demand will be a record as well, beating 2023 demand of 88.96 BCF/d. The price estimate for gas this year is $2.65, down 1 cent from last month's forecast. The end of March gas storage estimate was lowered to 1.905 TCF, from last month's estimate of 2.155 TCF.

With seasonally colder weather coming, LSEG on Tuesday forecast U.S. gas demand in the Lower 48, including exports, would rise from 121.8 BCF/d this week to 124.6 BCF/d next week. The total gain in the 2 weeks of demand is 1.5 BCF/d versus Monday's estimates.

Adding to the woes of the outage of one train at the Freeport LNG facility, one source writes the following : " Something is possibly wrong at Corpus Christi LNG, run by Cheniere. The last 8 LNG tankers that docked there to receive a load were docked for almost 70 hours each. The 8 before that were only docked 40 hours each. The last tanker to leave was docked 100 hours.

Chinese imports of LNG have been higher this winter, with Kpler estimating arrivals in January of 7.77 million tons of the super-chilled fuel. This is down from December's 8.14 million tons, but it's worth noting that December was the fourth-strongest month in Kpler's data going back to 2009, while January was the fifth-highest. LNG imports in December and January were also well above the same months a year earlier, rising 12.1% and 28% respectively. It's likely that lower spot prices for LNG over winter led to increased demand, although volumes may ease in coming months as China enters the shoulder season between winter and summer peaks, as per a Reuters analyst.  (Reuters)

Technically, NG momentum is neutral at an oversold level. For now, there is some support from the double bottom from yesterday/today at 1.997-1.999. Support below that lies at the April lows at 1.944-1.946. Resistance is seen at 2.100-2.102 and then at 2.158-2.168. All of those resistance points are recent highs.

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