Energy Market Update 7-26-2023

Crude is down 78 cents   September RB is up 1.56 cents     September ULSD is up 2.09 cents

Overview

Energies are mixed with crude lower, but products higher. Crude is being pressured somewhat by disappointing API data. We wonder if some profit taking may be occurring here as well, as some may doubt WTI's ability to scale above $80. Some caution is also said to be due to concerns that the Fed may signal further rate hikes, which is seen as a negative for energy prices. Is a report from Bloomberg regarding the Saudis maybe dialing back production cuts also weighing on prices?

The Saudis may begin to reverse about half of its extra oil-supply cut by adding 500 MBPD in September, according to consultants FGE. An FGE analyst said : “There’s ample evidence for Saudi Arabia to start unwinding the cuts in September. The market is screaming out for these barrels, and refiners are scrambling to get hold of them,”. The Brent premium to Dubai is “extremely narrow” at just 50 cents per barrel last week and likely to remain tight even as Saudi barrels return to market: FGE believes.

Evidence of a market clamoring for Saudi crude s the fact that Mars sour crude has seen its price trade to its best value versus WTI in over 3 years. Through the August delivery trade cycle, from June 26 through July 25, the front-month differential for Mars crude averaged a $1.43/bbl premium to cash WTI, the strongest front-month differential averaged through a trade cycle since the June 2020 trade cycle. On the demand side, the ongoing effort by the US Administration to refill the strategic petroleum reserve after heavy downdraws in 2022 have provided further support to Gulf of Mexico sour grades like Mars, particularly given the stipulation by the US government to purchase US sour crudes in the solicitations put out in 2023. (Platts)

India's crude imports fell in July by 6% from June due to the monsoon season and refinery maintenance. June's imports were at a 7 month low. India’s monsoon season started in early June, and the country’s summer period is often associated with lower demand for oil products as a result of lower mobility and construction. India’s ability to import more Russian oil may have hit a limit for the rest of the year, analysts tell CNBC, citing infrastructural and political constraints, as well as limitations to Russian oil flows. "However, Indian oil demand is likely to pick up after the monsoon season. The festival season could see another jump in demand, which should lead to more crude oil imports." (Nasdaq/CNBC/Refinitiv)

API               Forecast        Actual

Crude Oil      -2.0/-2.3        +1.32

Gasoline       -1.7/-2.0         -1.04

Distillate       -0.1/-0.6          +1.6

Cushing          n/av              -2.3

Runs           +0.1/+0.4%      n/av

All eyes will be on the Fed today as a rate hike is expected, but key will be what signals the Fed Chairman will send regarding future interest rate policy.

Gasoline prices at the pump rose again by several cents today, as per AAA reporting. The pump price in the U.S. averaged $3.687. This is over 9 cents higher than the price seen just 2 days ago.

The rally on Tuesday in crude prices seemed to be aided by a few news items. The IMF raised their 2023 growth forecast to 3.0% from April's forecast of +2.8%. They said that the U.S. government averted a default and the banking crisis on both sides of the Atlantic had eased. They did, though, say that China is "losing steam" amid concerns over their property sector. (CNBC/Bloomberg) Consumer confidence in the U.S. hit a 2 year high in data seen Tuesday. Home prices continued to rise in data seen Tuesday. These 2 readings were seen as supportive.

Reuters on Tuesday detailed how distillate supplies have failed to be replenished at a time when they normally would. Distillate supplies remain near 10-year lows. A slew of refinery problems has prevented distillate fuel inventories from growing, as they typically do during the summer. Overall, unplanned outages in June averaged about 550 MBPD, nearly double June 2022's unscheduled shutdown of near 290 MBPD of capacity, according to data from refining intelligence firm IIR Energy. Stocks have not risen even though demand for diesel fuel has been significantly lower than a year ago due to weak trucking and industrial activity. The four-week average for U.S. distillate demand is about 7% below where it was a year ago, according to the EIA. "The increased costs of carrying inventories due to higher interest rates have also reduced refiner appetite to fill up the storage tanks", as per a comment from a storage clearing house operator.

Technicals

RB's momentum is negative, while that for ULSD signals an overbought condition. WTI momentum remains positive, but the spot futures were repelled from our resistance at 79.89-79.90 yesterday.

Is WTI suffering slightly from the fairly large amount of new length that we believe has been added in recent sessions. Over the past 3 sessions WTI futures open interest on the CME has risen by over 54,000 contracts. Given recent price movement, we believe that this is likely more new length being added.

WTI resistance lies at 79.89-79.90 and then at 80.62-80.67. Support is seen at 77.08-10, which is right by the 200 day moving average on the DC chart that intersects at 77.07. Below this support is seen at 76.44-50.

RB for September sees resistance at the prior 2 sessions' highs at 2.8540 and 2.8867. Support is seen at 2.7515-30.

ULSD for September sees resistance at Monday's high at 2.8279 and then at 2.8468-2.8480. Support lies at 2.7459-2.7478.

Natural Gas -September NG is down 5.3 cents

NG is a little lower as the tight trading range of the past few sessions persists. Much has been written about NG failing to rally due to the storage overhang. NGI reporting cites a slight increase in NG output and a slight issue with pipeline feed to a key LNG export plant as pressuring prices today.

Our colleague's notion of volatility being cheap and worth buying was evidenced in a trade seen on the CME yesterday. The September $2.25 put and $3.00 call were purchased together as a package at a total cost of 11.6 cents.

The August NG options expire today with open interest in the $2.75 strike on the CME totaling 23,783 contracts. This leads us to believe that the futures settlement today for August will be pinned near $2.75.

TTF prices are lower today, although the chart pattern of the past 10 days shows us a stepladder up look since making the low at 24.00 Euros/Mwh (= $7.03/MMBTU) on the 17th of this month. The current futures price is Euro 30.84/Mwh (+$9.04/MMbtu). Prices have risen of late on the back of the heat wave that has engulfed much of Europe, as well as lower LNG imports as European prices have remained below those seen in Asia for a few weeks now. Also, Reuters touts the upcoming maintenance to be seen in Norway in August. Today's pullback is due to the high storage level in Europe, as per Bloomberg reporting.

Today, the front month August September NG spread hit a new low. We are somewhat surprised at this spread having gone negative this week, given the heat that is engulfing much of the U.S. Is this though about buy interest in September futures as August is set to expire? One supportive element for the August contract versus September is the spread bumping against the lower daily chart bollinger. That bollinger lies at minus 2.1 cents. Today's low is minus 2.6 cents.

Is NG struggling to rally due to high amounts of coal being held by power generators? Platts details how coal stockpiles rose to a 29 month high in May. Stockpiles were 37% above those held a year ago.

Technically September NG has positive momentum, but has been stuck in a tight range for the past 4 trading sessions. Resistance lies at 2.759-2.762 and then at 2.805-2.807. Support is seen at 2.66 and then at 2.63.

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