Energy Market Update 7-17-2024

Crude is up 84 cents       RB is up 0.53 cents         ULSD is up 0.30 cents

Overview

Energy prices are higher today supported by last night's better than expected draw in crude oil inventories. The watchword being used again today is "steady" after crude prices fell yesterday to their worst value in almost 3 weeks. Products are lagging crude today due to their disappointing API data. In particular, distillate supplies increased quite a lot. Otherwise, the market is torn between weak Chinese data seen the past week and the prospect for a US interest rate cut in the near future.

API               Forecast        Actual

Crude Oil     -0.33/+0.54     -4.44

Gasoline       -0.7/-1.6        +0.365

Distillate      -0.8/+0.59      +4.92

Cushing           n/av           -0.746

Runs           -0.2/-0.6%        n/av

As of Tuesday morning, markets were pricing in a 100% chance of an interest rate cut in September, per the CME FedWatch Tool, up from a 70% chance a month ago. One analyst said this is due to :"Recent data have showed a continued softening in the labor market and substantial cooling in inflation pressures".  In a new research note on Monday, Goldman Sachs chief economist argued there's "a solid rationale" for the Fed to begin cutting at its next meeting on July 31. (Yahoo Finance) Yet, one analyst wrote the following about the prospects for an interest rate cut: :""It seems that oil traders read signals of future demand problems in the signals from Powell and other FOMC members rather than anticipation of monetary easing,". (MarketWatch)

On Tuesday, the IMF flagged a warning that upside risks on global inflation have increased, which could stall the timeline for additional rate cuts. "The momentum on global disinflation is slowing, signaling bumps along the path," the IMF said in its World Economic Outlook. (Quantum Commodities)

In addition, to the weaker than expected GDP data seen this week from China, the property sector remains weak. "The Chinese real estate market remains under strong pressure, which is also weighing on demand for commodities. Last month, new construction sites with a total usable area of 79.3 million square meters were started. This figure was around 22% lower than in the previous year," a Commerzbank analyst said. (Quantum Commodities)

Platts details how Mideast product inventories at the key hub of Fujairah have risen to near their 5 year average in the week ended July 15. Platts says the rise has come as a result of patchy demand for bunker (shipping) fuel and middle distillates as well as limited gasoline exports. Despite the rise in stocks at Fujairah, prompt prices for gasoline have been supported by limited output in refining heavyweights China and South Korea. Lower shipments of gasoline from the Persian Gulf to Asia as well as run cuts, amid stable demand, have also supported Asian prices, traders said. Trade sources said the regional gasoil complex was holding up better than expected despite the seasonal lull. "Considering the monsoon season in India and Thailand, the VLCCs [carrying clean products] from the Arab Gulf heading for Europe helps," a trader said. "But overall economy still performing badly, so I cannot be too bullish on diesel."

Asian importers are hoping for some normalcy to oil trade flows from Iran, as the country's new reformist president pushes for a broader thaw in Tehran's relations with the West by reviving the nuclear deal and easing sanctions, according to analysts and traders. Calling the sanctions a "disaster", the newly elected President has questioned the current government for what he said was selling oil below the market price. (Platts)

Today is the expiration of the August WTI / LO options contract. But, the near the money strike of $81 has little open interest. Thus there should not be any options induced fireworks at settlement for the futures today.

WTI futures open interest on the CME rose by over 31,000 contracts as per the CME's preliminary data from Tuesday's activity. The increase is even more pronounced when seeing that the soon to expire August futures' open interest fell by nearly 39,000 contracts. Given the settlement and prices action in WTI futures, we see the open interest increase as being more new shorts.

Technicals

Momentum is negative for the energies, although those for the RB & ULSD are waning to the downside on the DC charts.

ULSD spot futures fell today to their lowest value since June 13. Support lies at 2.4581-2.4598, then at 2.4259-2.4270. Resistance lies at the 2.50 area.

RB for August sees support at 2.4427-2.4440 and resistance at 2.5209-2.5216.

WTI spot futures have resistance at 81.90-81.93 and the at 82.58-82.66. Support lies at 80.18-80.22, which is yesterday's low.

Natural Gas --NG is down 2.7 cents

NG spot futures are down. The market is being buffeted by the weak LNG feed gas volumes seen of late due to Hurricane Beryl and the increased NG production seen this month versus the very strong power burn seen of late due to the heat wave in the US and the low level of wind generation seen the past few days.

The past 7 days have seen wind generation lag last year's level. Over the past 7 days, daily wind generation has averaged 893.9 GWh, down -50.2 GWh year-over-year, according to Celsius Energy data. Yesterday's wind generation decline, in particular, was such that NG demand was up 0.8 BCF/d as a result, as per Celsius Energy data.

Due to yesterday's scorching heat, the high cooling demand boosted next-day power prices in New England and the Pennsylvania-New Jersey-Maryland region by over 150% to their highest levels since January. (Reuters)

On Tuesday, LSEG forecast average gas demand in the Lower 48, including exports, will slide from 105.1 BCF/d this week to 103.6 BCF/d next week. This week's demand estimate is down 1.1 BCF/d from the estimate seen last Friday.

Technically gas prices are having their 2nd day of an inside range. Momentum on the DC chart is neutral at an oversold level. Support lies at the double bottom from Monday/Tuesday at 2.147 / 2.149. Below that support lies at 2.100-2.102. Resistance comes in at 2.246-2.249 and then at 2.285.

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