Energy Market Update 8-26-2024

Crude is up $2.24         October RB is up 3.88 cents         October ULSD is up 4.95 cents

Overview

Energies are higher as geopolitical tension was raised over the weekend as Hezbollah and Israel exchanged attacks along Israel's northern border, and with Libyan production in jeopardy. Energies are also continuing to ride the wave seen late last week of an oversold market technically, which was then supported by indications from Fed Chair Powell Friday of an imminent rate cut.

Israel and the Lebanese militant group Hezbollah traded heavy fire early Sunday but backed off from sparking a widely feared all-out war, as both sides signaled their most intense exchange in months was over. In one of the biggest clashes in more than 10 months of border warfare, Hezbollah fired hundreds of rockets and drones into Israel on Sunday, as Israel's military said it struck Lebanon with around 100 jets to thwart a larger attack. (AP/Reuters)

Libya’s eastern government announced the stoppage of all oil production and export after its Tripoli-based rival moved to replace the leadership of the central bank.  The “force majeure” applies to all fields, terminals and oil facilities, authorities said Monday in a statement on Facebook. The country produced a total of about 1.15 MMBPD of oil last month, according to data compiled by Bloomberg. Since then, the biggest oil field called Sharara, which was pumping nearly 270 MBPD, has halted. The east is home to the Sirte basin where most of Libya’s oil reserves and four of the country’s oil export terminals are located. Analysts at Citi Research warn that the potential disruption of up to 900 MBPD of light, sweet crude oil from Libya could push Brent crude oil prices into the mid-$80s per barrel.  (Bloomberg/Investing.com)

Further complicating the global oil market dynamics is Kazakhstan's potential adoption of a new compensation plan, which could reduce its CPC Blend exports by over 200 MBPD in October 2024. This reduction would primarily affect competition with WTI flows. (Investing.com)

China's state-owned Sinopec aims to lower its crude throughput by 1.6% in the second half of 2024 to 5.03 million b/d (or 126 million metric tons) from the first half, according to the company’s interim report released on Aug. 25, suggesting the country’s crude imports may be capped for the remainder of the year. Sinopec refined 5.12 MMBPD, or 126.69 metric tons, of crude in the 6 months from January through June. That means both the target for H2 and the actual throughput in H1 were below the annual target of 5.22 million b/d for 2024 which was set in late March. Sinopec is the top refiner in the world in terms of its comprehensive processing capacity of 5.78 MMBPD. The company's crude throughput accounted for 35.2% of China's total in H1, and it relied on about 86% of the feedstocks from imported crudes, according to the company report and data from the National Bureau of Statistics.  (Platts)

The front-month Dubai cash-futures spread averaged at a premium of 91 cents/b in the week of Aug. 19-23, up from a premium of 76 cents/b over Aug. 12-16. The spread hit an intramonth high premium of $1.15/b on Aug. 23. (Platts)

RB prices are up, even as the U.S. gasoline average at the pump continues to slip. The retail price today has fallen to $3.351, which is the lowest since March 3rd.

CFTC data issued Friday showed money managers reduced their length in WTI on ICE/CME combined by 18,129 contracts in the week ended Tuesday August 20. They did so mostly by liquidating longs on the CME. Speculators reduced their net length in ICE Brent by 8,587 contracts. RB length rose by 3,208 contracts. Money managers added 4,068 contracts to their net short in ULSD, bringing the net short total to 24,548 contracts. ING reports that speculators increased their net short in Gasoil by 26,875 lots over the week to 27,207 lots. "This is the largest net short that speculators have held in Gasoil since May last year. The move was driven predominantly by fresh shorts entering the market. Product markets remain bearish, and while the upcoming refinery maintenance season might provide some support, well-supplied markets are likely to keep sentiment negative." (ING)

Sentiment at German companies edged lower this month, as Europe's largest economy shows little sign of a recovery amid a persistent manufacturing slump. The Ifo Institute's business-climate index fell to 86.6 in August, from 87.0 in July, data showed Monday. It marked the fourth decline in as many months. "The German economy is increasingly falling into crisis," Clemens Fuest, president of the Ifo Institute, said. Companies assessed their current situation as worse, and expectations for the future were more pessimistic, he said. The data comes on top of purchasing managers' survey data published last week that showed weakening confidence. Germany's economy contracted in the second quarter of the year, with economists typically expecting only a sluggish rebound for the rest of 2024.  (Marketwatch)

The Baker Hughes oil rig count was unchanged in Friday's report.

Technicals

Technically the energies have positive momentum.

In WTI futures, support comes in at 75.84-75.85 and then at 75.18-75.23. The overnight low is 75.04, right by highs seen last week of 75.03-75.07.  Resistance at the 77.09 area has been tested with a high of 77.12. Better resistance lies above that at 77.69-77.73.

October ULSD resistance comes in at 2.3817-2.3832. There is a downtrend line that intersects today at about 2.3642, that has been tested with a high of 2.3762. Some support lies at 2.3510-2.3530 and then at 2.3310-2.3316. The overnight low is below that at 2.3265.

October RB has resistance up at 2.1703-2.1711. Support lies at the 2.13 area and then at the overnight low at 2.1231-2.1232.

Natural Gas--October NG is down 3.1 cents

Spot NG futures have tested under $2 overnight with the surplus storage overhang and with the fall shoulder season not so far away, even as summer heat returns to some regions this week.

Meteorologists forecast weather across the country would remain mostly hotter than normal through Sept. 7, as per Reuters reporting Friday. In the early part of this week, some areas of the U.S will experience highs well above average. Chicago will see highs 12 to 13 degrees above average today and tomorrow. Detroit will see highs this week anywhere from 2 to 11 degrees above average. Texas heat, though, has abated with highs now near normal to slightly below normal this week.  "While unseasonable heat will dominate the pattern this week into next weekend driving bullish daily injections, the outlook beyond this week becomes neutral at best.", as per Celsius Energy analysis.

On Friday, LSEG forecast average gas demand in the Lower 48, including exports, would rise from 101.2 BCF/d this (past) week to 103.9 BCF/d this week before sliding to 103.3 BCF/d next week. The forecast for last week was down by 2.5 BCF/d from that seen Thursday.

One analyst suggests :" Market outlook remains bearish as traders see limited chances of a bullish reversal without a production cut." While another analyst says: " Soft Production Levels Keep Supply/Demand Imbalances Tight; Fundamental Under valuations At 1-Year Highs But A V-Shaped Recovery Might Still Not Be Imminent As Sector Heals. "

Tomorrow is the last trading day for the September LN/NG options with the $2.00 strike puts having an open interest of 45,955 contracts on the CME. Will this act as a magnet for spot futures over the next 24+ hours? The $1.90 puts have an open interest of 13,307 contracts on the CME. The $2.10 strike has a total open interest between puts and calls of 29,997 contracts.

We had suggested a rangebound market for NG last week with near $2.00 as the bottom end and the $2.301 high of recent as the upper end. A colleague suggests : "  Natural gas is likely to remain rangebound between $1.80 and $2.50 barring some major weather event "or producers throttling back further on production,".

Momentum remains negative for the NG. Support for the October futures lies at 2.125 and then at 2.083-2.093. Resistance for the October contract comes in at Friday's high at 2.211 and then at 2.243-2.247.

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.

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