Energy Market Update 9-5-2024

Crude is up 67 cents      RB is down 0.39 cents        ULSD is up 2.43 cents

Overview

Crude prices are "cautiously" higher with "fragile" sentiment, as news wire commentary describes prices today. API data showed a larger than forecast draw in crude supplies and the reports of OPEC+ possibly deferring the planned 180,000 bpd hike in October are driving prices higher today.

API                Forecast           Actual

Crude Oil      -0.437/-1.3         -7.431

Gasoline        -0.7/-1.5             -0.3

Distillate       -0.508/+0.5          -0.4

Runs               -0.4%                n/av

Cushing            n/av                 -0.8

The DOE statistics will be released today at 11 AM (EDT), rather than their usual time of 10 30 AM (EDT).

Several news wire accounts point out that Libyan production remains "constrained" with one news account saying production may remain lower into next week. This comes even as an agreement has supposedly been reached that would allow for the restoration of output. (Quantum Commodities)

Citi Group cautioned in a client note that if OPEC+ does not further trim production, average prices could drop to $60/b next year amid sluggish demand growth and increasing supplies from non-OPEC+ producers. (Quantum Commodities) ING suggests that delaying the output hike "might make sense" as they say that the oil balance is in surplus through 2025 (assuming OPEC+ increases supply).

Ahead of Friday's key Non Farm Payroll (NFP) report, on Wednesday data from the Bureau of Labor Statistics showed there were 7.67 million jobs open at the end of July, a decrease from the 7.91 million seen in June. This marked the lowest number of job openings since January 2021. After Wednesday's data, markets moved to price in a nearly 50% chance the Federal Reserve slashes interest rates by 50 basis points by the end of its September meeting, up from a 38% chance the day prior, per the CME Fed Watch Tool.  (Yahoo Finance)

Platts details how Chinese teapot/independent refiners have raised their refinery runs of late as margins have improved. In August, these small refineries increased their utilization by 1.38 percentage points on the month to 50.5%, according to local information provider OilChem, which expects utilization to improve further to 55% in September amid rising refining margins. The average refining margins for processing imported crudes at small refineries nearly doubled from July to August, OilChem data showed. As a result, these small refineries raised their crude imports by 8.8% on the month to 8.33 Million Metric Tons  (61.06 MMBBL) in August and more than doubled fuel oil imports to 842,000 metric tons, Commodity Insights data showed.

Exports of Russian petroleum products fell sharply in August, to a level not seen since the pandemic, due to weaker demand in Asia and a shift towards the domestic market. Russian exports of oil products, including diesel, fuel oil and naphtha, fell to 2.09 MMBPD in August, according to data from S&P Global Commodities at Sea. This level represents a 13% drop on July, marking a decline of 300 MBPD over one month and 700 MBPD since January. Refineries in Russia are redirecting production to the domestic market in response to strong summer demand, while shipments to China fell sharply by 55%, reflecting weaker consumption in Asia. Asian refiners, meanwhile, remain cautious about the possibility of a glut of Chinese oil products between now and the end of the year, which could exacerbate a market situation already under pressure. (Energy News.pro) The worry over Chinese exports may be lessened by news that Chinese fuel product exports are set to fall by 20% in September. amid weak margins and a shortage of export quotas.  (Quantum Commodities)

Technicals

On Wednesday, ULSD, RB and the crude oils all had mean reversion set ups, settling below the lower bollinger band on the DC chart. Another somewhat supportive element for the RB here is that the DC chart based momentum is getting oversold. The energies are all attacking the lower bollinger bands on their respective weekly charts.

RB has a double bottom from yesterday/today at 1.9461/1.9455, which is just above support at the 1.94 area via lows going back to the spring of 2021. Below that support is seen at 1.9169-1.9171 from lows from spring 2021.  Resistance lies at 1.9730-45 and then at 1.9927-1.9943 via the October 60 minute chart.

