Energy Market Update 7-5-2024

Crude is down 2 cents          RB is down 0.11 cents       ULSD is down 0.20 cents

Overview

Energy prices are set to end the week higher is what the news wires are mentioning most. Prices this week have been buoyed by strong DOE data, geopolitical tensions, rate cut hopes, strong summer demand and some worries over possible disruptions due to hurricanes, evidenced by the very early, very powerful Hurricane Beryl, which is heading to landfall in northeastern Mexico or South Texas this weekend as a hurricane. One news wire adds :" though some analysts see upside limited by growing concerns over signs of softening growth." This notion may have been reinforced by today's Non Farm Payroll data.

The strong summer demand was reinforced by the supportive DOE data seen Wednesday. Gasoline demand rose by 455 MBPD to a very strong figure of 9.424 MMBPD for the week. This, though, was in line with 2022 demand of 9.413 MMBPD, but below last year's figure of 9.599 MMBPD. These figures all indicate the movement of gasoline supplies from refineries to retail outlets ahead of the July 4th holiday. Gasoline supplies fell by 2.214 MMBBL, better than the forecast for a draw near 1 MMBBL and contrary to the 2.47 MMBBL build seen in the API data. Distillate demand rose by 179 MBPD to 3.715 MMBPD. This is less than the prior 2 years' figures of 3.811 and 4.382 MMBPD. Distillate supplies fell by 1.535 MMBBL, which was better than the API draw of 0.74 MMBBL and better than the less than 1 MMBBL draw that was forecast. Notable to us was the very strong distillate export figure seen this week. Distillate exports were up 152 MBPD to a total 1.705 MMBPD. This was well above the past 2 years figures for the period of 1.301 and 1.282 MMBPD. This week's distillate exports were the highest since the week of April 8, 2022, as per EIA data. Crude supplies drew by 12.157 MMBL. This was even more than Macquarie's estimate for a draw of 10.9 MMBBL. It is worth mentioning that the EIA's crude supply adjustment for the week was minus 1.555 MMBPD, thus meaning that 10.885 MMBBL of the supply draw was due to this adjustment. But, supportive for crude oil were the drop in net crude imports of 555 MMBPD and the increase in crude inputs to refineries of 260 MBPD.

We were surprised to see energy prices fail to make fresh highs for the recent rally off the DOE stats on Wednesday. Our opinion is reinforced by the following comment seen from UBS's analyst : " Based on the reaction, it seems to look as the market believes it (the report) was a one-off,". "We need to see ongoing similar reports to see oil prices moving higher." Another analyst cited the recent June production figures from OPEC showing output rose in June for a second straight month for the restrained price performance on Wednesday.

The Non Farm Payroll data issued this morning showed 202,000 new jobs added in June. This was more than the +180,000/+190,000 new jobs forecast; but, the prior 2 months' jobs data were revised down by a total of 111,000, thus offsetting this month's slightly greater than expected number. Product prices reacted positively to the NFP data, while crude oil were basically unchanged versus pre-NFP data release valuation. The products are likely reacting positively  to the NFP data as it implies that the Fed could reduce interest rates soon. This, though, is in contrast to the Fed minutes that were released Wednesday.

"Federal Reserve officials at their June meeting indicated that inflation is moving in the right direction but not quickly enough for them to lower interest rates. Minutes released Wednesday showed that policymakers lacked the confidence they needed to lower policy, while they generally agreed there should be no rush to cut." (CNBC)

Saudi Arabia cut their flagship A-Light crude grade's OSP for August loading to the key Asian region by 60 cents, which was in line with the Reuters survey forecast for a drop of 60 to 80 cents. The Heavy and Medium crude grade OSP's for Asian customers were reduced by 70 cents. Prices to NW Europe and the Med were raised by 90 cents. Prices to the U.S. were raised by 10 cents for the A-Light grade, but kept unchanged for the Heavy and Medium grades.

