Energy Market Update 4-4-2024

Crude is down 37 cents     RB is down 1.30 cents        ULSD is down 1.65 cents

Overview

RB and Crude oil are lower, although the word "steady" is the watchword being used in news wire accounts today. "A combination of tightening supply/demand fundamentals and heightened geopolitical tensions continued to underpin sentiment," one analyst remarked.

The DOE stats were supportive for gasoline, less so for crude oil. Crude oil supplies rose by 3.21 MMBBL. That was more than was forecast and was contrary to the API draw of 2.3 MMBBL. Net crude imports rose slightly and inputs to refineries fell by a small amount, thus leading to the inventory build. Gasoline supplies fell by 4.26 MMBBL, which beat forecasts for a draw of less than 1 MMBBL. Gasoline demand rose by 521 MBPD for the week to a very healthy total demand of 9.236 MMBPD. This was still slightly below last year's demand of 9.295 MMBPD, but beat 2022's demand of 8.562 MMBPD. Distillate supplies fell by 1.27 MMBBL, which was slightly better than the estimated draw of below 1 MMBBL. Distillate demand fell on the week by 533 MBPD to 3.495 MMBPD, less than the prior 2 years' demand of 4.240 and 3.647 MMBPD.

In Wednesday's OPEC committee meeting, they asked that members with outstanding overproduced volumes in January, February and March submit their compensation plans by April 30. An analyst suggested this following the OPEC announcement : "OPEC+'s focus on members' compliance with production quotas is likely to keep the oil market undersupplied." "The group will not remove the production cuts if it doesn't believe the oil market can absorb additional barrels," he added. (WSJ)

Saudi Arabia may raise the OSP for their flagship Arab Light crude in May after Middle East benchmarks strengthened last month. The backwardation structure in the Dubai benchmark widened by 33 cents a barrel in March versus February. The May OSP for Arab Light crude could rise by 20 to 30 cents a barrel from April, according to a Reuters survey of five refining sources. The May OSP for Arab Extra Light may increase by 30-50 cents a barrel on the back of higher premiums for similar-quality Murban crude from Abu Dhabi, one of the respondents said.

The Biden administration has abruptly canceled a plan announced last month to purchase up to three million barrels of oil as part of its effort to refill the SPR. The Department of Energy said that while it remains committed to refilling the SPR, it would pull back its most recent solicitation for oil amid increasing prices. (Fox Business)

Russian diesel output fell by 30 MBPD to around 1.72 MMBPD ( 231 metric tons per day) in the week to 31 March, Kommersant said Thursday citing the Russian Statistics Service. Diesel output was thus down 3.5% versus February's average. The recent drone attacks by Ukraine also led to a drop in gasoline output. Between March 25 and March 31, Russia produced 110,700 metric tons of gasoline per day ( equal to 0.824 MMBPD) , a 12% decrease compared to the average output in February. (Quantum Commodities/Moscow Times) Wider problems exist in Russia's energy sector where some oil firms are struggling in the face of Western sanctions to repair their refineries, built with the help of U.S. and European engineering firms, according to at least 10 Russian industry sources. "If the stream of drones continues at this rate and Russian air defences don't improve, Ukraine will be able to cut Russian refining runs quicker than Russian firms will be able to repair them," said an expert on Russia's energy industry.  (Reuters)

Technicals

Crude oil momentum is getting near overbought. Momentum for the RB, ULSD and Gasoil remains positive.

Yesterday, Brent spot futures hit a high of $89.99. The $90 price has been mentioned in a few comments seen today : " "Brent is facing some resistance at the $90/bbl level, with it unable to break above it so far," the ING analysts said."..."OPEC+ has largely got compliance back under control this year, although analysts have said that $90/b Brent could make enforcement more difficult to police."  We see DC chart based resistance above at 90.68-90.75 and support at 87.52-87.62.

WTI spot futures see support at the low of 2 days ago at 83.85. Resistance comes in at yesterday's high at 86.20-86.30 and then at 87.20-87.24.

RB futures for May have resistance at the prior session highs at 2.7743-2.7749 and then 2.7910. If broken, resistance above lies at 2.8192-2.8199. Support comes in at 2.7325-2.7340 and then at 2.7083-2.7100.

May ULSD futures see support at 2.7135-2.7150 and then at 2.6875-2.6878. Resistance lies at 2.7566-2.7588 and then at yesterday's high at 2.7729-2.7740.

May Gasoil has a mean reversion setup after closing yesterday over the upper bollinger on its daily chart. Resistance lies at the contract high of 859.50 from last September. Support lies at 834.75-835.00. The May Gasoil upper bollinger intersects at about 853.25.

Natural Gas-NG is down 0.8 cents

NG is a little lower today after retreating slightly yesterday. Wednesday's decline was said to be due to "revised forecasts calling for a smaller output decline so far this month, ample amounts of gas in storage and forecasts for the weather to turn mild next week", as per Reuters commentary.

The NG price decline seen yesterday is somewhat surprising given the rise in cash pricing yesterday that shrank the cash/futures differential to about 6 cents, after it was running at about 16-20 cents in the prior few sessions.

Evidence of the lesser importance that weather will have in determining gas prices is evidenced by the following information from Celsius Energy. Gas Weighted Degree Days (GWDDs) rose Wednesday to 17.7 GWDDs, the 2nd most for April 3 in the last 5 yrs. However, the spread between the 5-yr high (17.9 GWDDs) & 5-year low (16.6 GWDDs) for the day is just 1.3 GWDDs," highlighting the decreased role of temperature on #natgas demand as we move into the Shoulder Season.", they added.

Today's EIA storage data is expected to show a draw of 38 to 40 BCF, as per Reuters and WSJ surveys. This compares favorably to last year when the draw was 27 BCF and to the 5 year average draw of 1 BCF. This week's data is likely the last draw before injection season ramps up.

On Wednesday, LSEG said gas output in the Lower 48 U.S. states fell to an average of 98.6 BCF/d so far in April, down from 100.8 BCF/d in March. As more data became available, LSEG reduced the estimated output decline so far in April from a preliminary 4.1 BCF/d on Tuesday to 2.6 BCF/d on Wednesday.

On Wednesday, LSEG forecast gas demand in the Lower 48, including exports, would fall from 103.9 BCF/d this week to 102.5 BCF/d next week. These forecasts added 2.8 BCF/d total demand from the estimate seen the day before.

NG spot futures still have a little room for positive momentum on the DC chart. Resistance comes in at yesterday's high at 1.906 and then at 1.955-1.956. Support lies at 1.775-1.778 and then down at 1.704-1.706.

Disclaimer

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