WTI futures are having an inside day today. WTI spot futures see support at 68.80-68.82, which is Wednesday's low. Below that the low seen in December of 2023 at 67.71 provides support. Resistance comes in at 70.07-70.11 and then at 70.96-71.02 via data from the October 60 minute chart. Yesterday's volume for WTI futures on the CME was over 1.35 million contracts, which is quite larger than the recent normal volume, suggesting a possible low was made yesterday.

 ULSD has the most pronounced downward looking channel of all the energies. Momentum on the DC chart looks poised to run higher, while that on the weekly chart shows an oversold condition. ULSD for October sees support at yesterday's low at 2.1500, which equaled a low seen from May of 2023. Resistance comes in at 2.1917-2.1933 and then at 2.2275 via data from the 60 minute chart.

Natural Gas --NG is up 4.6 cents

NG prices are slightly higher this morning after yesterday's afternoon selloff. It was hard for NG to continue to rally yesterday in the face of the steep selloff in the energies and weaker TTF pricing. Also weighing was the fact that weather demand will drop heading into the shoulder season.

NG prices retreated Wednesday even as production has fallen in recent days. After rising close to 103 BCF/day last week, production has pulled back over the past 5 days, settling at 101.1 BCF/d per Wednesday’s early-cycle data, down -1.2 BCF/d vs last year. The bulk of the decline comes from the Appalachian Region.(Celsius Energy) Reuters reporting said that on a daily basis, output was on track to drop by 2.8 BCF/d over the last four days to a preliminary 12-week low of 101.1 BCF/d on Wednesday. Analysts, however, noted that preliminary data was often revised later in the day.

TTF European gas prices have retreated the past 48 hours as storage is now seen near 93% with ING commentary citing speculative length liquidation and less concern over Russian pipeline flows through Ukraine as the supply has remained unaffected of late.

The TTF price has fallen to its lowest spot futures value in a month with support at 36 Euros having been pierced, but the contract may find support as it is testing the lower bollinger band on the DC chart. Momentum remains negative for the contract.

There is some skepticism over winter demand and pricing for NG. Bank of America has issued the following opinion:" Strong natural gas production across North America and limited incremental demand are the main drivers behind storage builds months ahead of withdrawal season, "and winter demand may not help strengthen prices,". 'Forecasts for another winter of above-normal temperatures "create further downside risk to basis pricing at hubs across the country." BofA analysis adds.

The EIA NG storage report due out at its regular time today of 10:30 AM EDT is forecast to see a build of 29 BCF as per WSJ survey. This compares to last year's build of 33 BCF and the 5 year average build of 51 BCF. NatGasWeather believes that the next 4 storage reports will shrink the 5 year storage surplus from the current ( as of last week's report)  361 BCF to 300 BCF. Celsius Energy sees the possibility for the storage surplus to shrink by 87 BCF over the same 4 weeks.

This week, the EIA said that NG export capacity in North America will double by 2028 if all projects currently under construction begin operations as planned.  By the end of 2028, we estimate LNG export capacity will grow by 0.6 BCF/d in Mexico, 2.5 BCF/d in Canada, and 9.7 BCF/d in the United States from a total of 10 new projects that are currently under construction in the three countries. In the U.S., five LNG export projects are currently under construction, with 2 of the 5 set to ship their first cargoes from these projects by the end of 2024.

The above noted EIA projections for LNG export coincides with news this week that was said to have supported NG futures. The Department of Energy has issued a permit to export LNG to countries without a free trade agreement, the first time it has done so since the White House paused such LNG approvals in January. The Energy Department said the license does not allow the company to increase its overall LNG exports. It does, however, permit it to ramp up exports to countries that don’t have free-trade agreement with US, including allies in Europe, by about 3%, the agency said in a statement. (Energy Connects.com)

Technically NG has positive momentum, although recent price action suggests more of a trading range for now. Support is likely at 2.131-2.134; the former is yesterday's low. Below that support comes in at 2.093-2.097. Resistance lies at the prior 2 sessions' highs at 2.225 and then 2.270.

Disclaimer

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