Energy Market Update 7-2-2024

Crude is up 74 cents       RB is up 2.83 cents      ULSD is 3.95 cents

Overview

Prices have risen further to multi week highs today as "traders cited summer demand optimism, geopolitical tensions and an early start to the Atlantic hurricane season." (Quantum Commodities quote)

Summer demand is evidenced by the large number of travelers on the roads and in the air expected in the U S over the extended July 4th holiday period. The AAA forecasts that more than 70 million Americans will travel at least 50 miles from home between June 29 and July 7, potentially setting a new record for holiday travel. “We anticipate this July 4th week will be the busiest ever with an additional 5.7 million people traveling compared to 2019,” the AAA said in a recent statement. (Investing.com) While most travelers are expected to drive, the volume of air passengers indicates a busy period for airports nationwide. (WSVN.com) The Transportation Security Administration is preparing for over 32 million air travelers from June 27 through July 8, which is a 5.4% increase over 2023 Independence Day holiday travel volumes. (TSA.gov) Historically, AAA pointed out, the Independence Day holiday period included only one weekend. This is the first year the Independence Day holiday travel period is a longer timeframe with two weekends included. As a result, analysts said this year’s projected number of travelers for that stretch is expected to increase 5% compared to 2023 and 8% above 2019.(autoremarketing.com)

Hurricane Beryl became the earliest Category 5 hurricane on record as it moved through the Caribbean, sending an ominous warning for the rest of the storm season. Tracking models still show Beryl on course for the Yucatan peninsula in Mexico, but a shift northwards could still take the storm into the Gulf of Mexico, potentially threatening offshore oil production. (Quantum Commodities)

Heightened geopolitical tension was further amplified by the news that  “All US military bases in Europe have been put on heightened alert status due to a potential terrorist attack. There is credible intel pointing to an attack against US bases in Europe over the next week or so,” a US defense official tells Fox News. This news is in addition to the ongoing concern over a possible confrontation between Israel and Hezbollah, that might bring other other nations into the conflict, notably Iran.  Israel's military said on Sunday that 18 of its soldiers were injured, one of them seriously, when a drone struck their position in the occupied Golan Heights, which border Lebanon. The Israel Defense Forces said in a statement the strike happened earlier on Sunday. It said since then that it had struck Hezbollah targets in southern Lebanon with airstrikes and artillery fire. (newsmax.com)

The U.S. ISM came in lower than expected on Monday and caused a small pullback in energies before they ran up by the end of the day. The ISM's manufacturing PMI slipped to 48.5 in June from 48.7 in May. Economists polled by Reuters had forecast the PMI climbing to 49.1. The PMI index has indicated contraction in manufacturing in 19 of the last 20 months. Manufacturing is being pressured by higher interest rates and softening demand for goods, though business investment has largely held up, as per Bloomberg reporting.

Many eyes are now on Friday's Non Farm Payroll data. It is expected to show 180,000-190,00 new jobs were created. This is a cooling from May's reading of 272,000 new jobs.

A Reuters analyst detailed how first half 2023 Asian crude imports have not met forecasts. He writes :"Asia's imports of crude oil ticked lower in the first half of 2024 from the same period last year, defying expectations that the top-consuming continent would lead global demand growth." Asia imported 27.16 MMBPD of crude in the January to June period, down a modest 130 MBPD from the same period in 2023, according to data compiled by LSEG Oil Research. The slightly weaker outcome was largely a result of lower arrivals in China, the world's biggest oil importer, with gains by Asia's number two buyer India not enough to offset China's softness." This is contrary to OPEC's and the IEA's forecasts for the calendar year 2024. OPEC's June monthly oil market report forecast that China's oil demand would grow by 720 MBPD in 2024 over 2023, while the IEA is expecting an expansion of 500 MBPD. China's imports were about 11.08 MMBPD in the first half, a figure calculated by using official customs data for the first five months and LSEG's forecast for June. This is down 300 MBPD from the customs number of 11.38 MMBPD for the first six months of 2023.

