Energy Market Update 5-15-2024

Crude is down 30 cents        RB is up 0.16 cents       ULSD is down 0.56 cents

Overview

Energy prices have see-sawed today, rising early overnight as API data was supportive and then falling back this morning after the IEA lowered their 2024 demand forecast, only to see prices rally in the past few minutes on supportive U.S. CPI data.

Inflation eased to 3.4% in April, CPI data shows, from March's +3.5% reading. On a monthly basis, costs rose 0.3%, below the 0.4% rise the previous month and below the +0.4% WSJ consensus forecast. Core prices, which strip out volatile food and energy items and are watched more closely by the Fed, saw annual inflation fall from 3.8% to 3.6%, the lowest since April 2021. (USA Today/WSJ)

The IEA cut its forecast for oil-demand growth this year as subdued industrial activity and mild winter temperatures reduced gasoil consumption across some of the world's largest economies, particularly in Europe. Oil demand in the OECD countries contracted by 70 MBPD in the first quarter. European gasoil demand fell by 140 MBPD in the quarter, dragged down by a declining share of diesel cars in the continent's fleet. Global oil demand growth is now seen at 1.1 MMBPD for 2024, down from last month's forecast of +1.2 MMBPD. Total demand is still expected to average 103.2 MMBPD. But, the IEA raised its oil-demand growth forecast for next year to 1.2 MMBPD from 1.1 MMBPD previously, but said the estimates remain comparatively unchanged. Total demand is seen at an average of 104.3 MMBPD. Total oil supply is now seen at an average of 102.7 MMBPD this year from last month's estimate of 102.9  MMBPD, while 2025 estimates remain unchanged at 104.5 MMBPD on average. Last month, global supply was hit by lower Canadian output due to maintenance works and Russia carrying out some of its production cuts in line with OPEC+ quotas, the IEA said. Global refinery output is forecast to rise to 83.4 MMBPD this year, above the IEA's previous forecast due to stronger runs in OECD countries in the first quarter and better-than-anticipated Russian crude runs in March. (WSJ/MarketWatch)

Similarly to the IEA's outlook, Macquarie said in a recent note: "After 2Q, we expect oil will become bearish as a result of NOPEC supply growth, decreasing OPEC+ space capacity and softer-than-anticipated demand due to persistent inflation,". (Investing.com )

Some news commentary is citing Canadian wildfires for supporting crude prices. The Alberta wildfire burning near Fort McMurray grew “significantly” overnight and moved closer to the largest city in Canada’s oil-sands producing region, prompting evacuations of some local residents, the province’s lead firefighting agency reported. The fire isn’t currently near any major oil-sands mines, but its southern perimeter is within 5 miles of an oil well site, which produced almost 7.5 MBPD in February, Alberta Energy Regulator data show. The Bloomberg article adds that 2 NGL and 1 crude pipeline lie close to the fires, but as yet are not affected.

API                Forecast         Actual

Crude Oil      -0.222/-1.1      -3.104

Gasoline       -0.6/+0.724      -1.3

Distillate       +0.8/-1.0        +0.349

Runs            +0.5/+0.8%      n/av

Technicals

Momentum for the ULSD & crude oil has turned negative with the slide in prices seen the past few days.

June WTI has support at 76.79-76.89 and resistance at the prior 2 sessions' highs at 79.38-79.49. The DC chart's 100 day moving average lies today at 78.58.

July RB, now the highest volume contract month, has support at 2.4426-2.4436 and then at 2.4175-2.4196. Resistance lies at 2.5055-2.5075. The 100 day moving average on the July daily chart lies at 2.5032.

June ULSD sees support at yesterday's low of 2.4014 and then at 2.3810-2.3823 via June daily chart data. Resistance comes in at the past 2 highs at 2.4472 and 2.4669.

Natural Gas - NG is up 4.0 cents

NG spot futures are higher, rising this morning to a fresh high for the recent rally, with Texas set to see temperatures rise back above average next week.

In the spot market, gas prices at the Waha hub in West Texas averaged below zero for Tuesday for the fourth time this month and the 17th time since March as pipeline maintenance trapped gas in the Permian Shale in West Texas amid low demand for energy. (Reuters)

After dropping as low as 97.8 BCF/d last week, gas production recovered to 99.4 BCF/d Monday as pipeline maintenance wrapped up, though this is still down nearly -2 BCF/d vs 2023, as per Celsius Energy analysis.

Platts reports that US natural gas producers' commitment to slow drilling activity in response to low gas prices is hitting hard in the Haynesville this spring, dampening the outlook for production growth there this summer. In April, the number of new wells drilled in the Haynesville fell to 36 for the month, totaling the fewest since late 2020. Well completions there also dropped in April to just 29, or the fewest since early 2021, recently published data from the US Energy Information Administration showed. Over the past 13 months, operators in the Haynesville have roughly halved the number of active rigs there. As of the week ended May 1, the total rig count there was estimated at just 41 – down from over 80 rigs in first-quarter 2023, data from S&P Global Commodity Insights showed. The EIA expects to see an overall decline in Haynesville production of nearly 0.27 BCF/d in June, EIA's May Drilling Productivity Report showed.

Technically, the DC chart pattern shows an upward sloping channel, although momentum is near overbought. As a colleague points out : "gas prices are overvalued but the downside is limited." Yesterday's lower close may well have been due to profit taking as  preliminary open interest data from the CME shows a fall in NG futures of a total of 15,832 contracts, with front month June showing a drop of 19,011 contracts.  Resistance lies at the filling of the gap on the DC chart at 2.411 and then at 2.490-2.495. Support comes in at 2.306-2.311 and then at 2.242.

Disclaimer

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