Daily Energy Market Update 10-10-2024

Crude is up 87 cents???????? RB is up 2.26 cents??????? ULSD is up 2.45 cents

Overview

Energy prices are higher today as Mideast tension remains after a phone call between President Biden and Prime Minister Netanyahu. Prices are also said to be aided by a spike in gasoline demand due to Hurricane Milton.

There is a growing concern that Israel will pursue its own agenda which could include targeting energy and Tehran's nuclear industry. Joe Biden and Benjamin Netanyahu held a first call since August on Wednesday, which included discussions on a potential Israeli attack against Iran but the White House would only describe talks as "direct" and "productive". (Quantum Commodities) ANZ analysts said there is growing concern that Israel's allies have little influence on its strategy. (Reuters)

Platts commentary on the crude oil market cites "high hopes" for possible Chinese stimulus measures to come this weekend with a Ministry of Finance briefing scheduled.

Hurricane Milton made landfall in Florida, where about a quarter of fuel stations sold out of gasoline, helping to support crude prices. (Reuters) Demand, however, has "likely been front-loaded here, with all of those in the Southeast evacuating before seeking shelter from Milton's landfall." The "net impact of Milton is likely going to be reduced consumer demand as residents shelter in place and are not likely to be commuting or going to school for the rest of the week, or potentially longer," as per Research analyst.? (Market Watch)

The DOE data seen Wednesday showed a rise in crude supplies of 5.81 MMBBL. This was less than that seen in the API data (+10.9 MMBBL) , but still was more than forecast (+2.0 MMBBL). Crude production rose by 100 MBPD on the week to 13.4 MMBPD, tying the record seen last August. Refinery runs fell by 101 MBPD to 15.590 MMBPD. The percentage usage fell by 0.9% to 86.7 %. Net crude oil imports shrank by 305 MBPD to 2.445 MMBPD. Distillate supplies fell by 3.124 MMBBL, to a 5 month low, exceeding forecasts for a draw of between 1 and 1.9 MMBBL. Distillate demand rose by 393 MBPD to a healthy 4.031 MMBPD. This is greater than last year's demand of 3.670 MMBPD, but below that seen in 2022 of 4.370 MMBPD.Gasoline supplies fell in the DOE data by 6.304 MMBBL.

The draw in gasoline stocks was the largest of the year so far. Gasoline demand rose by a lot. The strong gasoline demand is being attributed to hurricane demand in the wake of hurricane Helene and in anticipation of hurricane Milton. Gasoline demand was up 1.133 MMBPD to a total of 9.654 MMBPD. This was well above the prior 2 years' demand of 8.581 and 8.276 MMBPD. We wonder if the some of the gasoline supply drop also has to do with the change to a winter blend RVP mid-September. Thus, do these stats reflect refiners shipping out the last of their lower RVP blended gasoline ??? Looking ahead, refinery operations are expected to decline in coming weeks as turnarounds pick up. Maintenance will result in around 2.7 MMBPD of refinery capacity being idled in October, Commodity Insights data showed, up from 1.3 MMBPD in September.? As of this week, refinery runs have fallen by 1.519 MMBPD since peaking over 17 MMBPD in mid-July.

The September CPI released this morning showed an increase of 0.2% and ran at an annual rate of 2.4%. The forecasts were to show a monthly rise in prices of 0.1% and an annual inflation pace of 2.3%. August's inflation rates were +0.2% monthly change and an annual pace of inflation of +2.5%. Crude oil and distillate prices were little changed on the CPI data. RB rose slightly.

The average gasoline price at the pump in the U.S. stands at $3.212 today. That is up from the recent low of $3.174 seen this past Monday. But, today's price is still down from the price seen one month ago of $3.261. (AAA)

Oil prices have seen their most volatile start to a month in almost two years. So far in October, Brent crude has traded in an average daily range of $3.73, the biggest for the same period in any month since December 2022, according to data compiled by Bloomberg. The sharp swings have also coincided with bumper activity in the oil options market. On average close to 250 million barrels of bullish calls have changed hands in each of the last 10 days, a record, as traders seek to protect against both higher levels of volatility and a price spike. Those volumes have seen significant additions of call-option open interest at $100 for both West Texas Intermediate and Brent, Bloomberg adds.

