Energy Market Update 9-4-2024

Crude is down 5 cents        RB is down 1.37 cents       ULSD is down 1.80 cents

Overview

Crude prices are near unchanged after slipping overnight to fresh lows for the recent selloff. Bloomberg & Reuters are reporting that OPEC+ is discussing a possible delay to an oil output increase planned for October, which led to an overnight rally, that has since seen prices retreat. Product prices are lower currently versus yesterday's settlement.

OPEC+ is considering whether to proceed with the scheduled hike of 180 MBPD due in October, according to officials involved in the talks. The output hike would have gradually restarted output halted since 2022. (Bloomberg)

Tuesday's selloff was exacerbated by news that a resolution to the standoff in Libya had been reached, thus allowing for the return of the over 500 MBPD of oil that had been shut in in recent days. Libya's two legislative bodies agreed on Tuesday to jointly appoint a central bank governor within 30 days, potentially defusing the battle. The central bank is the sole legal repository for oil revenue and pays state salaries across Libya. (Reuters)

Tuesday's selloff was also seen to be due to the U.S. ISM showing a 5th month of contraction, with a reading below 50. The business activity in the US manufacturing sector continued to contract, albeit at a softer pace in August, with the ISM Manufacturing PMI edging higher to 47.2 from 46.8 in July. This reading came in slightly below the market expectation of 47.5.The ISM Chairman said: "Demand continues to be weak, output declined, and inputs stayed accommodative."  (FX Street) A PMI reading below 50 indicates contraction in the manufacturing sector, which accounts for 10.3% of the economy. (Reuters)

Bloomberg commentary added that Tuesday’s sell-off was likely exacerbated by increasingly bearish trend-following algorithmic traders. A Reuters analyst says : "The question for the crude oil market is whether the focus on bearish news has swung too far. " He cites the recent spate of bullish news items that has been disregarded: the loss of actual barrels from Libya, the continued attacks on shipping in the Red Sea area, and lower OPEC oil production in August, albeit largely a function of lost Libyan barrels. The Reuters analyst concluded his analysis with the following (prescient) statement: "Certainly it sets up the risk of a short squeeze should something unexpected happen, such as OPEC+ deciding to abandon the planned increases in output from October onwards."

The AAA national gasoline average has slipped to $3.317 today, which is the lowest since the $3.294 average seen Feb. 28th. The sharp decline in oil prices could push retail gasoline to its lowest since 2021 by the end of October, Gasbuddy analyst Patrick De Haan posted on social media. (Reuters)

Technicals

Technically RB & WTI have mean reversion set ups from Tuesday's close below their respective lower DC chart's bollinger band.

RB spot futures are testing the DC and weekly lower bollinger bands that intersect at 1.9867 and 2.0332 respectively. Support for the spot futures is likely at 1.9371-1.9409 and then at 1.9169 via weekly data from the spring of 2021. Resistance comes in at 1.9845-55 and then at the overnight high at 2.0013.

WTI is also testing its lower bollinger bands on the DC and weekly charts that intersect at 69.61 and 70.34 respectively. Support comes in at 69.03-69.13 via weekly points from June of 2023. Resistance is seen at 71.58-71.67.

ULSD is testing its weekly lower bollinger band that lies at 2.2119. Support lies at 2.1500 from a major low from May of 2023. Resistance comes in at 2.2318-2.2344.  A short term intraday chart shows support for the spot futures at 2.1775-2.1792.

Natural Gas- NG is up 4.5 cents

NG prices are higher again today following Tuesday's strong rally. The rally was based on lower U.S. gas output, strong U.S. feed gas LNG export demand and the expectation for a further narrowing of the storage surplus with this week's EIA data.

NGI says that U.S. gas production had fallen toward 101 BCF/d. Celsius Energy says that gas output was at about 101.5 BCF/d over the holiday weekend after being at 103 BCF/d last week. LSEG said gas output in the Lower 48 U.S. states slid to an average of 102.3 BCF/d so far in September, down from 103.2 BCF/d in August.LNG feed gas demand was "holding" around 13 BCF/d, as per NGI reporting.

Reuters reporting says that gas flows to the seven big U.S. LNG export plants rose to an average of 13.1 BCF/d so far in September, up from 12.9 BCF/d in August.

The EIA storage number this week is seen as a build between 20 and 28 BCF. This compares to last year's 33 BCF build and the 5 year average build of 51 BCF.

The rally in NG prices Tuesday came even as the LSEG demand forecast for this week and next fell by a total of 2.1 BCF/d from that seen Friday. LSEG forecast average gas demand in the Lower 48, including exports, will fall from 102.8 BCF/d this week to 101.1 BCF/d.  next week.

Berkshire Hathaway Energy's 0.8 BCF/d Cove Point LNG export plant in Maryland will likely shut for about three weeks of routine annual maintenance around Sept. 20, according to the plant's history and notices to customers. (Reuters)

Yesterday early in the session, HH next day cash was valued at $1.98 with September futures printing about $2.09. This differential seemed narrow at 11 cents, given the 16 to 18 cent differential that we had seen last week mid-week.

Technically NG has positive momentum on the DC chart. Also notable is the upward turn in momentum seen on the weekly continuation chart, amplifying the comment we offered last week of a market that has bottomed on 5 of the last 6 years between early August and mid-September.

Resistance to the upside for the spot NG futures comes in at 2.276-2.278 and then at the recent high at 2.301. Support lies at 2.153-2.155.

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.

Commodity trading involves risks, and you should fully understand those risks prior to trading. Liquidity Energy LLC and its affiliates assume no liability for the use of any information contained herein. Neither the information nor any opinion expressed shall be construed as an offer to buy or sell any futures or options on futures contracts. Information contained herein was obtained from sources believed to be reliable, but is not guaranteed as to its accuracy. Any opinions expressed herein are subject to change without notice, are that of the individual, and not necessarily the opinion of Liquidity Energy LLC