Energy Market Update 8-7-2024

Crude is up $1.51 RB is up 2.12 cents ULSD is up 4.04 cents

Overview

Energy prices are higher on worries over Mideast tension and some improvement in financial markets, as per commentary from Platts. The uptick today comes despite disappointing API data from last night and despite weak Chinese crude import figures seen overnight.

API Forecast Actual

Crude Oil -0.5/-1.48 +0.176

Gasoline -1.0/-2.4 +3.313

Distillates -0.7/+0.329 +1.217

Runs -0.5/+0.8% n/av

Cushing n/av +1.074

Chinese crude oil imports in July fell to 10.01 MMBPD, the lowest since 9.83 MMBPD in September 2022. July crude imports were down 11.8% from last month, when they were 11.35 MMBPD. July's imports were down 3.1% versus year ago level. For the first 7 months of 2024, crude imports were 10.89 MMBPD, down 2.4% from 2023 level. Chinese consultancy Oilchem estimated independent refiners operated at 56.11% of capacity in July, which is the lowest in three years and down 7.3 percentage points versus a year earlier. Faltering demand, particularly for diesel fuel, also capped state refiners' throughput. (Platts/Reuters)

Financial stocks gained with Stoxx Europe 600 Index rising 0.8% and futures on both S&P500 and Nasdaq 100 recovering after the underlying indexes rose by more than 1% at the close on Aug.6. In particular, Bank of Japan (BOJ) strived to reassure the market after the Nikkei rally early in the week with BOJ’s deputy Governor Shinichi Uchida saying that “the central bank will not hike interest rates when financial markets are unstable,” leading to 1.2% growth in Nikkei average. This spilled over to the energy markets, as per Platts reporting.

Mideast tension was amped up by comments from a Hezbollah leader. On Aug. 6, the leader of the Iranian-backed Hezbollah group, Hassan Nasrallah, said in a televised speech to mark one week since Fuad Shukr’s killing that the retaliation would be “strong” and “effective”. (Platts)

The EIA released its Short Term Energy Outlook (STEO) on Tuesday. They see the Brent price returning to between $85/b and $90/b by the end of the year. They say that "rising crude oil prices in our forecast are the result of falling global oil inventories." "We estimate global oil inventories decreased by 0.4 MMBPD in 1H24 and will fall by 0.8 MMBPD in 2H24." OPEC+ production cuts are cited as a main factor for the inventory fall. Yet, the EIA lowered their Brent average price forecast for 2024 to $84.44 from last month's forecast of $86.37. WTI is seen averaging $80.21 in 2024. This is down from July's forecast of $82.03. We forecast that global consumption of liquid fuels will increase by 1.1 MMBPD in 2024 and 1.6 MMBPD in 2025, down from a forecast of 1.8 MMBPD in our previous STEO. Most of the reduction in our oil consumption forecast is in China, where we expect slowing economic growth will continue to reduce diesel consumption. U.S. crude output forecasts have been reduced slightly from last month. In 2024 U.S. crude production is seen at 13.23 MMBPD, down from last month's estimate of 13.25 MMBPD. In 2025 production is seen at 13.69 MMBPD, down from July's estimate of 13.77 MMBPD. The EIA's Global oil demand forecast for 2024 was unchanged from last month at 102.9 MMBPD. The 2025 forecast was lowered slightly to 104.5 MMBPD versus last month's estimate of 104.7 MMBPD. Global oil supply for 2024 is seen unchanged from last month's forecast of 102.4 MMBPD. For 2025 global supply is seen averaging 104.4 MMBPD, down from July's forecast of 104.6 MMBPD. The EIA writes : "Jet fuel consumption is rising based on increased air travel. In our August STEO, we forecast 3% more U.S. jet fuel consumption in 2024 compared with 2023 and growth of another 3% in 2025. In our forecast, U.S. jet fuel consumption exceeds 2019’s pre-pandemic level in 2025. We expect that relatively strong jet fuel consumption will cause jet fuel prices to rise by more than prices for other fuels in 2025."

Technicals

Momentums are negative for the energies despite the rally of the past 24-36 hours.

RB spot futures see support at the overnight low at 2.2962-2.2985. Resistance lies at 2.3733 and then at 2.3935-2.3945.

ULSD for September sees support at the 2.3019 area. The overnight low is 2.2850. Resistance lies at the 2.36 area and then at 2.3764-2.3778.

WTI for September sees support at the overnight low at 72.48-72.58. Resistance lies above at the $76 area.

Natural Gas--NG is up 8.5 cents

NG spot futures are up further today as support has come from short covering ahead of the double index roll that starts today, as well as a modest drop in NG production seen Tuesday. Also supportive is heat in the Western and Southern portions of the U.S. In NGI, their commentary re NG today reads:" Natural gas futures forged further ahead early Wednesday, supported by bargain buying and expectations for a bullish government inventory print." In addition, Reuters has the following headline today : US natural gas producers eye more output cuts as prices sink.

NG is also being supported today by an uptick in next day Henry Hub cash pricing. The price has risen back over $2 for next day, this supports a September NG futures value above the current near $2.10, as the August September futures spread expired at 16 to 18 cents premium for September.

The EIA in their August STEO issued Tuesday reduced their U.S. dry gas production forecasts for 2024 and 2025 and raised their demand forecast for 2024 slightly. In 2024, NG production is seen at 103.3 BCF/d, down from July's estimate of 103.5 BCF/d. In 2023, U.S. NG production was 103.8 BCF/d. (Reuters) In 2025, production is seen at 104.6 BCF/d, down from July's forecast of 105.2 BCF/d. U.S. gas demand for 2024 is seen averaging 89.8 BCF/d, up 0.4 BCF/d from July's estimate. 2025's demand forecast was left unchanged at 89.2 BCF/d. The EIA wrote : "Because of falling consumption and flat production, we expect the Henry Hub price to stay relatively low, remaining below $2.50/MMBtu through October. However, we expect seasonal increases in consumption for space heating, along with a ramp up in LNG exports from new facilities in Texas and Louisiana, will push the Henry Hub price to average about $3.10/MMBtu from November through March." The EIA dropped their 2024 NG price forecast to $2.30, from July's estimate of $2.49. The price forecast for 2025 was reduced slightly to $3.27 from July's estimate of $3.29.

Lower-48 state dry gas production Tuesday was 100.8 BCF/d (-1.6% y/y), according to Bloomberg data. This is down from Bloomberg's estimate from July 26 of 103.9 BCF/d. (Barchart.com)

Reuters in the article cited above regarding producers cutting output cites 2nd quarter earnings calls from the top independent U.S. producers.

Open interest for NG futures on the CME shows a total drop of just under 20,000 contracts for the September thru November strip from Tuesday's activity. We see this as mostly short covering given Tuesday's price action.

The rally of the past 24 hours has turned NG DC chart based momentum positive. Resistance is seen at 2.149-2.155 and then lightly at 2.214-2.218. Support comes in at 1.991-1.994 and then at 1.913-1.920.

Disclaimer

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