Energy Market Update 7-28-2023

Crude is down 15 cents  September RB is up 2.70 cents   September ULSD is up 1.5 cents

Overview

Energies were lower overnight on profit taking, but have risen in the past 2 hours--helped to some degree by U.S. inflation data and European GDP readings. The dollar weakened after the PCE data release.

Today's Personal Consumer Expenditure (PCE) reading showed inflation running at an annual pace of 4.1 %. It was forecast to show inflation running at 4.2%. The Fed is said to watch this keenly as a tool for gauging its interest rate policy. On Thursday, energies were helped by the U.S. 2nd quarter GDP coming in stronger than expected. The growth rate of 2.4% beat that seen in the first quarter of 2.0%. Estimates were calling for +1.8/+2.0% figure for the 2nd quarter figure.

Today, GDP data from France and Spain were seen as supportive, while that seen in Germany still suggests stagnation there. German first quarter GDP was revised to -0.1%, better than the initial reading of -0.3%, But, France and Spain saw their economies grow in the 2nd quarter. France saw a +0.5% reading, while Spain registered a +0.4% GDP figure for the second quarter. This is all ahead of Monday's Eurozone second quarter GDP reading, which is due to show growth of +0.4%. (Reuters)

News accounts have market participants seeing Saudi Arabia extending their 1 MMBPD production cut into September, contrary to the report we mentioned a few days ago. The measure already has been extended into August, and 15 of 22 traders, analysts and refiners surveyed by Bloomberg predict it will continue into September.

A few days ago we had described how oil services companies were saying rig activity had slowed. Comments seen yesterday from other servicers suggest otherwise as a few companies say rig activity will pick up. Oilfield service providers on Thursday signaled a recovery in rig count, an indicator of future production, later this year, citing an uptick in oil and gas prices. One CEO said he expects rig count activity to hit a bottom in the quarter ending September, and a recovery in the following quarter. Another CEO said "We believe the industry rig count is near a bottom," adding that the company expects additional rig releases in the next few weeks before drilling activity recovers later in the year. One firm said though that a shortage of equipment could hinder growth in U.S. oil and gas production. (Reuters)

Today, Exxon Mobil Corp joined its rivals reporting a 56% slump in second quarter profit from a year ago, hurt by a drop in energy prices. The theme this week has been that of oil majors' profits falling sharply in the quarter from record levels a year earlier as oil and gas prices came off last year's highs that were driven by Russia's invasion of Ukraine. Profits at Chevron Corp, Shell and Total Energies shrank by 48%, 56%, 49% in the quarter, respectively. (Reuters)

The average price for gasoline at the pump in the U.S. rose again today to $3.732, reaching an 8 month high. News wire accounts suggest prices will rise further. The rise could be linked to refinery outages, according to GasBuddy analysis. Heat-related and other issues have affected refinery operations in Texas and Louisiana. U.S. gasoline inventory is down, hitting its lowest July levels since 2015, Gas Buddy says. Also, the $10 rise in crude prices has driven gasoline prices up. "Crude oil prices are up $10 per barrel over the last month,” which Lipow Oil Associates say is "equivalent to a 25 cent per gallon rise in gasoline raw material costs.”  AAA says the price today is 18 cents above that seen one month ago. The jump in gasoline prices, if sustained, could complicate matters for the economy by undoing progress on the inflation front and eroding rebounding consumer confidence. (Barron's/YahooFinance/CNN)

Technicals

The RSI readings on a 14 period basis for the September products and October Brent signal an overbought condition. The RSI for September RB is 76. That for September ULSD is 80. The RSI for October Brent s 70. This overbought condition is also signaled via high stochastic indicators.

RB for September has chart based resistance via the Dc chart at 2.9235-40. Support lies at the overnight low at 2.8536-65.

September ULSD sees support at 2.8675-80. Resistance comes in at 2.9420.

WTI spot futures have resistance at 80.60-80.67 and then at 8148-81.50. Support lies at 79.00-04.

Natural Gas --NG is up 7.5 cents

NG is higher today as traders possibly reassess EIA data, production figures and the ongoing heat in much of the U.S. Did the EIA data really disappoint? Is production still running under 100 BCF/d? Is the ongoing heat in the U.S. enough to drive some decline in storage in next week's data?

Weather forecasts indicating August temperatures may be lower than those of July drove a stake on Thursday into gas longs, as per Investing.com commentary This is in addition to the surplus overhang that Thursday's EIA data did little to improve.

The EIA storage addition was 16 BCF in Thursday's report. Although it strikes us as a neutral number, the NG market fell off post EIA data. The prevailing sentiment is of ample storage. Total storage rose to 2.987 TCF. This is 573 BCF/ 23.7% over year ago level and +345 BCF/+13.1% over the 5 year average. The EIA offered this analysis of NG storage on its website: The average rate of injections into storage is 4% higher than the five-year average so far in the refill season (April through October). If the rate of injections into storage matched the five-year average of 9.3 BCF/d for the remainder of the refill season, the total inventory would be 3,940 BCF on October 31, which is 345 BCF higher than the five-year average of 3,595 BCF for that time of year.

The recent heat wave seen in Texas has seen power usage remain high, but as the following headline states : Thanks to wind and solar, Texas has kept the power on and the costs down. Texas is No. 1 in the US for having the most wind and solar capacity. More than 4 gigawatts (GW) of wind and solar were added in the Lone Star State between September 2022 and May 2023. Wind, solar, and nuclear contributed as much as 55% of total generation on June 28 and 29. This was up from sub 50% generation seen in high demand periods in August 2019 and August 2022. (electrek.co)

TTF prices have retreated further today and are not far from the recent low of 24 Euros/Mwh. The August TTF futures value today is near 26 Euros/Mwh (=$7.62/MMbtu). Bloomberg cites ample European storage and high renewables' generation weakening prices. A colleague yesterday suggested that weak TTF prices are casting a pall over NG pricing as ample storage in Europe will see spot LNG export cargo demand be slack. Europe's gas storage levels were 84.25% full as of July 25 versus 67.12% this time a year earlier, Aggregated Gas Storage Inventory data showed. In Asia, spot LNG prices edged up this week, buoyed by stronger demand due to above-average temperatures in east Asia, but gains were capped as inventories remained high. The average LNG price for September delivery into northeast Asia was $11/MMbtu, industry sources estimated, up from $10.80/MMbtu the previous week. Analysis from Rystad Energy says : Overall, it is still a tug of war between bearish signals - high inventories in Asia and Europe, sluggish Chinese demand recovery, and weak European industrial activity - and bullish signals - heatwaves in parts of the U.S., Asia and Europe, and unexpected LNG production outages or maintenances lasting longer than expected." But another analyst adds : "The impact of higher temperatures on LNG demand has also been limited by the continued availability of nuclear and renewables generation. " (Reuters)

Notable was a large increase in open interest in NG futures on the CME from Thursday's activity. Open interest rose by over 18,000 contracts, with September and November seeing large increases, which we suspect are more new shorts given the day's price action. September open interest is high at 335,000 contracts. Does this leave the contract open to possible short covering rallies? Also noteworthy is a near 7,000 contract increase in open interest in the October $5.50 calls. The option traded 4 ticks Thursday.

Technically, momentum on the NG DC chart is negative, but the contract held at the lower bollinger band in the fall off seen Thursday as August futures expired. Resistance for spot NG is seen at 2.692-2.696 and then at the 2.75 area. Support lies below at 2.536-2.539.

Disclaimer

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