Energy Market Update 6-28-2024

Crude is up 18 cents      August RB is 0.98 cents      August ULSD is 0.39 cents

Overview

Crude prices have risen to their best value in 2 months on the back of concerns over geopolitical tension, but seemingly more so on the back of hopes for Fed rate cuts this year.

The May PCE index reading issued this morning came in as expected with a +2.6% rate. The crude oil market has not seen much movement after the data release.

Rate cut hopes are being fueled by U.S. jobless claims data seen Thursday, which showed the number of continuing applications for unemployment benefits hit the highest level in more than two years, pointing to an easing labor market, while revised GDP estimates indicated the U.S. economy expanded at a 1.4% annual pace from January through March, the slowest quarterly growth since spring 2022. (WSJ) Traders are now pricing in a 64% chance of a first Fed cut in September, up from 50% a month ago, according to the CME FedWatch tool. (Reuters)

Evidence of the strong demand touted the past few sessions is the news that the Transportation Security Administration (TSA) reported this week that it screened a record 2.99 million passengers at U.S. airports on Sunday — a new high that may not last long. Travel is expected to peak today Friday, with the TSA predicting it’ll screen more than three million people.  "We expect this summer to be our busiest ever and summer travel usually peaks over the Independence Day holiday,” a TSA Administrator said. Airlines for America, a trade group representing major U.S. airlines, has also forecast record summer travel, with passenger counts expected to total 271 million passengers, up 6.3% from last year. (NBC News/ABC News)

Saudi Arabia is expected to lower their OSP for August loadings to Asian customers. The flagship A-Light crude price is seen falling by 60 to 80 cents, as per Reuters reporting. The respondents to a Reuters survey expect slightly deeper price cuts for heavier grades - Arab Medium and Arab Heavy - than Arab Light on improving supply from Mexico and Canada. The lower OSP pricing is said to be tracking a narrowing of the backwardation for Dubai's monthly price spreads of 85 cents this month from May, a sign of tight supply easing, as per Reuters.

A Reuters poll of 44 economists and analysts showed little change in their forecasts for crude prices this year versus those seen end of May.  Brent crude is seen averaging $83.93 per barrel in 2024, just shy of the $84.01 consensus in the previous month's poll. WTI in 2024 is seen averaging $79.72, which is slightly above May's poll result of $79.56. One comment regarding price expectations was :"Beyond the noise, oil prices seem stuck in a sideways trend," with supply and demand providing little direction and storage levels floating well within seasonal norms."  Analysts expect oil demand to grow by between 0.99 and 1.4 MMBPD in 2024, slightly above the 0.96 MMBPD forecast by the Paris-based International Energy Agency.

A recovery in physical refining margins also buoyed markets, with the Singapore complex refining margins on average $1 higher in June than in May at around $3.60 a barrel. (Reuters)

Stock futures ticked higher after last night's presidential debate. Huge doubts are swirling about President Biden's capacity to remain the Democratic nominee, much less to defeat former President Donald Trump, who suddenly looks like an overwhelming favorite to reclaim the White House. Wall Street sees a Trump win as at least a modestly good thing. If Trump wins and Republicans gain control of Congress, "an extension of the 2017 tax cuts would be likely, with a possible further reduction in corporate tax rates," UBS Global Wealth Management strategists wrote in a June 24 analysis. (Investor's Business daily)

Today is the last trading day for the July RB & ULSD contracts and the August Brent futures.

Technicals

WTI momentum is trying to turn up on the DC chart basis. RB's August momentum is neutral, while that for ULSD is positive. The products are having inside days versus yesterday's price range.

WTI has some resistance at 82.41-82.48, which is below the overnight high of 82.72. Above that resistance les at 83.30-83.35. Support is seen at 81.52-81.56 and then at 80.51-80.55.

August RB support comes in at 2.5120-2.5140 and then at 2.4803-2.4812, which are lows from Tuesday/Wednesday. Resistance comes in at 2.5620-2.5633 and then at 2.5857-2.5862.

ULSD for August sees support at 2.5433-2.5457 and then at 2.5250. Resistance lies at 2.6000-2.6005 and then at 2.6121-2.6136.

Natural Gas- NG is up 1.5 cents

NG prices are higher as some feel the selloff has been too much. One analyst's comment seen was : " Natural Gas Overvaluations Now At Their Lowest In 7 Weeks.". NGI adds that demand side fundamentals and bullish storage data are driving today's uptick.Thursday's selloff was said to be due to higher production and weakness in LNG exports offsetting forecasts for strong weather-driven demand, as per WSJ commentary.

The EIA storage data came in as expected with a build of 52 BCF. The total amount of gas in storage rose to 3.097 TCF, which is +528 BCF / +20.6% versus the 5 year average and +314 BCF / +11.3% versus last year. The storage build was smaller than usual for a seventh week in a row. Surpluses are seen falling further in coming weeks, that many analysts say should result in an end of July surplus near or under 400 BCF versus the 5 year average. Yet, Reuters analysis adds that the total amount of gas in storage is the 2nd highest amount seasonally. Only the 2016 amount of 3.140 TCF for the week ending June 24 was higher than yesterday's level.

Yesterday, LSEG said gas output in the Lower 48 U.S. states rose to an average of 98.6 BCF/d so far in June. This is up from their estimate of 97.7 BCF/d seen June 12.

On Thursday, LSEG forecast average gas demand in the Lower 48, including exports, will slide from 102.9 BCF/d this week to 99.9 BCF/d next week. This forecast was down 4.0 BCF/d total versus Monday's estimate.

Gas flows to the seven big U.S. LNG export plants eased to 12.8 BCF/d so far in June, down from 12.9 BCF/d in May, as per LSEG data seen Thursday. The June average is down from an estimate seen June 12 of gas flows running at a pace of 13.1 BCF/d.

Venture Global's Plaquemines export plant under construction in Louisiana started to take in pipeline gas on Wednesday, signaling the plant is on track to produce first LNG later this year as expected. (Reuters) This is a positive prospect given the news recently with regard to other LNG plants under construction, notably delays that are likely at Exxon's Golden Pass facility. Just this week, Reuters wrote an article with the following headline : " Rising US labor costs threaten to derail new LNG projects". They wrote :" - A shortage of skilled labor and nagging inflation from strong wage growth on the U.S. Gulf Coast are pressuring LNG developers and delaying some projects from reaching a financial go-ahead. There are five LNG plants under development in Texas and Louisiana and 16 others on the drawing board in the U.S. looking to secure investment and customers. In addition to the delay at Golden Pass, Sempra LNG has revisited selecting Bechtel Corp to build its Cameron LNG expansion project to reduce costs, and it has reduced its stake in a Texas project, Port Arthur LNG, on higher construction costs."

Technically NG is seeing momentum turn neutral on the DC chart. One analyst wrote the following: " if this week’s low continues to hold as support and leads to higher prices, natural gas will have completed a new higher swing low as part of the price structure of the uptrend." The low this week is $2.613, seen on the expiration of the July futures on Wednesday. The 2.605-2.613 area is support. There is some light support above that at 2.672-2.673. Resistance lies at 2.784-2.787 and then at 2.834-2.844.

Disclaimer

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