Energy Market Update 9-10-2024

Crude is down 39 cents       RB is up 14 ticks          ULSD is down 88 ticks

Overview

Crude oil prices are lower today as demand concerns linger, despite August's Chinese crude import data seen overnight that was the strongest in the past year and an S&P survey showing OPEC+'s August crude output fell by 300 MBPD. Libya is said to be bringing back exports and oil production, which may also be weighing on prices.

China's imports of crude oil rose to a 12-month high of 11.61 MMBPD (49.1 million metric tons) in August, rebounding 16% from a 22-month low of 10.01 MMBPD in July, data from the General Administration of Customs showed Sept. 10. "Independent refiners' runs have been on the rise for six consecutive weeks since late July, echoing the decline of crude prices." as per a Rystad Energy analyst. Quantum Commodities also cited peak summer demand for the strong imports. August's imports though were down 7% versus year ago level. This year's lower seasonal is cited in news wire commentary as raising some demand concerns.

OPEC+ crude output fell by 300 MBPD to 40.73 MMBPD in August, as maintenance in Kazakhstan and outages in Libya hit the group’s production, the Platts OPEC+ survey from S&P Global Commodity Insights showed. But, OPEC+'s production was still 327 MBPD above their quota target in August. OPEC says that their production in August fell by 197 MBPD to 26.59 MMBPD, led by the 219 MBPD drop in Libyan production.

OPEC, in their monthly report released today, reduced their demand forecasts for 2024 and 2025. They see global oil demand in 2024 growing by 2.03 MMBPD, which is down 80 MBPD from last month's forecast. In 2025 they see global oil  demand growth at 1.74 MMBPD, which is down 40 MBPD from their prior forecast. Total demand is estimated to reach 104.2 MBPD in 2024 and 106 MMBPD in 2025. OPEC left their Non OPEC supply growth estimates unchanged for this year and next.

Libyan crude exports have resumed loading from most of the country's eastern ports and some oil fields have received orders to bring back production, according sources and tanker tracking data, as Libya's rival regional governments move closer to a political deal under UN-brokered talks. Libya's Brega, Es Sider and Marsa El Hariga ports are all open for tankers to berth and load.  (Platts)

Demand concerns have been loud at the annual Asia-Pacific oil conference.  ""China's annual oil demand growth has slowed from around 500-600 MBPD in the five years before the COVID-19 pandemic to 200 MBPD now"", Goldman Sachs' oil research head told the APPEC conference in Singapore on Monday. "The seasonal refinery runs increase for September and October will not be as strong as last year, owing to the weak road fuel transport demand on the back of greener substitutions," as per Rystad analysis. Analysts estimate that the increasing use of LNG in trucks in China will displace around 110-140 MBPD of diesel demand in 2024 and 2025. (LSEG)

Oil-and-gas producers in the Gulf of Mexico started shutting some platforms and evacuating workers ahead of the expected hurricane. At least 125 MBPD of oil capacity is at risk of being disrupted, ANZ Research analysts say, citing data from the National Hurricane Center. (WSJ)

Speculative net short positions in ICE low sulfur gasoil futures rose by 11,903 contracts to a total of 38,718 contracts in the week to Sept. 3, according to ICE data. This was very much due to new short positions. (Platts)

In Europe, the diesel and jet markets are seeing more inflow of product than the existing demand can handle, hence some of the Gasoil futures weakness seen last week, as per Platts reporting. Diesel and gasoil stocks in the ARA hub gained 1.4% in the week ended September 5 to 2.445 MMt, the highest since May 2023, marking a sixth week of consecutive builds, according to the oil analytics firm Insights Global data. ""The demand is not there to overcome the whole amount of oil that is around, there is a bunch of unsold LR2s, Suezmaxes, VLCCs in the second half of September," one diesel trader said.

European jet fuel differentials fell last week as strong supply offset upward pressure from healthy aviation demand. Imports of jet fuel from the East of Suez in September are expected to remain heavy at a minimum of 1.8 million metric tons, data from S&P Global Commodities at Sea showed. But, "Summer aviation demand has been healthy and will remain strong until the end of October," said a source. The weakness in diesel is also fueling weakness in jet fuel, with refineries maximizing jet output resulting in high volumes from the East of Suez and the arbitrage from the US opening after five months of seeing no flows.

