Daily Energy Market Update 10-3-2024

Crude is up $1.54 RB is up 3.86 cents ULSD is up 3.92 cents

Overview

Energy prices are higher today as Mideast tension persists with Israeli warplanes bombing Beirut today.

Israel bombed Beirut early on Thursday, killing at least six people, after its forces suffered their deadliest day on the Lebanese front in a year of clashes with Iran-backed Hezbollah. (Reuters)

OPEC late Wednesday refuted a Wall Street Journal article that claimed Saudi Arabia had warned members that prices could drop to $50 if OPEC+ members do not stick to agreed-upon production limits. (Reuters)

The DOE data seen Wednesday disappointed with a crude supply build of 3.889 MMBL. A small draw near 1 MMBBL was forecast. The build was caused by lower refinery runs (-662 MBPD) and an increase in net crude imports (+191 MBPD). Gasoline supplies built by 1.119 MMBBL, versus the forecast for a very slight draw. Gasoline demand fell by 684 MBPD to 8.521 MMBPD. This was better than last year's demand of 8.014 MMBPD, but lagged well behind 2022's demand of 9.465 MMBPD. Distillate supplies fell by 1.284 MMBBL, which was slightly less than the estimate for a draw of 1.5 MMBBL. Yet, Distillate supplies fell to their lowest level in 13 weeks. Distillate exports were strong at 1.534 MMBPD, up 237 MBPD from the prior week. Distillate demand fell on the week by 384 MBPD to 3.628 MMBPD. This week's demand lagged behind the prior 2 years figures by 177 and 467 MBPD.

Several analysts point to OPEC+'s spare capacity of 5.8 MMBPD as cushioning any drop in supply that may result from a limited escalation of the Mideast conflict. OPEC has enough spare oil capacity to compensate for a full loss of Iranian supply if Israel knocks out that country's facilities, but the producer group would struggle if Iran retaliates by hitting installations of its Gulf neighbors, as per Reuters reporting. Iranian oil exports have climbed this year to near multi-year highs of 1.7 MMBPD despite U.S. sanctions. Chinese refiners buy most of its supply. Beijing says it doesn't recognize unilateral U.S. sanctions.

Retail gasoline prices in the U.S. have fallen to their lowest level since February 9th. The national average gasoline price today is $3.190, as per the AAA. One year ago it was $3.798.

A Belgian law restricting exports of low-quality fuels and financial constraints among Nigeria's importers are squeezing sales of gasoline from Northwest Europe to West Africa, leaving buyers to explore other options until Nigeria's Dangote refinery is able to meet demand. Gasoline exports from the Amsterdam-Rotterdam-Antwerp (ARA) hub region to West Africa fell to about 150 MBPD in September, Kpler data shows, the lowest since May 2020. Exports from Belgium to West Africa were at their lowest since December 2020 at about 90 MBPD, while exports from the wider EU and UK region touched a one-year low of 250 MBPD in September, the data shows.

Technicals

Technically this week's rally has turned momentum positive on the DC charts.

WTI spot futures see resistance at 72.49 and then at 73.50-73.52. Support lies at 70.10-70.13.

RB for November sees support at 1.9750-1.9768. Resistance lies at the overnight high at 2.0339-2.0341 and then at 2.0549.

ULSD sees support at 2.1916-2.1926 and then at 2.1765-2.1787. Resistance comes in at the 2.2550 area and then at 2.2774-2.2785.

Natural Gas-- NG is up 7.0 cents

NG is higher as the Southwestern U.S. is expected to see record heat through this weekend and the EIA data due out today will further shrink the storage surplus. Also supportive is the recent production drop.

The EIA gas storage data due out today is calling for a build of 57 to 58 BCF. This will shrink the storage surplus to the 5 year average for the 20th time in the last 21 weeks. The 5 year average for this week is +98 BCF. Last year saw 87 BCF added to storage.

LSEG said gas output in the Lower 48 U.S. states has fallen to an average of 100.5 BCF/d so far in October, down from 101.8 BCF/d in September and 103.2 BCF/d seen in August.

On Wednesday, LSEG forecast average gas demand in the Lower 48, including exports, will hold around 95.4 BCF/d this week and next. These forecasts were down a total of 1.2 BCF/d from those seen Monday.

Gas flows to the seven big U.S. LNG export plants have fallen to an average of 11.9 BCF/d so far in October, down from 12.7 BCF/d in September as several plants are undergoing maintenance. (Reuters)

Wednesday's slight decline in NG spot futures prices was seen due to the increase of flows of gas into the market as the Matterhorn pipeline began to move gas from the Permian towards the Houston area, connecting Transco and other pipelines. The Matterhorn pipeline saw flows of 0.346 BCF/d Wednesday. The pipeline has a total capacity of 2.5 BCF/d. In describing the opening of the pipeline, a Kpler analyst said : "what this will likely do is spur on more natural gas production in the Permian – potentially oil production, too, because oil has also been under the effects of this excess natural gas in the region, because there’s a limit to how much natural gas can be flared." Three additional pipelines are planned out of the region. Kpler's analyst says : " these other three additional pipelines are going to be able to get well over 7 BCF/d further out of the Permian there." (Texas Standard)

Also possibly weighing on prices Wednesday was the fact that 1.3 million people were said to be without power in the U.S. Southeast and Midwest after Hurricane Helene battered the region late last week, as per Reuters reporting.

The CME showed another large increase in open interest in the November LN put options. Notable were the increases in the $2.40 and $2.60 put strikes. Similar as seen the other day, the $2.60 put purchase was in tandem with futures purchases at $2.90. The $2.60 puts were priced at 6 cents. As a reminder, it was the $2.75 put options ( at a cost of 12.3 cents) that were bought last Friday against November futures priced at $2.90.

Technically NG spot futures remain overbought with an RSI reading over 70. Resistance lies at $3.000 and then at 3.045-3.048 from November daily data. Support lies at 2.865-2.870 and then at 2.825.

Disclaimer

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