Energy Market Update 9-27-2023

Crude is up $1.75  November RB is up 4 cents   November ULSD is up 1.3 cents

Overview

Energies are higher "on looming supply/demand crunch", to quote a Quantum Commodities headline.

Spreads in the crude oil have strengthened considerably today with Cushing supplies in the API data having fallen for the 12th week out of the past 13. "U.S. crude stockpiles at the key Cushing, Oklahoma, storage hub are at their lowest in 14 months due to strong refining and export demand, prompting concerns about the quality of the remaining oil and the potential to fall below minimum operating levels, traders and analysts said," as per Refinitiv reporting. "If you let the crude (level) drop too low, the crude can get sludgy and you can't get it out. What does come out - you won't be able to use," said a sales director at energy consultants Wood Mackenzie. High interest rates also have pushed up the costs for storing oil, encouraging outflows, Refinitiv adds.

Refiner maintenance will ease some of the draws on Cushing crude in the very near term it is believed, but refiners are seen exiting maintenance quickly to keep up with product demand. Planned maintenance is going to peak in mid-October and cut refinery crude intake by some 1.8 MMBPD, which is greater than last year's fall maintenance peak of 1.5 MMBPD, says IIR Energy.

API             Forecast         Actual

Crude Oil     -0.6/-2.2         +1.58

Gasoline      -0.1/-0.8         -0.07

Distillate     -1.0/-2.0          -1.7

Cushing         -1.0             -0.8

Runs             -0.5%            n/av

China's oil products exports are set to rise in October as state-owned refiners capitalize on lucrative margins and some western demand, while international flights recover, industry sources and analysts said. (Refinitiv) Quantum commodities reports that the prospect of more Chinese fuel exports are pressuring Asian gasoline crack margins, which are near 2023 lows despite the Russian fuel export ban. Cheaper crude from Iran, Venezuela and Russia have incentivized higher refinery thruput, leading to more exports from China.

Technicals

Momentum for WTI seems poised to turn positive as the recent highs are not far from current pricing. The December 23 vs December 24 WTI spread has soared to a fresh contract high over $11.

Spot WTI futures have resistance at the recent DC chart high at 93.74. Support is seen at 89.31-37. November futures have made a fresh high for the daily contract this morning. The high today is 92.52, eclipsing the recent high on the daily chart for November at 92.43.

November ULSD sees support at 3.1523-3.1541. Resistance lies at 3.2310-3.2325.

RB for November sees support at 2.5173-2.5187 and resistance at 2.5735-2.5747 and then at 2.5950-2.5975.

Natural Gas --November NG is up 5.4 cents

NG prices have rebounded today - led by the November contract- with cooling demand forecasts having risen overnight. Today is the last trading day for the October NG futures. NGI describes NG as having "choppy trading".

Feed gas volumes are said to have rebounded today. Celsius Energy says volume today is near 12.0 BCF, up from under 11 BCF yesterday morning. Gains will be driven primarily by Sabine Pass, Celsius adds.

TTF prices are lower again today, after TTF spot futures prices gave back almost all of Monday's gains on Tuesday. Reuters commentary spoke of ample storage, new renewables power capacity and reduced industrial demand as cushioning worries over a loss of Russian gas supply. The October futures expire tomorrow Thursday, having seemingly carved out a range recently between 34 Euros and 45 Euros. October is currently worth 39.70 euros/Mwh and November is worth 43.60 Euros/Mwh. Will November be able to scale over the 49.225 high seen 1 month ago for the October contract?

With November becoming the spot month for NG futures tomorrow, we are hearing colleagues suggest that the contract could slip to $2.50, given that that has been the low end of the trading range for the spot futures contract over the past month. The pessimism is based on a belief of an erosion of a winter strip premium. This winter strip erosion has been seen in Europe as storage there has become almost full and floating storage has increased with a belief there that the floating inventory will be released come the winter. News wire accounts talk of holders of such floating inventory likely having taken advantage of the very wide premium that existed in the forward curve in prior months. The attached chart shows the TTF January premium vs October having shrunk during the past week to its narrowest value in 5 months. The value is near 9.65 Euros. The high earlier in the month was near 19 Euros.  A similar pattern was seen last week in the NG Oct vs Jan spread. The premium for January NG narrowed to 76 cents, which was the smallest premium seen since last December for the January vs October.

One colleague has suggested that the winter strip could fall to $3. it was valued near $3.30 in early trading on Tuesday; it ended the day at $3.247, down 8.3 cents on the day. El Nino is a worry--see the comments below.

A Reuters analyst spoke of a strong El Nino weather pattern possible this winter. In the last 50 years, strong El Niño conditions have cut U.S. winter heating demand by 7% on average, which if it happened again could leave the market with a large inventory surplus at the end of winter 2023/24, he adds.

Technically, November's momentum has turned positive after the contract made a fresh contract low yesterday, below $2.80. Yesterday's settlements on the CME for NG futures show only the October 2023 settling higher on the day among the first 24 contract months. Support for November NG futures lies at 2.832-2.834 and then at yesterday's low of 2.796. Resistance comes in at 2.973-2.976.

Disclaimer

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