The CME will have shortened trading hours on Thursday July 4th. Trading will be halted from 2:30 PM EDT until 6 PM EDT on Thursday. Otherwise all their trading hours will be the same as usual. All trades done Thursday will be for settlement Friday July 5th.

Technicals

Momentum is positive for the energies, although it is getting overbought for the RB on the DC chart.

Brent spot futures have come within 1 tick of filling a gap on the DC chart. The high today is 87.45. Resistance above that is seen at 88.79-88.86. Support below lies at 86.19-86.24. Today's spot futures price is the best since April 30, when the current ( now 1 cent) gap was created.

WTI open interest rose quite a bit in Monday's activity. We suspect new longs were added, mostly in September and October. The spot futures have risen today to their best value since April 26. Resistance basis the DC chart lies at 84.46 and then at 85.50-85.51. Support comes in at 82.55-82.60.

RB open interest was also up quite a bit in Monday's activity. We believe that mostly new longs were added in August and September futures. DC chart based resistance lies at the 2.6234 area and then at 2.6650-2.6670. Support lies at 2.5737-2.5744. Spot futures today are at their best price since May 3rd.ULSD has risen to its highest price since April 19.

ULSD spot futures resistance lies at 2.6769-2.6771 and then at 2.7025-2.7050. Support is seen at 2.6209-2.6226 and then at 2.6081-2.6097.

Natural Gas- NG is down 3.1 cents

NG has fallen today to its lowest spot futures value since May 29 as rising supply and lower demand forecasts weigh on prices. The July 4th holiday is traditionally a lower industrial demand period.

Production rose to 101.5 BCF/d over the weekend, which is a 3 month high, as per Celsius Energy analysis. In addition, supply increasing was evidenced by flow on the MVP pipeline having risen Monday to 0.97 BCF/d, which is 48% of the pipeline's capacity. (Celsius Energy)

As a further example of rising production, LSEG said gas output in the Lower 48 U.S. states rose to an average of 98.8 BCF/d in June; that was up from their estimate of average June output of 98.4 BCF/d seen on June 24.

On Monday, LSEG forecast average gas demand in the Lower 48, including exports, will rise from 99.8 BCF/d this week to 105.8 BCF/d next week. These forecasts were 2.0 BCF/d lower than those seen Friday.

Next day cash pricing at the Henry Hub was very weak in mid- morning on Monday, falling to $2.150, thus putting pressure on the spot futures at such a wide differential. The differential was about 35-37 cents. The July versus August spread went out trading at 12 cents when July expired, thus much narrower than Monday's cash/futures differential.

The EIA weekly natural gas storage number will be released tomorrow / Wednesday at Noon / 12 PM due to the Thursday July 4th holiday. We have seen a wide range of estimates for the data. They range from +28 to +41 BCF. These all compare favorably to last year's +76 BCF number and the 5 year average build of 69 BCF.

A federal district judge in Louisiana ordered the Biden administration to lift a suspension on issuing key LNG export permits for new projects until the court can resolve a lawsuit by 16 Republican-led states who argued it was unlawful. The judge did not specifically order the DOE to approve export licenses or set a deadline for the agency to act on pending applications. (Platts)

The August / October spread fell to its lowest level in almost 2 months today, following along with the outright flat price weakness. But, the spread settled in a mean reversion setup. Monday The spread settled at -11.8 cents, with the lower bollinger band lying at -10.6 cents as of Monday's close. This, together with the momentum getting close to oversold, gives bears a reason to consider pausing selling at this spread value. The lower bollinger today lies at -12.0 cents. The low for the spread is -13.6 cents, seen on May 1. Upside resistance comes in firstly at -9.6 cents.

Technically the spot outright futures price action is negative, as is momentum, but momentum is getting oversold and as a colleague said  "prices have nearly eliminated their overvaluation (which, at one time, had reached -40% in early June)" in their estimation. Support below comes in at 2.385-2.387, while upside resistance lies at 2.573-2.575. Some light resistance lies at 2.508-2.510 via the August 60 min chart

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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