Energy Market Update 8-28-2024

Crude is down 73 cents      October RB is down 2.49 cents       October ULSD is down 2.96 cents

Overview

Energies are lower as demand concerns are outweighing the bullish API data that saw draws across the board.  The demand concerns of weak refining margins are outweighing the bullish factors seen earlier in the week of Libyan oil production loss, Mideast tension and an expected reduction in U S interest rates.

API               Forecast            Actual

Crude Oil       -0.7/-2.98          -3.407

Gasoline        -1.6/-2.17         -1.863

Distillate       +0.58/-1.1         -1.405

Runs            -0.5/+0.2%         n/av

Cushing           n/av               -0.486

The crude oil stock draw was the 7th in the past 9 weeks.

Refining margins are weak globally. Evidence of the weak margins are the widening contangos in ULSD & Gasoil and weakening backwardation in RB.

The September/December ULSD spread has widened to a contango of -5.3 cents. The spread is currently attacking the lower bollinger band on the daily chart. The band lies currently at -5.04 cents.

The loss of Libyan production has seen the sweet sour crude differential widen favor of the sweet crude. Platts assessed the Brent-Dubai exchange of futures for swaps contract at $2.86/b at the Aug. 27 London close, its strongest since Oct. 4, 2023, when it was at $2.89/b.

Russia's seaborne oil flows rebounded to the highest in almost two months, boosted by a recovery in shipments from its Sakhalin Island projects in Asia. The nation’s four-week average crude exports increased to 3.26 MMBPD in the week to Aug. 25, rising by 60 MBPD compared with the previous period. Its weekly shipments, which are far more volatile, jumped 390 MBPD. Russia’s oil refineries boosted runs in the first three weeks of August. If the processing rate is sustained throughout the month, it will be the highest average monthly level since July 2023.  (Bloomberg)

A Reuters analyst has suggested that the steep reduction in U.S. interest rates expected by the end of 2025 " implies a rapid loss of momentum and a relatively hard landing for the U.S. economy", saying further that "The sharp deterioration in the outlook explains why oil prices have come under sustained pressure since July." That is in addition to the well documented Chinese demand concerns seen over recent weeks.

Despite the comments from Iran's leader regarding possible nuclear talks: "Iran Nuclear Deal 'Off the Table,' U.S. Affirms", reads an Oil Price headline. Iran's new foreign minister argues that the deal needs to be revised due to expired clauses and changing global circumstances.

Technicals

Momentums remain positive, but those for RB & ULSD look to be cresting.

WTI support at 73.98-74.06 has been tested with a low of 73.82. Next support below lies at 72.82-72.83. Resistance lies at the overnight high at 75.95-75.97 with 77.09 being resistance above that.

October ULSD has support at the recent lows at 2.2497-2.2500. Resistance lies at 2.3216-2.3231, just above the overnight high of 2.3195.

October RB support lies at the overnight low at 2.0526 and then at 2.0393. Resistance lies at 2.1109 and then at 2.1309-2.1329.

Natural Gas-- October NG is down 4.8 cents

Natural gas prices are lower as the September contract expires today with fall season's lower demand in the market's cross hairs.

Celsius Energy projects that today will see the peak of the cooling season demand for Mid-Atlantic Gas Weighted Degree days as we then head to September. Temperatures today reaching triple digit highs along much of the Eastern seaboard  will fall back over 20 degrees after Labor Day next week.

As the September futures are set to expire today, one analyst says that  " final settlement sessions have posted losses for the expiring front month in seven straight months,”. (WSJ)

Per Tuesday’s early-cycle pipeline data, natural gas production receipts on the newly opened Mountain Valley Pipeline rose slightly to a new high of 1.27 BCF/d, or 63.3% of capacity. (Celsius Energy)

Total production on Tuesday was under 102 BCF/d, down -1.1 BCF/d vs last year. While on the demand side, the power burn was up almost 6 BCF over year ago level, as per Celsius Energy. With intense heat across the Midwest & reasonably weak wind generation, power burn was seen again topping 50 BCF/d Tuesday, up more than 6 BCF/d vs 2023, as per Celsius Energy reporting.

October NG support at 2.041-2.045 has been pierced with support below this at the contract low at 1.991. Resistance lies at 2.140-2.147. Momentum is not yet oversold, even as the contract has settled down 6 sessions in a row.

Disclaimer

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