Energy Market Update 8-23-2024

Crude is up $1.27 October RB is up 2.88 cents October ULSD is up 3.26 cents 

Overview 

Energies are higher in what is being dubbed a technical correction due to the "excessive selling seen earlier in the week" and "push towards oversold territory". 

The financial markets are keying on remarks from Fed Chair Powell due at 10 AM this morning. A 25 basis point rate cut in September is pretty much 100% expected. Now the market wishes to see if Mr. Powell will signal a possible 50 basis point cut. 

We failed to menton a notable piece of data from the DOE petroleum report from Wednesday. Distillate exports were very strong, rising on the week by 313 MBPD to a high figure of 1.853 MMBPD. This is well above the prior 2 years' figures of 1.182 and 1.579 MMBPD. We highlighted this week how "US diesel is crossing the Atlantic with record volume this summer" in our email regarding the December March ULSD spread. U.S. distillate exports reaching 11.2 MMBBL in July amid low clean tanker freight rates and US diesel prices. (Platts) Thus, the high exports to Europe have likely persisted. 

Supply-side risk in the Middle East remained high as conflicts between Israel and Hamas continued. Ceasefire talks are still ongoing, although their outcome remains in doubt, as a response from Hamas is still awaited. Israel's Prime Minister Benjamin Netanyahu’s official X account stated Aug. 23 : "The Air Force is our iron fist which knows how to hit the soft underbelly of our enemies. The ground crews, pilots and commanders here are doing heroic work. They have proven this time and again and if we need to – we will prove it again even more vigorously," (Platts) 

Morgan Stanley has lowered its forecast for global oil demand growth in 2024 to 1.1 MMBPD from 1.2 MMBPD. This revision is attributed to several factors, including slower economic growth in key markets, increased adoption of alternative energy sources, and evolving global economic conditions. The rapid increase in the sale of LNG trucks in China has led to a marked decline in diesel demand. This shift alone is expected to reduce China's oil demand growth by 100-150 MBPD in 2024. Morgan Stanley forecasts Brent to average around $80 per barrel in Q4 2024, gradually declining to approximately $75 per barrel by mid-2025. But, the bank added that "For now, the balance in the oil market is tight, with inventories drawing approximately 1.2 MMBPD in the last four weeks, which we expect will continue in the balance of [the third quarter],". (Reuters/Investing.com) 

The retail gasoline average price has fallen further today as per AAA data. The price of $3.374 is the lowest seen since March 5th. One month ago the average price was $3.502 and one year ago it was $3.845. 

Technicals 

Crude oil & ULSD momentums are still negative; yet, that for the ULSD looks to be bottoming. The RB momentum looks to be turning upward. The mean reversion set ups in WTI and RB seen Wednesday were confirmed with Thursday's settlements over the lower bollinger bands, thus signaling some retracement to the upside as we have seen the past 24 hours. 

October ULSD has a double bottom from yesterday/Tuesday at 2.2497/2.2500. Support lies above that at 2.2795-2.2809. Upside resistance is seen at 2.3383-2.3403 via the 60 minute October chart and then above that at 2.3571-2.3588. 

October RB sees support at 2.0877-2.0879 and then at 2.0645-2.0663. The overnight low lies between our support levels. That low is 2.0758. Resistance is seen at 2.1461-2.1485. 

WTI for October sees support at the overnight low at 72.82-72.83. Resistance comes in at 75.18-75.23. 

Natural Gas- NG is down 3.0 cents 

NG prices are lower, continuing the downdraft seen yesterday as futures fell 5.7% Thursday after the EIA data disappointed and "looming autumn weather presented the likelihood of fading cooling demand.", as per an NGI quote. 

The EIA storage data showed a build of 35 BCF, which was 3 to 8 BCF over estimates we saw. Total storage thus rose to 3.299 TCF, which is 221 BCF / +7.18% versus last year and +369 BCF/ +12.59% versus the 5 year average. Even though the storage build was more than expected, it was still smaller than the 5 year average for a 13th time in the past 14 weeks. And, the inventory build over the last six weeks has totaled just +100 BCF, which is the smallest seasonal rise since at least 2010. (Reuters) 

Next week's EIA storage data is being forecast as a build of 36 BCF, as per a Reuters survey average, while Celsius Energy is forecasting a build of 40 BCF. These forecasts compare to last year's build of 28 BCF and the 5 year average build of 43 BCF. 

EIA commentary re the end of season storage from their NG Weekly Update: The average rate of injections into storage is 20% lower 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 10.3 BCF/d for the remainder of the refill season, the total inventory would be 4,081 BCF on October 31, which is 369 BCF higher than the five-year average of 3,712 BCF for that time of year. ( BUT if the 20% less pattern of addition to storage continues, then EOS storage would be 3,925 BCF ). 

Gas power burn demand only reached 41.7 BCF/d Wednesday due to widespread cool temperatures, down -5.5 BCF vs 2023, the largest year on year decline since June. Thursday was just as weak, but power burn will quickly ramp back up above year-go levels this weekend and next week as heat builds, as per Celsius Energy. Will that be good enough to stave off a move below $2 in the futures, we wonder. 

But, it seems that the higher power burn expected next week is not reflected in LSEG's forecasts for demand. On Thursday, LSEG forecast average gas demand in the Lower 48, including exports, will rise from 103.7 BCF/d this week to 103.9 BCF/d next week. Those estimates were down 1.4 BCF from Wednesday and down 1.9 BCF/d from the estimates seen Monday of this week. 

On Thursday, LSEG said gas output in the U.S. Lower 48 U.S. states has slid to an average of 102.3 BCF/d so far in August. This is down from an August average production level of 103.6 BCF/d as of August 7th. 

Gas flows to the seven big U.S. LNG export plants rose to 12.9 BCF/d so far in August, up from 11.9 BCF/d in July. 

Technically momentum remains negative for the NG on the DC chart. Support for the spot futures is seen at 1.965-1.970 and then at 1.913-1.916. Resistance comes in at 2.120-2.126 and then at 2.179-2.187.

Disclaimer

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