Energy Market Update 7-9-2024

Crude is down 33 cents         RB is near unchanged     ULSD is down 1.97 cents

Overview

Prices are lower as Hurricane Beryl has not caused significant damage to energy infrastructure along the Gulf Coast. "Ultimately, storm disruptions to the oil and gas industry proved relatively minor, consisting mainly of shipping delays and a couple of small refinery glitches."( Quantum Commodities quote)

In Texas, on Tuesday, ports were set to reopen, and some producers and facilities were ramping up output after preventively cutting down processing. Some were limited by slow restoration of power to homes, businesses and industrial customers.  The Port of Corpus Christi reopened ship navigation on Monday afternoon, but the Port of Houston said its terminals would remain closed on Tuesday after conducting a preliminary assessment of facilities and systems. Phillips 66  said on Monday that its Lake Charles, Louisiana and Sweeny, Texas refineries had power and were operating, while Citgo Petroleum temporarily reduced production over the weekend at its 165 MBPD Corpus Christi plant. (Reuters) Shell said it will start the process of redeploying personnel to its Perdido and Whale offshore systems, while others operators are expected to follow. (Quantum Commodities) Only around 70 MBPD of production had to be suspended, which will be "hardly visible" in weekly Energy Information Administration statistics, a bank analyst said. (MarketWatch)

In the Mideast, immediate peace hopes seemingly are fading as Israeli forces have advanced deeper into Gaza. Hamas warned that the latest raids and displacement in Gaza City could lead to the collapse of long-running negotiations over a ceasefire and hostage release, according to the Associated Press.

An influx of diesel/gasoil from the US has put pressure on the European distillates complex, as exporters shipped record volumes to the continent in the final week of June. Spurred by domestic price weakness and falling freight rates, exporters leaped on a brief arbitrage window to Europe, shipping some 39 diesel/gasoil cargoes between mid-June and July 3. Yet with demand at normal levels, incoming supply has weighed on sentiment in Europe. Front-month/second month ICE low sulfur gasoil futures flipped to contango July 3, a sign of prompt market weakness. ARA inventories were seen 10% above year ago levels as of June 27. Platts adds that further supply from the Middle East could exacerbate weakness in European Gasoil in the second half of July, while hurricane risks provide a key upside for the US Gulf Coast and global complex

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The CFTC COT report issued Monday showed money managers added to net length in WTI by 13,138 contracts in the week ended Tuesday July 2. But, for us, more notable is the reduction in net short positioning seen in ULSD. Money managers covered a lot of shorts in ULSD. They reduced their net short position by 11,826 contracts, and thus were net short all of 376 contracts at the close of business Tuesday July 2. RB net length fell by 2,846 contracts.

Energies fell Monday even as the S&P 500 index set a new record high and the U.S. dollar fell to a near 1 month low. The Euro gained Monday as there were lessening fiscal concerns stemming from no outright far-right or leftist victories in French elections held Sunday. The fact that energies fell Monday even in the face of the 2 normally supportive financial market events suggests that energy prices are more so concerned with supply/demand factors unto oil in and of itself. Is it the sluggish U S NFP jobs report seen Friday? Is it the slight rise in OPEC production in June seen last week? Is it Chinese demand that is running well below forecasts for this year? Is it gasoline demand having peaked with the July 4th holiday?

Fed Chair Powell is set to give two days of testimony before Congress, beginning later in the day, with the Senate and followed by the House on Wednesday. His comments will be scrutinized for hints at future Fed interest rate policy. The consumer price index (CPI) data on Thursday could also be crucial, market watchers said, with recent numbers showing a cooling from unexpectedly high levels at the start of the year. (Reuters)

Technicals

Adding to the notion we proffered the past few days of an overbought market is the following comment written last Friday "Sentiment in oil markets is undeniably bullish." Since then, momentum has turned negative for the energies on the DC charts with the sharp fall in prices seen the past 2 sessions.

WTI spot futures see support at 80.88-80.95. Resistance lies at 82.41-82.48 and then at 83.30-83.32.