Suncor Energy has shut down its 215 MBPD Firebag oil sands site in northern Alberta and curtailed some production as a precaution due to a wildfire about 5 miles away, according to the company and an Alberta government minister. (Reuters)

In the Gulf of Mexico, some non essential personnel was evacuated from offshore platforms as a precaution ahead of Hurricane Beryl arriving. (Quantum Commodities)

Efforts to secure a ceasefire and hostage release in Gaza were gathering momentum on Friday after Hamas made a revised proposal on the terms of a deal and Israel said it would resume stalled negotiations, even as geopolitical tension was ratcheted up the past day or so as the Lebanese armed group Hezbollah launched more than 200 rockets and attack drones into northern Israel, in response to the killing of one of its senior commanders. Israel's military said one of its officers was killed in the barrage, which started a number of fires. (BBC/Reuters)

Talk has gotten loud of late of the crude oil options pricing seeing volatility having fallen to near 20% for the spot futures's at the money options. One comment seen says that :"OPEC+ supply cuts have stabilized the oil market in a range." We also suspect upside call selling by producers to lock in some hedges, as the futures price has risen to values not seen in over 2 months.

Technicals

Brent has risen over the prior DC gap that ran to 87.46. But, momentum on the DC chart for Brent shows a very overbought condition. Support below lies at 86.48-86.51, while resistance above comes in at 88.79-88.86.

WTI spot futures see resistance at the recent high at 84.38 and then at 85.50-85.51. Support is seen at 82.40-82.46.

RB for August has resistance at the recent 2.6150 high and then at 2.6380. Support lies at 2.5677-2.5682, which is above the low for the current 2 day session of 2.5611. Below this support is seen at 2.5395-2.5398.

ULSD for August sees support at 2.5912-2.5931 and resistance at 2.6595.

Natural Gas -NG is down 3.8 cents

NG spot futures have fallen to their lowest value since May 15, as the market has been weighed down by increased supply, evidenced by Wednesday's EIA data. But, the heat is on in the U.S. raising demand after the lower industrial demand period surrounding the July 4th holiday.

Wednesday's EIA data disappointed slightly as the storage build was a total 37 BCF. This week's storage rose by 32 BCF, which was on the upper end of forecasts. In addition, 5 BCF was added to the Working Gas total for last week, thus making for the 37 BCF addition to storage. Total storage rose to 3.134 TCF, which is +496 BCF/+18.8 BCF versus the 5 year average and +275 BCF/+9.6% versus last year's supply.

Celsius Energy data is showing a sub-6 BCF/d daily gas storage injection today, nearly 3 BCF/d bullish vs the 5-yr average. On a temperature-adjusted basis, imbalances will be nearly 5 BCF/d tight vs the 5-yr average, they add. Meteorologists projected weather across the Lower 48 states would remain hotter than normal through at least July 17. (Reuters)

Some demand concern, though, has been voiced due to the lower feed gas volume for export. Gas flows to the seven big U.S. LNG export plants fell to 12.2 BCF/d so far in July, down from 12.8 BCF/d in June, as per Reuters reporting. The feedgas volume drop was due to a large degree to planned maintenance work at Cheniere's Sabine Pass plant.

On Wednesday, data from LSEG put July average NG production at 101.5 BCF/d, up from 100.1 BCF/d seen last month.

In the spot market, next-day gas prices at the Waha hub  in West Texas plunged from a negative 52 cents/MMbtu for Tuesday to negative $2.06/MMbtu for Wednesday as pipeline constraints trapped gas in the Permian Shale. (Reuters) Henry Hub cash prices seen Wednesday for Monday July 8th delivery hovered near $2, which was at a large discount to the spot futures value at that time of about $2.43.

NG price performance has remained negative, but the momentum indicator on the DC chart basis is severely oversold, thus suggesting a relief rally is possible. Support lies at 2.306-2.313. Resistance lies at the double top from Tuesday/Wednesday at 2.484-2.480.

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