Energy Market Update 7-1-2024

Crude is up  53 cents        RB is up 3.54 cents        ULSD is up 2.65 cents

Overview

The continued themes of good demand prospects and geopolitical tensions are supporting prices today.  Also helping support prices is the Friday Baker Hughes rig count report.

Caixin's private sector Chinese Manufacturing PMI reading for June rose to its best level since May 2021 as new export orders increased. June's level was 51.8, up from 51.7 seen in May and above the forecast for a reading of 51.2. But, as per Reuters reporting : " Manufacturing producers' confidence for the next 12 months hit the lowest point since November 2019, due to concerns over rising competition and uncertainty about the economic outlook." The Official Chinese government's manufacturing PMI for June was steady versus May's level at 49.5. This was the forecasted reading. Export orders exceeded expectations, but commentary says that the ongoing property crisis is still a drag on domestic demand. The Non-Manufacturing PMI reading fell to 50.5 in June, versus May's level  of 51.1. The June reading was the lowest since December.

Geopolitical tension is said to be due to the ongoing conflict in Gaza and the win by the Far Right party in French elections over the weekend, "adding to political risk in Europe", as per Bloomberg commentary.

Friday's Baker Hughes oil rig count showed a drop of 6 units taking the total down to 479, which is the lowest amount since December 2021. (ING) This is the 5th weekly decline in a row. The total is down 66 units from a year ago. (WSJ) Reuters comments that the total oil and gas rig count has declined over the past 18 months  "due to a decline in oil and gas prices, higher labor and equipment costs from soaring inflation and as companies focused on paying down debt and boosting shareholder returns instead of raising output."

Yet, Friday the EIA reported that U.S. oil production and demand rose to a four-month high in April, according to their Petroleum Supply Monthly report. Total U.S. field production of crude oil rose by 72 MBPD month-over-month to 13.25 MMBPD, the highest since December. But, the EIA's measure of demand, product supplied of crude oil and petroleum products, rose to 20 MMPD in April, up 131 MBPD from March and also the highest so far this year. (Reuters)

CFTC data issued Friday showed money managers increased their net length in RB & Crude oils, while adding to their net short position in ULSD. Net length in WTI futures/options on ICE/CME combined rose by 53,339 contracts, fueled greatly by new longs on the CME. Brent length rose by 18,150 contracts. RB net length rose by 6,903 contracts. ULSD short positioning rose by 7,035 contracts to a total of 12,202. ING reports that Gasoil length rose by 19,456 contracts to the highest total since March 2022. The data for all positioning was for the week ended Tuesday June 25.

ING adds that Gasoil inventories in the ARA have fallen below the 5 year average, thus lending support to the Gasoil positioning seen. ING adds that the recent disruption at the large Shell Pernis, Holland refinery and the possible disruption at Exxon's Gravenchon, France refinery due to a strike called Friday provide support for the distillates in Europe. According to a statement given to Reuters by ExxonMobil, the continued blockades are severely hampering the refinery's ability to function. "The Gravenchon refinery, which plays a crucial role in France's energy infrastructure by accounting for approximately 20% of the nation's refining capacity, has already been struggling financially. ExxonMobil revealed that the site has reportedly incurred losses exceeding Euro 500 million since 2018, rendering it uncompetitive in the current market." (Zack's) Singapore middle distillate supplies are also below the 5 year average, as per ING."

Russia will allow refineries to export gasoline in July, extending a temporary allowance which has been in place since late May. Earlier in the year, Russia banned gasoline exports for 6 months starting 1 March due to concern over domestic availability, partly due to the continued Ukrainian drone attacks on Russian energy assets." (ING) Bloomberg adds that the Russian domestic market remains well supplied.

Financial markets are keying on the Friday Non Farm Payroll (NFP) data release for possible cues to future Fed interest rate policy. The forecast is for a cooling in the labor market with June's reading seen adding 180,000 new jobs, down from May's pace of 272,000 new jobs added. (Yahoo Finance)

In Iran, Friday's election for President did not yield a winner. Thus, a runoff election is set for July 5 between the more moderate former health minister Msoud Pezeshkian and the hardliner and former top nuclear regulator Saeed Jalili. The pro-reform Pezeshkian has vowed to revive nuclear talks under the Joint Comprehensive Plan of Action and re-establish western relations while his opponent Jalili follows doctrines such as "resistant economy and self-sufficiency" and is closer to Supreme Leader Ayatollah Khamanei.

Technicals

The session's low for prices for RB,ULSD & WTI were made Sunday night on the opening. Momentum for CL and ULSD are neutral, while that for RB and Brent point lower as the now spot month contracts are below the value of the contracts that expired Friday.

The Brent spot futures DC chart shows a rollover gap up to 86.24 from the August expiration. Resistance lies at the gap at 86.23-86.24 and then at 87.22. Support comes in at the 84.47 area.

WTI spot futures have support at 80.95-80.97 and then at 80.51-80.55. Resistance lies at the 82.72 area and then at 83.30-83.35.

RB spot futures see support at the overnight low at 2.509-2.5105 and then at 2.4845-2.4860. Resistance lies at 2.5660-2.5680.

ULSD for August sees support at 2.5165-2.5183 and resistance at 2.5844-2.5852.

Natural Gas- NG is down 5.0 cents

NG is lower today, falling to its lowest spot futures price since May 31. Prices have been hurt the past few sessions by rising supply and some feed gas demand hiccups. But some analysts point to an increase in demand as heat is set to return in July.

On Sunday, due to higher supply & weaker power burn due to cooler temperatures across the North, Sunday’s daily natural gas storage injection was on track to come in above the 5-yr average by +8 BCF/d. U.S gas production was said to be  100.9 BCF/d on Sunday.

The Baker Hughes gas rig count fell by 1 unit, bringing the total to its lowest level since 2021. For the month, the gas rig count fell for the fourth straight month for the first time since July 2020. For the quarter, the total oil and gas rig count fell for a sixth quarter in a row for the first time since 2020. Drillers cut the total number of active rigs in Texas by five to 277, the lowest since January 2022, and cut the count in Oklahoma by one to 34 rigs, the lowest since September 2021.(Reuters) Drillers cut the total number of active rigs in the Permian in West Texas and eastern New Mexico by three to 305, the lowest since February 2022; this could be seen as helpful more so to NG than crude, given that the Permian basin has seen negative NG prices recently. On Friday it was reported that in the spot market, next-day gas prices at the Waha hub plunged 604% to a negative $2.78/MMbtu, the lowest since mid April, as pipeline constraints trap gas in the Permian Shale. That is the second time gas prices fell into negative territory during a brutal heat wave this week and the 19th time so far this year. (Reuters)

LSEG said that this week's U.S. NG demand will be 100.8 BCF/d with less heat than last week and the July 4th holiday activity slowdown before soaring to 106.8 BCF/d next week when the weather is expected to turn extremely hot. (Reuters)

Money managers reduced their net length in futures/options on the CME by 4,016 contracts to a total net length of 34,625 contracts in the week ended Tuesday June 25.

Technically 2 items are somewhat supportive. The stochastic momentum indicator on the DC chart is getting very near oversold. NG open interest on the CME for Friday's activity showed a large increase of 18,390 contracts, with what we believe are more so new short positions in August, September and October. But, at present, they seem to be in the driver's seat. Support for the spot futures lies at 2.518 and then at 2.475. Resistance lies at 2.621-2.624 and then at 2.669-2.672.

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.

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