Energy Market Update 9-2-2024

Energy Market Update 9-02-2024 

Crude is down 8 cents         RB is down 3.39 cents        ULSD is down 1.15 cents

Overview

Most of the overnight crude prices were lower on the back of disappointing Chinese PMI data and the Friday report that OPEC+ will bring back some production as previously planned.

The official Chinese government PMI seen over the weekend disappointed falling to a 6 month low. The reading was 49.1 for August, down from July's reading of 49.4. The forecast was for a reading of 49.5.

Today's private sector Chinese PMI was better than expected. The Caixin/S&P Global manufacturing PMI rose to 50.4 in August from 49.8 the previous month, surpassing analysts' forecasts in a Reuters poll for a reading of 50.

The Eurozone PMI for August was unchanged from July at 45.8. This beat an estimate of 45.6, but manufacturing in Germany and France remained weak. The Chief Economist at Hamburg Commercial Bank said that "business conditions are worsening at the same solid pace for three straight months, pushing the recession to a gruelling 26 months and counting...(However), the deflationary phase in the goods sector might be coming to an end. For the first time since April of last year, selling prices rose, driven by France, the Netherlands, Greece and Italy," He adds that this may complicate the ECB's efforts to reduce interest rates. (Seeking Alpha) Reuters commentary adds : "The (Euro) region’s manufacturers are still struggling with the increase in gas and electricity costs since Russia’s renewed invasion of Ukraine in 2022 as well as soft demand after the end of the post-pandemic boom."

A WSJ survey has seen Brent & WTI price forecasts lowered for Q3 & Q4 of this year. Brent's forecast is at an average of $83.86 and $83.19 a barrel in the third and fourth quarter of this year, respectively, while WTI is seen at $79.52 and $78.85 a barrel. The Brent forecasts are down $2.60 and $3.08 respectively from July's forecasts. The WTI forecasts are down $2.40 and $3.00 respectively from last month's estimates.

Friday's report from Reuters re the OPEC+ increase reads as follows: Eight OPEC+ members are scheduled to boost output by 180 MBPD in October, as part of a plan to begin unwinding their most recent layer of output cuts of 2.2 MMBPD while keeping other cuts in place until end-2025. Many news wire reports point to the current production losses out of Libya as providing OPEC+ some cushion to raise its output. OPEC had previously communicated that it could pause or reverse the production hikes if it decides the market is not strong enough. Two of the sources said that future output hikes will be decided on a month by month basis. OPEC+ does not have any formal talks scheduled until top ministers on a panel called the Joint Ministerial Monitoring Committee meet on Oct. 2. The JMMC can make recommendations to the wider OPEC+ group.

U.S. oil consumption slowed in June to the lowest seasonal levels since the coronavirus pandemic of 2020, data from the U.S. Energy Information Administration showed on Friday. Product supplied of crude oil and petroleum products, EIA's proxy for demand, fell 2.7% month over month to 20.25 MMBPD in June. That is the lowest for June since 2020. The sharp decline comes after consumption rose to a seasonal high of 20.80 MMBPD in May. Distillate demand was also at its seasonal lowest since 2020, the EIA data showed. Consumption of distillate fuel oil, which includes diesel and heating oil, fell 4.9% from May to 3.59 MMBPD in June. Gasoline demand fell 1.7% month over month to 9.12 MMBPD in June, EIA said. (Reuters)

While Libyan exports remain halted, the Arabian Gulf Oil Company has resumed output at up to 120 MBPD to meet domestic needs, engineers said on Sunday after the standoff between the factions shut most of the country's oilfields. (Reuters) Platts puts the restored amount of crude oil production at 230 MBPD, designed to meet domestic fuel shortages. As of Friday, Aug. 30, the National Oil Company said 63% of Libyan production had been lost, due to the shutdown. That equates roughly to 737 MBPD, based on the total output of 1.17 MMBPD.

