Energy Market Update 7-23-2024

Energy Market Update 7-23-2024 

Spot Crude futures are down 74 cents September RB is down 1.15 cents September ULSD is down 1.39 cents 

Overview 

Energies are lower with various reasons being given for the crude weakness: sluggish Chinese demand, renewed hope for a Gaza ceasefire, and an overall commodities "gloom", as per a watchword used in MarketWatch commentary. 

President Biden is expected to meet Israeli Prime Minister Benjamin Netanyahu on Thursday at the White House, and the two are expected to discuss ways to reach a ceasefire. (Reuters) 

""There is no oil-market-specific trigger for the current price weakness. The headwind is therefore very likely to come from the generally negative market sentiment towards cyclical commodities, which is also reflected in the fall in the price of base metals," the commodity analyst at Commerzbank wrote in a note. In particular, copper has fallen this week to its lowest value since early April, amid concerns for Chinese demand. 

ExxonMobil's 251,800 b/d Joliet refinery in Illinois is still awaiting power restoration to assess damages after severe storms and a nearby tornado hit the area July 15 and took out power transmission capabilities to the region.(Platts ) The refinery is key to refined-product supply in the Chicago area and the outage has forced ExxonMobil to stop supplying to its exchange partners -- BP, Phillips 66, and Marathon Petroleum. This, in turn, has sent them scrambling for alternate supply sources and pumped up prices. The Explorer pipeline, which carries refined products from the US Gulf Coast into the Chicago market, has the next four cycles allocated, as demand for space exceeds the pipeline's volume.A market source said on July 22 that Chicago ULSD was said to have traded at a 6-cent/gal premium earlier in the day. One week ago, Chicago diesel was at a -21 cent discount, as per Platts.

Ample supply and strong demand continued in the European jet fuel complex July 22, with sources saying that although the market was seeing strong supply it was now entering peak demand season. “July and August are peak months [for jet demand],” said a source. “[Aviation] passenger numbers are always strong during this period.” Inventories of jet fuel and kerosene in the Amsterdam-Rotterdam-Antwerp refining hub decreased by 3.8% in the week to July 18, according to Insights Global data, but even with the weekly fall, inventories remained 37.7% higher than year-ago levels. Imports of jet from East of Suez into Europe were up 9.9% on the month for July, S&P Global Commodities at Sea shipping data showed July 18. 

A narrowing contango structure in physical Mediterranean gasoil cargoes could support the narrative of a tightening market despite outstanding offering activity in the Platts Market on Close assessment process July 22. Meanwhile, Northwest European 50 ppm gasoil barges seemed to have found a floor to the market, with outstanding bids in the MOC halting a downward trend in physical differentials that begun with the expiry of the underlying July ICE LSGO contract. As such, Platts assessed FOB ARA 50 ppm gasoil barges up $1.50/mt on the day, with the spread between 50 ppm gasoil and ULSD narrowing to a $9.25/mt premium for ULSD. 

Spot prices in the North Sea crude oil market have eased in the early part of the week as flagship Forties traded in Monday's MOC window at +$1.40/b to the underlying Dated Brent swap on a CIF Rotterdam basis, down from a price as high as +$2/b on a CIF basis last week. (Quantum Commodities) 

In Asia, gasoil cracks slumped to six-week lows of around +$15/b over Brent. Chinese fuel demand remains weak. (Quantum Commodities/LSEG) 

Morgan Stanley expects Brent to average $86 in the third quarter, but will drop into the $70s/b during 2025 as markets return to oversupply. The US investment bank expects OPEC and non-OPEC supply to grow around 2.5 MMBPD next year, outpacing demand growth. (Quantum Commodities) "We remain constructive toward the market through the third quarter and still expect prices to move higher from current levels," ING analysts say in a note. "OPEC+ cuts should ensure that the market tightens in the current quarter. However, how tight it will get will depend on how Chinese demand evolves." (Reuters) But, one bank analyst points out reasons for supply concerns for oil : "The expectation that OPEC will start unwinding its production restrictions in Q4 and the rising odds that Trump presidency would further boost the U.S. production take the upper hand." (Marketwatch) 

Technicals 

Technically WTI has a rollover gap from the August expiration. That gap lies from 78.73 to 79.12 on the DC chart. Momentum on the DC chart for WTI points downward. The spot futures (now September) are testing the DC chart's lower bollinger band, which intersects at $77.92. Support basis the DC chart lies at 77.63-77.73 and then at 76.67-76.70. Resistance lies at the gap area at 79.15-79.17. There is some light resistance below that even at 78.62-78.66. 

 September RB has a double top currently from yesterday/today at 2.4313 / 2.4312. Above that resistance lies at 2.4527-2.4541. Support comes in at 2.3815-2.3822, which is Monday's low. Below that support lies at the 2.36 area. Momentum is neutral. 

September ULSD sees support at 2.4296-2.4297 and then at the 2.4150 area. Resistance lies at 2.4702-2.4713. Momentum is neutral. 

Natural Gas --August NG is down 4.5 cents 

NG prices are down after the strong rally seen Monday. Prices are lower even as temperatures are seen heating up in early August. NGI commentary suggests that supply gains are outpacing LNG export demand gains today. 

 The stars looked to have aligned for NG on Monday amid the full moon. U.S. NG production looks to have eased back, demand picked up given the rise in volume flowing to the Freeport LNG facility and added to that " the hottest weather of the summer is forecast to blanket much of the US Lower 48 states in early August.", as per traders quoted in Reuters commentary. In addition, short covering looks to have been at work given the drop of over 20,000 contracts in the soon to expire August futures on the CME. CFTC data has the speculative interest having turned their total NG futures/options position net short to more than 50,000 contracts in the prior 2 weeks. 

We have attached a weekly continuation chart for NG spot futures that indicates that in summer, NG prices bottom for a few weeks/months when looking at the previous 5 years. In 2019, prices bottomed in the first week of August. In 2020, prices bottomed in the 3rd week of June. In 2021, prices paused their upward rise in late June at which time they moved sideways for a few weeks and then rose dramatically into October. In 2022, NG fell to a low established in early July and then rose quote a bit until the end of August. Last year, NG prices had a sideways pattern during July and August, rising from then until the end of October. 

Our analysis above of NG seeing lows in this time period was echoed in a comment seen in WSJ reporting yesterday: '' "While storage remains elevated, hedge funds are holding heavy short positions which can create knee-jerk type short covering rallies especially when seasonally (5-year average) prices more times than not trend higher into late August,". 

South Korean state power utilities have cancelled plans to build LNG importing terminals due to "worsening profitability" on high costs and declining LNG demand in the wake of the country’s renewed nuclear-focused power mix policy, company officials said July 23. The plan was to complete construction by December 2028, but faced concerns about further delays. Construction costs were seen escalating, besides the LNG demand that is seen "slumping'. (Platts) 

Technically, NG futures have positive momentum. There is currently a double top on the August spot futures at 2.265/2.270 from today/yesterday. Above that resistance lies at 2.343-2.350. August NG sees support at 2.147-2.149. The following technical analyst's comment suggests that the narrative has likely changed for NG: "Right now, I think you’ve got a situation where the market has just fallen far too much to really continue shorting, if nothing else. From a historical point of view, we could very well drive all the way to the $3 level and still, for the most part, be in a sideways market that just doesn’t really have anywhere to be. " He adds further:" this is more of a grind higher this time of year than anything else."

Disclaimer

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