Energy Market Update 3-1-2024

Crude is up $1.50     RB is up 2.89 cents   ULSD is up 1.68 cents

Overview

Energies are up as OPEC+ is seen extending their production curb agreement into the 2nd quarter, and potentially until the end of 2024, as per one analyst cited by Reuters.

Chinese PMI data was mixed with an official manufacturing survey showing a lower reading for a 5th straight month. The 49.1 reading for February was down from January's reading of 49.2, but was in line with the Reuters survey forecast. The slippage in February's reading was due in part to the slowdown in activity due to the Lunar New Year holiday. The official PMI has been below 50 (thus suggesting manufacturing activity is contracting) since March 2023, except for last September).  New export orders have shrunk for 11 consecutive months in the official manufacturing PMI, while a year-long contraction in employment in the factory sector pointed to persistent strain on businesses. But, the official non manufacturing PMI rose to its best reading since September, thanks to robust activity during the Lunar New Year holidays. Nomura analysis sees "the weak growth momentum to extend into March,", forecasting China's first quarter GDP growth to be 4.0% year-on-year, much slower than the 5.2% pace clocked in the fourth quarter of last year. China won't release its 2024 full-year growth target till next Tuesday at the rubber-stamp parliamentary meeting, but policy insiders expect Beijing will maintain a similar growth target to last year of around 5%. (Reuters)

A Reuters survey showed OPEC pumped 26.42 MMBPD in February, up 90 MBPD from January. The rise was due to Libya restoring some output after protests had disrupted some production. Iraq and Nigeria production remained above quota.Strong expectations of Saudi Arabia keeping term prices of crude it sells to Asian customers little changed in April from March levels also underpinned the market on Friday. (Reuters)

Euro zone inflation dipped last month, but underlying price growth remained stubbornly high, adding to the case for the European Central Bank to hold interest rates at record highs a bit longer before starting to ease policy towards mid-year. Inflation across the 20-nation euro zone fell to 2.6% in February from 2.8% a month earlier, just shy of expectations for 2.5%, data from Eurostat, the EU's statistics agency showed. The ECB's key worry is that wage inflation is just too fast and unless workers start showing some restraint soon, prices could bounce back. Wages are seen growing by more than 4.5% this year and the ECB has long held that anything above 3% is inconsistent with its own inflation target. Markets now see around 90 basis points of rate cuts this year with the first move coming in June. (Reuters)

The gasoline price at the pump in the U.S. has risen a further 1.2 cents today. The AAA says the average gasoline price today is $3.331.

Technicals

Momentum has turned positive for the Rb and Crude with the rally and the front contract rollover. ULSD momentum is neutral.

WTI has tested the high at 79.80 from Feb. 20. Above that we see the next resistance at 81.05-81.08. Support lies at the overnight low at 78.03-78.08.

RB has a rollover gap down to 2.3105 from the March expiration. The April contract's value has caused the spot futures to be trading above the upper bollinger band on the DC chart. That band's value lies at about 2.4925.

April RB resistance is seen at 2.6330-2.6338, which is the double top on the April daily chart from Feb.13-14. Support comes in at 2.5672-2.5696.

ULSD spot futures are having an inside day versus the range seen yesterday in the expired March contract. Resistance for the spot futures lies at 2.7150 and support at 2.6150-2.6155.

Natural Gas--NG is down 2.4 cents

NG spot futures are down vs. Thursday's settlement as news wire commentary suggests a range bound market buffeted by seasonally weak storage results against continued signs of a pullback among producers.

The EIA storage data showed a draw greater than forecast. The draw of 96 BCF took the total storage down to 2.374 TCF. This remains though +248 BCF / +11.7% over last year and (a whopping) +498 BCF / +26.6 % versus the 5 year average. The surplus to the 5 year average is said to be at the greatest in 8 years, as per a colleague's analysis. That is up from a 4 year high for the surplus just last week, the analyst adds. After the initial rally in NG prices off the greater than expected draw, spot futures prices fell back as the market likely focused more on the prospect of the storage surplus increasing further for the foreseeable future.

Celsius Energy data sees the surplus to the 5 year average rising a further 164 BCF in the next 4 weeks' data.  The EIA wrote in its Weekly NG Update : "  If the rate of withdrawals from storage matched the five-year average of 6.6 BCF/d for the remainder of the withdrawal season, the total inventory would be 2,131 BCF on March 31, which is 498 BCF higher than the five-year average of 1,633 BCF for that time of year."

Lower-48 state dry gas production Thursday was 101 BCF/d, according to Bloomberg data; this is down from a level of 102.5 BCF/d seen Monday. In the week ended Wed. Feb. 28, S&P Global Commodity Insights says that the average total supply of natural gas fell by 2.0 BCF/d compared with the previous report week. This was due to U.S. dry natural gas production decreasing by 1.1 BCF/d to average 102.7 BCF/d, and imports from Canada falling by 0.8 BCF/d. (EIA.gov)

Again on Thursday there was a large increase in open interest on the CME for the April $2.25 call, as had been 2 days prior. The cost for the April $2.25 call was said to be about 2.8 cents, up from the value between 1.8 and 2.4 cents seen 2 days prior.  In addition, the May $1.50/$1.25 traded Thursday on the CME in some size at a cost of 2.2 cents.

Technically one analyst suggests a range bound market with an upward bias in the near term. Yesterday's high of 1.918 was the best in 3 weeks for the spot futures. Above that we see resistance at 1.993-1.997. Support comes in at 1.782-1.786 and then at the gap at 1.720-1.730. Momentum remains positive.

Disclaimer

This article and its contents are provided for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any commodity, futures contract, option contract, or other transaction. Although any statements of fact have been obtained from and are based on sources that the Firm believes to be reliable, we do not guarantee their accuracy, and any such information may be incomplete or condensed.

Commodity trading involves risks, and you should fully understand those risks prior to trading. Liquidity Energy LLC and its affiliates assume no liability for the use of any information contained herein. Neither the information nor any opinion expressed shall be construed as an offer to buy or sell any futures or options on futures contracts. Information contained herein was obtained from sources believed to be reliable, but is not guaranteed as to its accuracy. Any opinions expressed herein are subject to change without notice, are that of the individual, and not necessarily the opinion of Liquidity Energy LLC