Energy Market Update 6-7-2024

Crude is up 23 cents RB is up 0.44 cents ULSD is up 0.37 cents

Overview

Energies are higher as news wires report that prices are being supported by OPEC+ reassurances that they will only proceed with the increases if market conditions allow and will pause the unwinding timetable if necessary. But crude is still headed for its third straight weekly loss on demand concerns.

Oil futures rose Friday, finding support after Saudi Arabia's energy minister reiterated that an OPEC+ plan to unwind 2.2 MMBPD in voluntary cuts later this year can be paused or reversed. Russian Deputy Prime Minister Alexander Novak, speaking at the same event in Russia, blamed oil's recent pullback on speculative factors and reiterated OPEC+'s ability to pause or reverse production increases. (Market Watch)

The Non Farm Payroll (NFP) data issued this morning showed 272,000 new jobs were added in May. This is well above estimates for 185,000/190,000 new jobs to have been added. Energy prices fell some after the data release as the stronger than forecast NFP report suggests that the Fed may be less likely to cut interest rates. Revisions to March and April data showed a drop of 15,000 jobs versus the prior months' data release.

China's crude oil imports fell 8.7% in May from a year earlier, official data showed on Friday, as refiners scaled back purchases amid heavy plant overhauls, subdued profit margins, and weak demand for refined oil products. Yet imports of May crude rose from the month prior as they averaged 11.06 MMBPD, up from April's average of 10.88 MMBPD. Last year imports in May averaged a strong 12.11 MMBPD. Imports for the January-May period averaged about 11 million bpd, down 1.2% from the corresponding period of 2023. The lower imports came as large state-run refineries underwent regular maintenance. Weak gasoline and diesel demand was also the key reason for the pressured runs. Domestic diesel demand this year is especially weaker than expected with the fast penetration of LNG trucks owing to relatively cheaper gas prices, said an analyst with Rystad Energy. Smaller independent plants in the eastern refining hub of Shandong also cut production as higher crude costs pinched refining margins, with some pushed to process more lower-priced fuel oil. Shandong-based independents processed at an average of 55.5% of capacity in May, down from 62.2% in May 2023, Oilchem said. Exports of refined oil products, which include diesel, gasoline, aviation fuel and marine fuel, grew 9.49% from a year earlier to 5.35 million tons, and also up from 4.55 million tons in April. The increased product exports were driven by higher refined oil product inventories, ANZ analysts said. The higher exports were also aided by new government export quotas released in early May as refiners cashed in on stronger bunkering demand for aviation fuel, although margins for diesel exports slumped due to excess regional supplies. (Reuters)

A Reuters analyst detailed how U.S. crude production has leveled off. Nationwide crude and condensates production was running at almost 13.2 MMBPD in March 2024 according to the latest data from EIA. However, there had been no net growth since October 2023. Production from the Lower 48 states excluding federal waters in the Gulf of Mexico was up by less than 0.5 MMBPD in March compared with the same month a year earlier. Growth had slowed from 0.9 MMBPD or 1.0 MMBPD in the second half of 2023 as the impetus from the previous high prices in 2022 faded. U.S. futures prices have averaged $73-78 per barrel in May and June 2024. At these prices, there is no strong signal to increase or decrease production, the analyst says. If futures prices remain around current levels, U.S. production is likely to remain basically flat for the rest of 2024 through at least the middle of 2025, the analyst adds. Lower prices and limited growth in U.S. output would create space for Saudi Arabia and its OPEC⁺ allies to reverse some of their own production cuts later this year and into 2025, he says.

Technicals

Momentum is positive for the energies. They have stepladder up looks since bottoming Tuesday.

WTI spot futures see resistance at 76.87-76.95. Support comes in at 73.98-74.06.

July ULSD support is seen at 2.3185-2.3225 via the 60 minute chart. Resistance lies at 2.4006-2.4014.

July RB support is seen at 2.3553-2.5370. Resistance lies at recent highs at 2.4366-2.4400.

Natural Gas- NG is up 1.9 cents

NG prices are slightly higher as the market has been supported the past 24 hours by a recent drop in daily output and forecasts for the weather to turn hotter than normal later in June.

Reuters reports that on a daily basis, output was on track to drop by about 2.7 BCF/d over the past five days to a preliminary 19-week low of 96.3 BCF/d on Thursday. Overall output in June so far has averaged 98.0 BCF/d, down 0.1 BCF/d from May's average.

The EIA storage report issued Thursday disappointed with a bigger build than forecast. The build was 98 BCF. The injection was considerably weaker than recent weeks, likely due to the Memorial Day Holiday and its associated lower commercial and industrial demand, rather than a weakening of the fundamental NG picture, as per analysis we saw. Total storage rose to 2.893 TCF, which is 581 BCF / 25.1% over the 5 year average and 373 BCF / 14.8% over last year's level.

TTF prices have slipped further today as Norway has resumed exports to the U.K. after they were interrupted Monday. The technical picture for the TTF spot futures shows a stepladder down pattern since the spike high of 38.70 Euro/Mwh seen Monday when the spot futures filled a gap left from December. Resistance lies below the Monday high. Resistance lies at 36.55-36.70 Euro/Mwh. Support comes in at 32.100 and then at 30.00 Euro/Mwh.

On Thursday, LSEG forecast gas demand in the Lower 48, including exports, would ease from 93.7 BCF/d this week to 93.1 BCF/d next week. This forecast was down 3.4 BCF/d total from the forecast seen Monday.

The Reuters analyst, who detailed U.S. crude production flattening, added his assessment of U.S. NG production. Unless there is an unexpected rebound in gas prices, gas production is likely to remain broadly flat throughout the rest of 2024 and 2025, helping rebalance the market. Flat or falling output, combined with strong gas combustion by generators this summer, colder weather next winter, and an increase in LNG exports, should eliminate surplus inventories before the end of winter 2024/25, he says.

NG futures have positive momentum. They tested the upper DC bollinger band today. That band lies at 2.894. The overnight high is 2.899. Resistance above lies at the recent high at 2.924 and then at 2.960. Support comes in at 2.756-2.760 and then at 2.681-2.682.

Disclaimer

This article and its contents are provided for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any commodity, futures contract, option contract, or other transaction. Although any statements of fact have been obtained from and are based on sources that the Firm believes to be reliable, we do not guarantee their accuracy, and any such information may be incomplete or condensed.

Commodity trading involves risks, and you should fully understand those risks prior to trading. Liquidity Energy LLC and its affiliates assume no liability for the use of any information contained herein. Neither the information nor any opinion expressed shall be construed as an offer to buy or sell any futures or options on futures contracts. Information contained herein was obtained from sources believed to be reliable, but is not guaranteed as to its accuracy. Any opinions expressed herein are subject to change without notice, are that of the individual, and not necessarily the opinion of Liquidity Energy LLC