Technicals

Momentum remains negative for the energies on the DC charts. Notable is the large drop in open interest in WTI and ULSD futures on the CME in Wednesday's activity. The declines were mostly due to drops in the November contracts. We suspect that the drop may have been mostly attributable to short covering.

WTI spot futures see support at the prior 2 sessions' lows at 72.69 and then at 71.53-71.58. Resistance comes in at 75.03-75.07 and then at 75.95-75.97.

RB November futures see support at 2.0449 and then at 2.0200, which are the prior 2 sessions' lows. Resistance comes in at 2.1041 and then at 2.1258.

November ULSD has support at 2.2646-2.2665 and then at 2.2399-2.2403. The latter is yesterday's low. Resistance comes in at 2.3163-2.3176 and then at 2.3400.

Natural Gas--NG is down 5.2 cents

NG prices are lower in the aftermath of hurricane Milton, as more than 3 million homes and businesses were without power as of early Thursday, according to poweroutage.us. (AP) Reuters says that for each 1 million outages, there is a 0.3 BCF loss in power burn. Duke Energy Florida warned customers of "a lengthy power restoration process that will result in extended outages,".? (USA Today)

Today's EIA storage data is seen as a build of 70/71 BCF as per Reuters and WSJ surveys. This compares to last year's build of 85 BCF and the 5 year average 96 BCF build.

NG supply to market increased Wednesday as the newly opened Matterhorn pipeline out of Texas' Permian basin, saw volumes reach a new high of 0.67 BCF/d. Meanwhile, net imports from Canada jumped to 7.0 BCF/d, up +1.1 BCF/d YoY. Also, the Mountain Valley Pipeline saw production receipts at a 3 week high above 1 BCF/d. It has a capacity of 2 BCF/d. (Celsius Energy)

LSEG forecast average gas demand in the Lower 48, including exports, will rise from 96.0 BCF/d this week to 97.4 BCF/d next week.? These forecasts were down a total of 2.7 BCF/d, thus giving back much of Tuesday's gains from Monday of 3.5 BCF/d.

The US' largest LNG producer, Cheniere Energy, sees the industry's growth as coming from the "three pillars of South Asia, Southeast Asia and China",? supported by expected power demand from large data centers in Japan, Cheniere's Chief Commercial Officer told S&P Global Commodity Insights. Cheniere seeks to focus on having long-term contracts in place. To that end, "we are no less than 90% contracted," he said. "And really through the balance of this decade and through the middle of next decade, we are about 95% contracted."? In terms of contract tenor, Cheniere's executive said that "the average remaining life...of the contracts we have now is about 17 years." As for this winter, LNG markets are expected to be "quite balanced" with "quite healthy" inventories in Europe, he said.

The head of the IEA sees the LNG market globally going from a "sellers' market to a buyer's market" as more supply comes to market in 2025 from Qatar and the U.S.

We saw 3 noteworthy natural gas options trades on the CME on Wednesday. The January 2025? February 2025 one month spread option having traded. The 5 cent put was purchased against selling of the flat priced put for a net cost of 1.9 cents. At the time of the option trade, the Jan Feb NG one month spread was trading 10.3 cents, which is the lowest value for the spread since last December. The other notable trade seen was selling of the summer strip's $2.25 put against purchasing twice the amount of the summer strip $2.00 put. The cost of the trade was 1/2 cent. The third option trade was in the November December one month spread. The 40 cent put was sold for 1.4 cents against which the 20 call was purchased for a cost of 3.2 cents.

Technically NG spot futures still have negative momentum as support at the 2.635 area has been pierced. Support below that lies at 2.580-2.585 and then at 2.546-2.547. Near term resistance is seen at 2.666-2.667 and then at 2.707-2.709.

Disclaimer

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