Energy Market Update 7-12-2024

Crude is up 78 cents      RB is up 0.94 cents      ULSD is up 1.70 cents

Overview

Energies are higher as the lower CPI data seen yesterday is lifting expectations for an interest rate cut. The front end of the crude curves have tightened quite a bit over the last 3 sessions. Today's price rise comes even as during the last 24 hours there have been alarms sounded about Chinese demand.

As per one analyst's commentary this morning : " Growing expectations of a rate cut from the Fed along with a constructive oil balance suggest that prices will remain well supported." Data released Thursday morning showed the consumer-price index fell 0.1% in June, marking its first drop since May 2020, at the height of the pandemic. (MarketWatch) The dollar has weakened on the rate cut expectations and is now at its lowest value versus the Euro in over one month.

Yesterday, the IEA, in their monthly report, estimated that Chinese oil demand contracted year on year in April and May. This narrative was reinforced in the Chinese oil import data for June seen today. China's crude oil imports in June 2024 fell 11% year-on-year to 46.45 million metric tons or around 11.3 MMBPD, driven by independent refiners cutting production due to weak profit margins and sluggish fuel demand. Smaller independent refiners in Shandong, account for one-fifth of China's total imports. While June imports were slightly higher than the imports in May of 11.06 MMBPD, they were 1.3 MMBPD below the all-time high import volume of 12.67 MMBPD set in June 2023, the data showed.  In the first half of 2024, crude arrivals also dropped, by 2.3% compared to the first half of last year, according to data from China’s General Administration of Customs cited by Reuters on Friday. The property crisis in China and weaker-than-expected fuel demand have weighed on refining margins in recent months, which has prompted independent Chinese refiners to reduce crude throughput. (Investing.com/Oil Price.com) It is worth noting that oil prices were lower in April/May of 2023 versus April/May of this year ( when June import cargoes would have been bought), thus possibly incentivizing more crude purchases last year versus this year. Oil Price commentary adds that "going forward, Chinese oil imports could rebound as the authorities have asked state oil companies to add almost 60 MMBBL of crude oil (by March 2025) to emergency stockpiles to boost supply security.

"One analyst has cited this month's OPEC report suggesting a 3rd quarter supply deficit as being a catalyst for the firmer time spreads in the front end of the crude curve. Notable also is that the EIA, in its monthly STEO report seen Tuesday, said :" Higher prices in the second half of the year result from our forecast of persistent withdrawals from global oil inventories. We estimate global oil inventories decreased by 0.5 million barrels per day (b/d) in 1H24 and will fall by 0.7 million b/d in 2H24. "

Technically the front end WTI (August September) crude spread is attacking the upper bollinger band on the daily chart. This is a cautionary signal to the bullish narrative at this moment. The bollinger band intersects at $1.38. We see support for the August versus September at the $1.00 area. Momentum is positive for the spread widening. The spread has resistance at the $1.86 area when looking at the Daily Continuation (DC) chart for front end crude spreads. The upper bollinger band on the DC chart is also being attacked today as it intersects at $1.40

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Technicals

Momentum for the outright price for energies on the DC charts is negative, but as we suggested yesterday, prices may have found a near term range. As 1 analyst writes : " The recent downside correction is evidently over, although the speed of further ascent might be hindered by falling Chinese crude oil imports."

August RB shows a double bottom on the DC chart from Wednesday/Thursday at 2.4914/2.4921, which we see as support now. Resistance lies at 2.5660-2.5680.

ULSD for August sees support at 2.5040-2.5050. Resistance lies at 2.5560-2.5580 and then at 2.5840-2.5850.

WTI spot futures see support at 82.04-82.08 and then at yesterday's low at 81.60-81.64. Resistance at the 83.30 area has been pierced. Next resistance lies at 83.91-83.93. Above that resistance is seen at last week's high at 84.52.

Natural Gas --NG is up 8 ticks

NG is near unchanged today as prices were weighed down overnight by the storage miss seen yesterday in the DOE data, as well as the loss of some feed gas demand this week in the wake of Hurricane Beryl and the recent rise in US NG production. The price decline comes even though power generators were burning near record amounts of gas to keep air conditioners humming during a brutal heat wave, as per news wire commentary.

The EIA data seen Thursday disappointed with an injection of 65 BCF, which was 10 BCF over estimates. Total storage rose to 3.199 TCF, which is 283 BCF/ +9.7% over last year's storage level. The surplus versus the 5 year average is 504 BCF/+18.8%. Analysts note uncertainty around estimates for last week's storage data given the impact the July 4 holiday likely had on demand, as per WSJ commentary.

Gas flows to the seven big U.S. LNG export plants fell to 11.9 BCF/ so far in July as the Freeport LNG plant in Texas has been shut for days due to Hurricane Beryl. The gas flows seen in June ran at a pace of 12.8 BCF/d. (Reuters) Early cycle nominations for U.S. LNG export terminals were estimated at around 11.4 BCF/d for Friday, according to Wood Mackenzie. The estimate included the Freeport LNG plant in Texas being offline for a sixth day.  (NGI)

LSEG forecast average gas demand in the Lower 48, including exports, will rise from 106.3 BCF/d this week to 106.6 BCF/d next week. This is up a total of 0.2 BCF/d from Tuesday's estimate.

We wish to suggest a very remote possibility in EIA storage data for the upcoming weeks. The upcoming injections will be quite small relative to those seen earlier in the injection season. We are reminded that in 2016, there was a very rare withdrawal seen in EIA gas storage data. ""Working natural gas storage inventories posted a rare summer net withdrawal of 6 billion cubic feet (Bcf) for the week ending July 29, 2016, according to EIA's Weekly Natural Gas Storage Report. Record-high consumption of natural gas for electric power generation drove this withdrawal."  The EIA went on to say : ""During the current injection season, net injections had already been much lower than the previous five-year average for almost every week. This trend reflects an unusually high inventory level at the start of the injection season, high power burn, and slightly lower natural gas production, which has recently fallen below year-ago levels."---That narrative seems so close to the one we have heard the past several weeks, thus lending some credence to us of a very rare, very remote possibility of a withdrawal from gas storage.

Technically NG spot futures fell overnight to their lowest value since May 13. Momentum is neutral at an overbought level. Support below is seen at 2.214 and then at 2.167-2.168. Resistance lies at 2.344-2.345 and then at 2.385-2.390.

Comments heard today : "hold your nose" ( thus implying "buy it") and " Is it time to buy??".

Disclaimer

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