Saudi Arabia is expected to cut prices for most of the crude grades it sells to Asia in October after Middle East benchmark Dubai slumped last month, industry sources said on Monday. The October OSP for flagship Arab Light crude is expected to fall between 50 and 70 cents a barrel, three of five refining sources said in a Reuters survey, to track a similar trend for Dubai price spreads last month. Weak refining margins in China are also seen as a factor for the OSP reduction. (Reuters)

Ukraine struck a major oil refinery in Moscow. Moscow's Mayor said one of the drones that struck the Moscow refinery had caused damage to an "adjacent technical facility" at the plant. He added that there were no casualties and the functioning of the plant hadn't been affected. The Gazprom-owned refinery in Moscow is one of Russia's largest, and any damage to its operations could cause further disruption to Russia's exports of fuels, WSJ reporting adds.

The Gasoline retail average in the U.S. has hit a fresh low since March 1rst today at $3.331. One month ago the national average was $3.481 and one year ago it was $3.815.

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

CFTC data issued Friday showed money managers added net length of 8,918 contracts in WTI on ICE/CME combined in the week ended Tuesday August 27. RB net length rose by 697 contracts. ULSD net shorts fell by 4,105 contracts as shorts were covered.  The net short total thus fell to 20,443 contracts. Money managers added 18,875 contracts to their net longs in Brent.

Technicals

Momentum remains negative for the energies. RB and WTI have fallen to fresh lows for the recent sell off on their respective DC charts.

In RB, the DC chart shows 2 important things. (1) There is a rollover gap from today's October' session high of 2.0936 to the expired September contract's low from Friday of 2.2028. (2) The RB spot futures contract is currently trading below the lower DC chart bollinger band, which intersects at about 2.1025. Support lies at 2.0494 and then at 2.0298 as per lows from the October daily chart. Resistance comes in at 2.0909-2.0913, tested with the overnight high of 2.0936. Above that resistance lies at 2.1145-2.1160.

WTI spot futures have resistance at 74.46-74.56 and then at 75.03-75.07. Support comes in at 72.82-72.83, which is just below the overnight low of 72.89. Below that support is seen at 72.20.

ULSD for October sees support at 2.2468 and then at 2.2295-2.2318. Resistance lies at 2.2961-2.2978. For now the spot futures are having an inside trading day versus the range seen for the expired September spot futures from Friday's activity.

Natural Gas-- NG is up 6.5 cents

NG futures are higher today even as weather demand will be weak in the coming 10 days with many US locations to see below average temperatures as fall season is starting. Support is likely coming from strong LNG feed gas demand, lower production, and even from some short covering, we believe.

The Baker Hughes rig count dropped another -2 rigs to 95 rigs this week, down -17% vs 2023. This is the lowest count since Apr 23, 2021 but, with improved drilling technology in recent years, this is not an apples-to-apples comparison when it comes to future production, as per Celsius Energy analysis.

CFTC data showed money managers net short positioning having increased by over 30,000 contracts in the week ended Tuesday August 27. This raised their net short total position to 70,707 contracts.

"A Hot West vs. mild Central/East temperature alignment seems to be taking shape across the USA which may last for much of September," as per one meteorologist. In the next 10 day period, Birmingham, AL will see temperatures anywhere from normal to 10 degrees below normal. Houston will see highs of minus 3 degrees to normal over the next 10 days. Washington, DC will have highs near normal to -6 degrees over the next 10 days.

LSEG said gas output in the Lower 48 U.S. states slid to an average of 102.4 BCF/d in August, down from 103.4 BCF/d in July.

On Friday, LSEG forecast average gas demand in the Lower 48, including exports, would fall from 105.9 BCF/d this (past) week to 103.0 BCF/d this coming week and next week. The forecast for this past and coming week was 0.2 BCF/d higher than LSEG's outlook on Wednesday.

Gas flows to the seven big U.S. LNG export plants rose to an average of 12.8 BCF/d in August, up from 11.9 BCF/d in July. (Reuters)

One analytical firm has detailed how speculative length in TTF has risen dramatically in the past few months. Total open interest on TTF breached 3,000 TWh for the first time in late August, which is a mind-boggling amount of gas: equivalent to 307 billion cubic meters or 10.2 trillion cubic feet, which is more than the entire annual gas demand of the EU in 2023. Open interest is now 18 times greater than underlying supply of gas in the Dutch market, a feat attributable in large part to the influx of speculative capital over the last 18 months.

Momentum is positive for NG on the DC chart. Resistance lies above at 2.216-2.218 and then at 2.276-2.278. Support lies at 2.131-2.134, which is just below the overnight low of 2.137.

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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