Energy Market Update 6-5-2024

Crude is up 27 cents RB is down 0.92 cents ULSD is up 1.58 cents 

Overview 

Crude oil prices are higher despite disappointing API data, as some feel the crude selloff to 4-month lows may be overdone. 

The following comments have been seen the last 24 hours regarding oil prices and the crude oil supply outlook in the 3rd quarter of this year. ING analysts write : " While the market has been disappointed that OPEC+ will gradually unwind cuts, it is important to remember that this is only from October. Our balance sheet continues to show a tightening in the oil market over the third quarter. Therefore, we believe the scale of the selloff at the front end of the forward curve is overdone,". Crude oil markets face "a sizeable deficit" in 3Q, but prices could fall in 2025, Capital Economics says in a report about the OPEC's decision to extend production cuts. They increased their forecast for Brent prices to $80 a barrel at the end of 4Q, from $75 previously. (WSJ) Also, it is worth remembering that the Saudi Energy Minister said after Sunday's OPEC+ meeting that OPEC+ would pause the unwinding of the cuts or reverse them if demand wasn't strong enough to absorb the barrels. (Reuters) 

API             Forecast     Actual 

Crude Oil    -1.6/-2.8     +4.052 

Gasoline    +0.6/+0.9    +4.03 

Distillate     +0.7/+1.4   +1.78 

Runs           +0.2%         n/av 

The Caixin Services PMI data from China was seen as positive. May's Services sector PMI reading was 54.0, up from April's level of 52.5. The Services sector PMI was at the best level since July 2023. This follows on the heels of the Caixin Manufacturing PMI seen earlier this week, which showed that China's factory activity grew the fastest in about two years in May due to production gains and new orders, particularly at smaller firms. The Caixin/S&P Global manufacturing PMI rose to 51.7 in May from 51.4 the previous month, the highest since June 2022, and beating analysts' forecasts of 51.5. The export orders index dropped significantly in the official PMI but remained relatively resilient in the Caixin PMI." The Caixin survey is believed to be skewed more towards smaller, export-oriented firms than the much broader official PMI. (Bloomberg/Reuters) 

In the past 24 hours news about OPEC production showed that it had increased in May. A Reuters survey showed May's output was up 145 MBPD to 26.63 MMBPD, which is about 250 MBPD over their quota. A Bloomberg survey showed Iraq, OPEC's number two producer, had pumped an average of 4.24 MMBPD last month, some 290 MBPD above its revised quota. Despite the pledges made in early May, Iraq raised its production by about 50 MBPD last month, per the Reuters survey. Nigeria also boosted its output by 50 MBPD. (Oil Price.com) 

Quantum Commodities reporting adds that "prices found some support after Energy Secretary Jennifer Granholm told Reuters that the US could step up the pace of replenishing the Strategic Petroleum Reserve with maintenance due to be completed by the end of the year."

One of the largest trade unions in Nigeria’s oil and gas sector is ready to join the ongoing nationwide strike over minimum wage but is awaiting the outcome of a Tuesday meeting before ordering offshore oil workers off platforms, the head of the union told Reuters. 

Today, data showed that private payrolls increased by 152,000 jobs last month after rising by a downwardly revised 188,000 in April, the ADP Employment report showed. Economists polled by Reuters had forecast private employment increasing by 175,000 last month. Some have suggested that Tuesday's U.S. jobs opening data might provide some support for energies. U.S. job openings fell in April to the lowest level since 2021. The number of job openings on the last business day of April stood at 8.059 million. This reading followed the 8.35 million (revised from 8.48 million) openings reported in March and came in below the market expectation of 8.34 million. The fall in job openings was seen as easing pressure on interest rates. Tuesday's data saw the dollar fall in reaction to the data. 

Technicals 

The energies have mean reversion setups based on the closes Tuesday below the DC charts' lower bollinger bands. Thus closes over the lower bollinger bands today would suggest further upside movement. Momentum is negative for the energies, although that for the RB looks poised to turn higher. The momentums for the RB and ULSD are getting near oversold. 

ULSD is currently rising over the high seen Tuesday. Support thus lies at the Tuesday low at 2.2566. The lower DC bollinger band intersects at 2.2800. Resistance is seen at the lows from last summer at the 2.3320-2.3320 area and then at 2.3505-2.3510. 

RB's DC lower bollinger lies at 2.3255. Resistance is seen basis the DC chart at 2.3570-2.3581 and then at 2.3935. Support comes in at 2.3165-2.3170 and then at Tuesday's low at 2.2985. 

WTI has its DC chart's lower bollinger intersecting at 73.43. Chart based support is seen at 72.38-72.48 and then at 71.79. Resistance is seen at 74.13-74.22 and then at 75.25. 

Natural Gas- NG is up 8.3 cents

NG is up after Tuesday's selloff, as the heat persists in the South and West. The following comment sums up NG prices : Temperature forecasts still favor "decently strong demand" over the next three days, as per a weather forecaster. They add : "As long as $2.50 holds on July'24 contracts, we give bulls the benefit of the doubt they have the edge. 

Tuesday's selloff in NG was seen a result of the pullback in TTF prices and the ANR pipeline issue in the U.S. Gulf Coast having been fixed. TTF prices fell back after news came that Norwegian supply that had been halted would be restored by the end of the week. In April, portfolio managers boosted their bullish bets on Europe’s gas prices to the highest level in six months. Money managers have been concerned that unplanned outages in Norway during the summer, higher natural gas demand in Asia, and the end of the current gas transit deal for Russian pipeline gas to flow via Ukraine at the end of 2024 could sap gas supply for Europe and boost prices. (Oil Price.com)

Storage estimates for the coming weeks are supportive for NG. EBW Analytics estimates storage surpluses over the five-year average will continue to decline into the summer and could fall to 300 BCF by August from the current 586 BCF. This week's EIA storage data is seen shrinking the surplus by about 20 BCF.

Technically NG momentum is positive. Resistance lies above at 2.709-2.714 and then at 2.798-2.804. Support lies at the overnight low at 2.605-2.609 and then at 2.561-2.562.

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