RB for August sees support at 2.4944-2.4961. There is a double bottom above that from yesterday/today at 2.5235-2.5255. Resistance is seen at 2.5800-2.5820.

ULSD for August sees support at 2.5386-2.5398 and then at 2.5039-2.5046. Resistance comes in at 2.5844-2.5869, tested with today's high of 2.5878. Above that resistance lies at 2.6175-2.6188.

Natural Gas - NG is up 7.4 cents

NG is up as cooling demand nationally is seen as stronger than the temporary loss of demand seen along the Gulf Coast due to Beryl and the increased gas production seen this month so far. Meteorologists projected weather across the Lower 48 states would remain hotter than normal through at least July 23. (Reuters)

More than 2.3 million people throughout Texas were still without power Tuesday morning, according to "poweroutage.us."   Yet, a heat advisory is in place Tuesday for southeast Texas, where heat indices could hit 105 degrees and high temperatures in the 90s are forecast across the region. (CNN)  Houston city officials said it could take days to restore power to millions of customers. (WSJ) In the coastal city of Galveston, city officials have estimated it could be as many as two weeks before electricity is restored. Texas utility CenterPoint Energy expects to restore power to 1 million customers by Wednesday night.  (CNN)

Demand losses from Beryl were seen causing lower feed gas volume to LNG export plants. Gas flows to the seven big U.S. LNG export plants fell to 12.1 BCF/d so far in July after Freeport LNG in Texas ramped down ahead of Hurricane Beryl on Sunday, down from 12.8 BCF/d in June. (Reuters) The Freeport outage pushed total US LNG feed gas demand down to about 11.1 BCF/d on July 8, from about 13.1 BCF/d on July 6, S&P Global Commodity Insights data showed, based on nominations for the morning cycle that could later be revised. Feed gas flows to Freeport were near zero July 8, Platts adds. Power outages can be an issue for Freeport LNG since it uses electric motors instead of natural gas turbines to drive the liquefaction compressors on its liquefaction trains. Cheniere's Corpus Christi LNG plant remained fully operational the past several days. And Cheniere reported no operational disruptions to its flagship Sabine Pass LNG terminal, about 100 miles east of Houston in Cameron Parish, Louisiana.  (Platts)

Despite the widespread power outages & cooler temperatures across Texas due to Hurricane Beryl, real time gas power burn remained strong Monday due to heat across the East & West. Cooling demand was seen as high as 45 BCF/d Monday, up +7 BCF/d vs last year. (Celsius) An oppressive heat wave is blanketing the West coast and will hover over the region for several more days, likely bringing high temperatures between 10 to 30 degrees above average to some areas.   "Record high minimum temperatures stretch from the Gulf Coast northeast along the East coast,” the National Weather Center said. (CNN)

LSEG said gas output in the Lower 48 U.S. states rose to an average of 102.4 BCF/d so far in July. On a daily basis, output hit a 17-week high of 103.0 BCF/d on Sunday. July's output is up from the June production of 100.2 BCF/d.

With hotter weather expected next week, LSEG forecast average gas demand in the Lower 48, including exports, will rise from 105.7 BCF/d this week to 107.0 BCF/d next week. This is unchanged from Friday's estimates for the total for the 2 weeks.

The CFTC COT report showed money managers scaled back their net length in NG considerably. They added over 45,000 contracts of new short positions, thus reducing their total net length to 3,166 contracts as of July 2. This together with the slide in NG spot futures prices seen over the past week reinforces the notion of an oversold market that we spoke of in the AM update yesterday.

We noticed yesterday that September NG Trading at Settlement (TAS) volume was over 20,000 contracts, which is high for a non position rolling day. The T A S volume is likely to have been mostly new length being established, given the CME open interest data for yesterday's activity. September NG futures open interest rose by over 15,000 contracts, as per preliminary data from the CME.

Momentum on the NG DC chart is trying to turn positive from a very oversold condition. Resistance for the spot futures lies at 2.480-2.484 and then at 2.573-2.575. Support comes in at 2.331-2.335 via the August 60 minute chart.

Disclaimer

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