Energy Market Update 4-19-2023

June Crude is down $1,27    June RB is down 4.43 cents     ULSD is down 3.54 cents

Overview

Energy prices are down as economic concerns are outweighing draws seen in the API data, which came in pretty much as forecast.

Bloomberg and Reuters have articles reinforcing how the drop in refining margins is a signal of weakening economic activity and will likely lead to refiners cutting runs. We detailed this in our notes on Monday. Reuters reports that the complex refining margin in Singapore has fallen to $2.53, which is the lowest since October 27th. On Monday, we had noted that this margin was $3.17. The Reuters headline read : " Asia's collapsing refinery margins undermine bullish crude case." The Gasoil margin in Asia fell on Monday to $14.25, its lowest since January 2022 according to Reuters. The Reuters analyst stresses how diesel is the industrial fuel. The low margin suggests that construction and manufacturing are under pressure. The analyst says Asia refiners may dial back their refining runs, which lessens some of the bullish crude narrative. Bloomberg says "the recovery in fuel consumption has been uneven as Asia grapples with a flood of Russian oil into an already well-supplied market. Refiners in the region are mulling run cuts as profits from turning crude into products such as diesel plunge, while time spreads for benchmark Dubai grade weakened." Bloomberg says that this week Mideast crude buying has slowed and the value of Abu Dhabi’s Murban oil has slumped. That’s in part due to a drop in gasoline and diesel prices, they add.

Reuters says that China and India have been buying Russian Urals crude at above the $60 cap. India took 70% and China took 20% of the Urals crude that loaded in the first half of this month. The average discounts for the crude on an ex ship basis were $13 to dated Brent for India's purchases and $9 to ICE Brent for China's purchases. Those discounts are narrower than those seen in March, which were $14-17 for crude to India and $11 to China. This suggests a tighter Urals market and or the rise in oil prices seen this month.

Some of today's weakness in energy prices may be attributable to comments about further rate hikes heard Tuesday. The ECB's chief economist said that another rate hike in May would be appropriate. The Atlanta Fed President said he favors one more rate hike and then holding rates above 5% for some time. The St. Louis Fed President favors raising rates to 5.25-5.75%. The current target rate is 4.75-5.00%. The following comment sums up possible rate hikes : ""Lingering concern that further US interest rate cuts could tip economies into recession and lead to slower growth is overtaking the supply focus of the OPEC cuts," (Bloomberg)

API             Forecast     Actual

Crude Oil    -0.5/-1.09     -2.7

Gasoline     -1.2/-1.27     -1.0

Distillate     -0.9/-0.93     -1.9

Cushing        -0.28          -0.6

Runs           +0.6%        n/av

Technicals

Momentums are negative and the stepladder down pattern continues.

June WTI has tested the low of 79.04 seen on April 3rd when the market gapped up on the back of the OPEC+ cut news. Today's low is 79.00. Below this we see support at the 78 dollar area. Resistance comes in at today's high at 81.19-81.25.

June RB support is seen at the gap down to 2,6366 and then at 2.6123-2.6156. Resistance comes in at today's high at 2.7124-30, then at 2.7442-53.

June ULSD support is seen at 2.5056-82 and resistance is at 2.6024-57.

Natural Gas-NG is down 9.4 cents

NG has backed off today as temperatures are set to warm up in the Eastern half of the U.S. We wonder if the prospect of an above average EIA storage number in tomorrow's data is not also weighing on prices. Profit taking is also cited for the pullback in prices seen today, as per WSJ commentary.

Tomorrow's EIA number is seen as a build of 65 to 71 BCF as per early estimates. This compares to last year's build of 47 BCF and the 5 year average build of 41 BCF.

Yesterday, Refnitiv said that demand would drop to 95.5 BCF/d next week from 95.8 BCF/d this week due to a drop in feedgas demand. This is the time of year when maintenance is done to various sectors that supply and take in gas. This is evident in the supply drop that was seen Tuesday as maintenance was being done to pipelines. Tuesday's NG output was seen at 98.9 BCF due mostly to declines in Pennsylvania and West Virginia. Volume was down 1.7 BCF on the day. The supply Tuesday was a one month low. (Reuters)

Bloomberg had an article yesterday talking of a possible global glut of gas, but a Bloomberg analyst says that "prices may be close to a floor" as cheaper gas spurs additional demand-considering that prices have fallen so far from the highs seen last year. But, at present European storage is amply filled. In Spain, gas storage is at 85%. European storage is seen at 55.7% of capacity, which is the highest level since 2011 and is 20% over the 5 year average. Argus Media says that European storage will be at 90% by late July or August. The EU has a target of November 1 to meet the 90% storage target. The Financial Times describes how the EU still imports Russian gas via pipeline and LNG terminals. The article cites a Columbia professor who says it would be hard to replace the volumes of 20 BCM each that come from both LNG and pipelines if Europe were to ban Russian imports. As a footnote, we wish to add that full European storage in late summer may have an effect of lowering feedgas demand in the US as fewer LNG cargoes may be needed.

The profit taking cited for today's fall is evidenced in the double top from yesterday/today at 2.385/2.383 and the test of the 50 day moving average on the DC chart. That value today comes in at 2.364. Resistance lies at the double top. Support lies at the 2.23 area and then at the 2.15 area. Momentum remains positive.

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