Energy Market Update 8-24-2023

Crude is down 29 cents   October Rb is up 90 points     October ULSD is up 43 points

Overview

Energy prices are mixed with crude lower, but products higher. Prices were seen "slipping" overnight as reports have surfaced of the U.S. considering easing sanctions on Venezuelan oil exports, if Venezuela moves toward fair elections. (Reuters)

The markets are anxiously awaiting remarks from Fed Chairman Powell at the Jackson Hole symposium taking place today and tomorrow. This after the August U.S. PMI reading fell unexpectedly Wednesday. The reading at 50.4 was the worst since February. Consensus was for a reading of 52.0, equaling July's level. (FXStreet)

On Wednesday, the Brent/Dubai cash spread widened to record negative levels, as the ongoing OPEC+ cuts and continued demand growth from Asia keeps the squeeze on medium sour and heavier crudes. The spread fell to -$1.84, (Dubai premium) as per Quantum Commodities. Contrary to Goldman Sachs' belief that the Saudis will taper their production cut to 500 MBPD in October, Saudi Arabia will likely roll over a voluntary oil cut of 1 MMBPD for a third consecutive month into October, five analysts said, as per Refinitiv reporting.

With regard to recent news about an Iranian oil production increase, we read the following: "  Iranian Barrels: Crude and condensate flows out of Iran have surged to sanction era record levels in August, supported by higher domestic production and increased buying activity from China as it seeks discounted barrels. Questions remain around fleet restrictions and may limit Iran’s ability to keep the pace longer term." (Market News International)

The US Oil Fund ETF reported its biggest daily outflow since 2020 on Wednesday, with more than $180 million being pulled from one of oil market’s largest exchange traded products. (Bloomberg)

The DOE stats were -as one analyst put it- a mixed bag. Product demand while higher for the week is not at levels that excite. Gasoline demand rose by 89 MBPD to 8.910, making it the 6th week out of the past 7 weeks of a level below 9 MMBPD, which is seen as a level indicating strong driving season demand. (WSJ) Gasoline supplies built by 1.468 MMBBL, versus the expected draw near 1 MMBBL. Distillate supplies built by 0.945 MMBBL, more than the slight build of 0.2 MMBBL expected. Distillate demand rose by 188 MBPD on the week to 3.836 MMBPD. This was pretty much in line with last year, but 265 MBPD below the 2021 level. Crude supplies fell by 6.134 MMBBL, well above forecasts for a draw of near 2 MMBBL. Crude supplies are thus at an 8 month low. (Quantum) This even as crude output rose to its highest level in 3 years. (WSJ) This week production was seen at 12.8 MMBPD.

Technicals

Crude Oil and ULSD are experiencing inside days. But, October ULSD shows a supportive pattern with positive momentum and the past 3 sessions' lows in the 3.0705-3.0738 area.

Resistance for the October ULSD lies up at 3.1405-3.1429.

October RB sees support at 2.5359-2.5364. Resistance lies at 2.6005-2.6010.

Spot WTI futures see support at 77.62. Resistance is seen at 79.59-79.65. The gap to 80.10 on the DC chart remains above.

Natural Gas- October NG is down 5.3 cents

NG is lower as relief from triple-digit, record heat is ahead for the Plains, Midwest and parts Of The South. Cooling off is seen by the weekend. But for today the Mid-Continent power provider expects record usage.

Likely also weighing on NG is the fact that TTF prices have gapped lower today as an agreement seems in place between the union and Woodside Petroleum. The unions are considering a "strong offer" from Woodside. Yet, the union has voted to take action at Chevron's facilities in Australia, which could range from refusing to load tankers or vessels with LNG to complete work stoppages, according to a statement from the union on Thursday. The Chevron facilities supply 5% of the world's LNG. (Reuters) September TTF has a high today (as of 8:30 AM EDT) of 34.00 Euros/Mwh, which equates to $9.96. The low seen Wednesday was 35.025 Euros/Mwh. Two days ago the TTF high was 44.80 Euros/Mwh, which equates to $13.13/MMbtu. In addition, European wholesale power prices on Thursday dropped as temperatures eased and demand fell while more wind power supply was expected on the day-ahead. (Reuters)

Today's EIA NG storage data is seen as a build of 29 to 33 BCF. This compares to last year's build of 54 BCF and the 5 year average build of 49 BCF.

Power generators this summer have used more NG. In a report seen yesterday, U.S. power producers increased output of electricity from natural gas by more than from clean power sources in the opening eight months of 2023, as electricity firms grappled with low wind speeds and heavy demand from power-hungry air conditioners. Generation from natural gas climbed by over 10%, widening gas' lead as the country's main source of electricity. U.S. generation from coal declined by 21% through Aug. 20 from the same period in 2022, demonstrating continued cuts to coal use by power producers to reduce pollution from the sector. (Reuters)

Japanese utilities used more gas of late due to higher A/C loads due to this summer's heat. LNG stockpiles held by Japanese electric utilities hit more than one-year lows, as per data released by Japan's industry ministry on Wednesday. The utilities stockpiles are the lowest level since April 2022. Electric utilities in general hold about a half of the country's LNG inventories. A Japanese industry ministry official said he believes the fall (in inventories) is temporary and does not pose a threat of LNG shortage. (Natural Gas World)

Over the past few sessions, a couple of colleagues have proferred that we have a range for NG spot futures of $2.25 to $2.75. One colleague said we need to see another set of (market) drivers to jar us out of the range. Another colleague suggests that the winter strip is valued too greatly against the front. He sees October/December narrowing to 86 cents. Current value is near 95 cents.

Prices have fallen to their lowest value seen since mid-June. NG for October sees support at 2.492-2.496. Resistance above comes in at 2.625-2.629 and then at 2.673-2.674. Momentum remains negative.

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