Morgan Stanley on Monday cut its Brent price forecast for fourth quarter 2024 by $5 per barrel to $75, a level it now sees for all quarters next year. It had previously been forecasting Brent to average $78 in the first quarter of 2025 and to decline steadily throughout the year to $75 in the fourth. It sees WTI prices at $70 a barrel until the fourth quarter of 2025. (Reuters) Goldman Sachs has trimmed its outlook for Brent crude-oil prices even as it suggested prices have overshot to the downside. Goldman's revised outlook generally reflects a $1 to $2/bbl reduction to Brent price targets over the next 15 months or so and the bank stressed in a report to clients that the risks are skewed to the downside. Goldman's commodities team forecast a $70-$85/bbl range for Brent through the end of next year, including a December price of $74/bbl. It said modestly lower OPEC+ supply will be offset by "ongoing softness" in Chinese demand and a quicker- than-expected recovery output from Libya. The market will likely move to a 600 MBPD surplus in the first quarter, it said, before that widens to 1.4 MMBPD in the second quarter. For 2025, Goldman put the average price for Brent crude at $77/bbl in the first quarter, $76/bbl in 2Q, $75/bbl in 3Q and $74/bbl in 4Q. (WSJ)

Technicals

Technically RB & ULSD & Gasoil are having their 2nd straight inside trading session, thus staying within the larger price range seen Friday--thus the next move is not quite clear as to whether it is up or down. Momentum on the DC charts for all the energies remains oversold.

WTI spot futures see support at the Friday low at 67.17. Resistance comes in at 70.10-70.13.

October RB support lies at the prior 2 sessions' lows at 1.8964 and then 1.8757. Resistance lies at the 1.9593 area. The RSI below 30 suggests a still oversold contract. Notable from Monday's activity is the large increase in open interest in RB futures on the CME. The increase of 13,946 contracts looks to us to be new length, seen mostly in the November and December contracts. 

ULSD for October sees support at the Friday low at 2.1027. Resistance comes in at the prior 2 highs at 2.1651 and then at 2.1885.

Natural Gas --NG is up 6.9 cents

October NG is higher, as it seems that the market is expecting less disruption from Hurricane Francine than prior as the storm looks to be tracking a bit further east -thus away from Texas --with landfall expected Wednesday along the Louisiana coast. The more eastward track of Francine decreases the direct threat to the Cameron, Sabine Pass, & Calcasieu LNG export facilities, but increases potential impacts to New Orleans.

Ahead of the forecasted storm that is expected to reduce some feed gas demand later in the week, on Sunday on a daily basis, LNG feedgas hit a three-month high. The average volume of feed gas for September is said to be 13.4 BCF/d so far, as per Reuters reporting. On Monday. feed gas volume was at 13.5 BCF/d, up 1.3 BCF/d from year ago level. One colleague suggests that the feed gas strength was due to "LNG guys packing the tanks for the expected downtime or inability to load."

A bearish oil price view for 2025 is likely to have an overhang on LNG trading in Asia, but the market will still be dominated by supply-demand factors, according to market participants at S&P Global Commodity Insights’ APPEC 2024 conference in Singapore. The contracted Asian LNG market is largely oil-linked and executives at the conference said oil prices could drop to the $60-$70/b range in the coming year due to growing supply from OPEC+ and the US, and easing demand in China. This equals around $8-$9/MMBtu for LNG cargoes at an oil slope of around 13%, which is highly competitive with spot LNG prices. Platts assessed the JKM, the benchmark price for LNG cargoes delivered to Northeast Asia, for October at $13.12/MMBtu on Sept. 9. There is thus incentive for oil linked LNG buyers to "divert" volume into the higher prices spot JKM LNG market.  (Platts)

Reuters reports that u.S. natural gas storage inventories have increased by just +148 BCF over the eight weeks ending on August 30. It was the smallest seasonal addition since at least 2010 and just 40% of the average increase of +369 BCF in the ten years between 2014 and 2023. Stocks were still +316 BCF (+10% ) above the prior ten-year seasonal average but the surplus had shrunk progressively from +538 BCF (+20% ) eight weeks earlier on July 5. This week's EIA storage data is seen shrinking the 5 year average surplus even further. Estimates we have seen are calling for a build of 47 to 51 BCF. This is below the 5 year average build of 67 BCF. Last year's build for this week was 50 BCF.

Technically our support at 2.131-2.134 was tested overnight with a low of 2.125. Resistance lies above at the prior 2 weeks' highs at 2.294-2.301. If pierced, next resistance lies at 2.343-2.350. Momentum is now neutral on the DC chart basis.

Disclaimer

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