Energy Market Update 7-11-2024

Crude is up 22 cents        RB is up 1.07 cents       ULSD is up 0.99 cents

Overview

Energies are higher today buoyed by supportive DOE crude and gasoline data seen yesterday. The uptick in prices comes even as the IEA gave a less rosy picture for oil demand in its monthly report than that seen from OPEC's report yesterday.

In today's monthly report, the IEA raised its global crude demand growth forecast for 2024 by 10 MBPD to 970 MBPD, while its 2025 forecast was cut by 20 MBPD to 980 MBPD. The IEA dialed back the demand growth expected from China. "Last year the country accounted for 70% of global demand gains – this will decline to around 40% in 2024 and 2025," the IEA said. The IEA says lackluster economic growth, increased energy efficiency and the rise of electric vehicles will act as headwinds for growth this year and next. The IEA saw global demand growth at its lowest in over a year at 710 MBPD in the second quarter, driven mainly by a contraction in China's consumption. The IEA said oil supply growth this year would hit 770 MBPD, boosting total supply to a record 103 MMBPD.  That growth is set to more than double next year to reach 1.8 MMBPD, with United States, Canada, Guyana and Brazil leading gains. That will put total supply in 2025 at 104.8 MMBPD. But, on a positive note, the IEA says that despite sluggish demand generally, the demand at present for oil from the OPEC+ producer group is far outstripping its current reined-in production, suggesting that the bloc could pump more. Next year, however, the call on OPEC+ crude is set to fall to 41.1 MMBPD in the face of rising output from outside the bloc. (Reuters)

DOE stats seen yesterday were supportive for crude oil and gasoline. Refinery utilization of 95.4% was running at an 18 month high. (Quantum Commodities)   Crude inventories fell by 3.4 MMBBL exceeding the 1.3 MMBBL draw expected by analysts in a Reuters poll. Gasoline stocks fell by 2 MMBBL, much bigger than the 600 MBBL draw analysts expected during the U.S. Fourth of July holiday week. The DOE data showed product demand eased this week, but is better than that seen in the prior 2 years for both gasoline and distillates. Gasoline demand was down 26 MBPD on the week to a still strong figure of 9.398 MMBPD, which is better than last year's 8.756 MMBPD and 2022's 8.062 MMBPD. The four-week average for motor gasoline was at 9.294 MMBPD, up from a four-week average of 9.259 MMBPD a year earlier, EIA data showed. The four-week average moved above 2023 levels for the first time since March, strategists at ING said. But, gasoline output from refineries is running high at 10.3 MMBPD. Distillate demand fell this week by 249 MBPD to 3.466 MMBPD. But that beat last year's demand of 2.969 MMBPD and 2022's demand of 3.368 MMBPD. Distillate fuel exports fell by 602 MBPD on the week. We saw conflicting data for supply versus demand for crude oil. Net crude imports rose (thus supply up) by 615 MBPD and U.S. crude production rose on the week by 100 MBPD to a total 13.3 MMBPD. This is offset somewhat by the higher crude inputs to refineries of 317 MBPD to a strong number of 17.109 MMBPD.

Today's U.S. CPI data for June showed prices rose annually by 3.0%. This was versus May's annual rate of 3.3%. The annual increase for June was forecast at 3.1%. June's monthly rate was -0.1%. This is contrary to the forecast for a +0.1% reading. Energies rallied on the news as this is further evidence for a Fed interest rate cut this fall. The CME's FedWatch seen Wednesday is calling for a 74% chance of a September rate cut, up from 45% a month ago. (Hellenic Shipping News)

Yesterday, the DOE announced a new solicitation for up to 4.5 MMBBL of oil for delivery to the Strategic Petroleum Reserve’s Bayou Choctaw site from October through December. (Enegry.gov)

We failed to add, that OPEC in its monthly oil report released yesterday, revised its estimates of demand for OPEC+ crude down by 100 MBPD for both 2024 and 2025. Its estimates of the call on OPEC+ crude was 43.1 million b/d in 2024 and 43.9 million b/d in 2025. But, that is significantly above the group's June output, which was 40.80 million b/d, according to secondary sources.   (Platts)

The AAA reports that the average gasoline price at the pump is $3.544. This is up from the price seen one month ago of $3441. The average prices for diesel today is $3.882, up from the price one month ago of $3.790. This is further supportive for gasoline together with the 4 week average demand we spoke of in the DOE data.

Technicals

Momentum remains negative for the energies on the DC charts, but prices trading today are well above the lows from yesterday, suggesting a near term price range might be in effect. Notable again is the drop in RB futures open interest seen from Wednesday's activity on the CME. The total in RB open interest fell by 10,392 contracts, which we see as mostly long liquidation in the front month August contract, given yesterday's price action.  WTI open interest on the CME rose by over 22,000 contracts, which we see as mostly new shorts in the September through December strip. This would coincide with the timing of the proposed loosening of production cuts by OPEC starting in October.

WTI spot futures have support at 80.81-80.88, which is the low seen yesterday. Upside resistance lies at 83.30-83.32 and then at 83.91-83.93.

RB for August sees support at 2.4845-2.4860. Resistance lies at 2.5331-2.5346 and then at 2.5660-2.5680.

August ULSD has support at the 2.4964 area, which is yesterday's low. Resistance is seen at 2.5560-2.5582 and then at 2.5844-2.5852.

Natural Gas--NG is down 4.3 cents

NG spot futures are down slightly and are continuing the sideways price action seen this week. Strong powerburn due to lingering heat in much of the country is countered by the demand loss from LNG feed gas due to the disruption caused by Hurricane Beryl and the increased gas production seen the past few weeks. Some news wire accounts also cite the continued high gas surplus in storage.

As has been seen much of the past several days, the natural gas power burn has remained strong. Over the past seven days, daily power burn has averaged 48.2 BCF/day, up 5.4 BCF/day year-over-year. Celsius further reports that Tuesday the power burn demand reached 53.0 BCF/d, up +9.1 BCF/d versus 2023.  In fact, Celsius Energy adds that on Tuesday, the natural gas share of electric generation set a new record at 49.6%.

Today's EIA gas storage data is seen as a build of 55 to 57 BCF. This is in line with the build seen last year of 57 BCF. The 5 year average is also 57 BCF.

Yesterday at times the Henry Hub next day cash price traded over the spot futures. This is in stark contrast to the -40 cent differential seen before the July 4th holiday. One colleague said based on the narrow cash/futures differential : " (it is) hard to be too bearish here ( in futures) with where cash was, heat in the forecast and just the outright price level we are at".

A Reuters analyst says that "Europe’s gas glut is gradually eroding."  He says that Europe’s gas storage is filling more slowly than normal this summer, which has reduced the probability space will run out before the onset of the main winter heating season. Stocks had climbed by 238 TWh since winter ended on March 31, slower than 272 TWh over the same period last year and the ten-year seasonal average of 314 TWh. But, European storage now still stands at 80% full vs a 5-year average of 70% and a 10 year average of 64%. Gas Infrastructure Europe still sees the post-summer EU & UK maximum storage level setting a record this year. The projected maximum  of 1,204 TWH exceeds the maximum technical capacity of the system around 1,145 TWh so injections will need to remain lower than usual, the Reuters analyst writes.

Technically NG DC chart based momentum is neutral befitting the sideways pattern of prices seen this week. Support lies at the low seen Sunday night at 2.262-2.268. Below that the next best support is seen at 2.167-2.168. resistance comes in at the highs seen the past 4 sessions at 2.385-2.390 and then at 2.480-2.484.

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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