Energy Market Update 1-4-2024

Crude is up 56 cents???? RB is down 73 points???? ULSD is up 96 points

Overview

Today, energies continued the rally seen Wednesday aided by the shutting of Libyan production (down 300 MBPD) and due to concerns over an escalation of tension in the Mideast. Products are lagging crude oil today on the back of the builds seen in the API data versus the draw in crude supplies.

The killing of civilians in Iran at a memorial for an Iranian general killed by US forces has ratcheted up tension. At least 84 people were killed and 284 others injured in the blasts on Wednesday. It is seen as a terror attack, although no organization has taken responsibility.? In addition, adding to heightened tension is news that several Hezbollah members were killed late on Wednesday in an Israeli strike on southern Lebanon. Also increasing tension is the warning issued Wednesday by 12 nations of unspecified consequences against the Houthis unless they halt attacks on Red Sea shipping vessels. (CNN/Quantum Commodities)

Also helping Wednesday was a statement by OPEC reaffirming their commitment to "unity, full cohesion and market stability". (Bloomberg)

The Fed's minutes, issued yesterday, revealed Fed officials believe "upside risks" to inflation have diminished. "Almost all participants indicated that...a lower target range for the federal funds rate would be appropriate by the end of 2024," the minutes said. (Yahoo Finance) But, the Fed officials also said that policy needs to remain at a restrictive stance for some time until inflation was clearly moving down sustainably toward the Committee’s objective. The officials recognized that the Fed’s key interest rate is “likely at or near its peak for this tightening cycle.” (CNN)

API???????????? Forecast?????? Actual

Crude Oil??? -2.7/-3.0??????? -7.4

Gasoline??? +0.4/+0.7????? +6.9

Distillates? +0.4/+0.9????? +6.7

Cushing??????? n/av????????? +0.765

Runs???????? -0.1/-0.2%????? n/av

There could be a potential $3 to $4 a barrel boost to oil prices from a prolonged and full redirection of flows due to disruptions in the Red Sea, Goldman Sachs said in a note. However, Brent should remain in a $70 to $90 a barrel range this year on elevated spare capacity and flexible supply from OPEC+, low recession risk, and opportunistic strategic-reserve purchases by China and the US, they said. (Bloomberg) Morgan Stanley sees Brent crude prices anchored near $80 per barrel in the first half of 2024 before declining towards the end of the year as it expects supply to outpace global oil demand growth this year. Morgan Stanley, on Wednesday, cut its forecast for Brent crude prices this year by about 9% to around $77 a barrel. (Bloomberg/Natural Gas World)

Technicals

Momentums remain negative for the energies on the DC chart bases, although that for ULSD has a look of possibly turning upward.

ULSD spot futures see support at 2.5956-2.5967, which is the former resistance level. Below that support is seen at 2.5553-2.5559. Resistance lies at 2.6543-2.6563.

RB for February sees support at the 2.1330 area and then at the 2.10 area. Resistance lies at 2.1920-2.1950.

WTI spot futures see resistance at 74.58-74.64. Support lies at 72.6072.63 and the at 71.81-71.85.

Natural Gas-NG is up 16.9 cents

NG is up strongly today to its best spot futures value in over a month on the back of reduced U.S. production in January so far and the prospect for colder, frigid weather in mid-January. "Demand will still be better the next eight days compared to all of December", Nat Gas Weather says. (WSJ)

We wonder if some short covering in the front end is also at work as well as some anticipatory buying ahead of index fund rebalancing.The February March spread has risen today to its best value since the end of October. This value, near 29 cents, reinforces the supply/demand strength we see.

LSEG says that January NG production so far has fallen to 107.5 BCF/d from December's record production of 108.5 BCF/d. LSEG pegged demand for this week at 132.7 BCF/d, rising to 133.7 BCF/d next week. This forecast was down by 2.9 BCF/d from Tuesday's estimate.

Data from the CME shows that Wednesday saw open interest fall due to what we see as short covering in the February contract. Reports are surfacing of the need for a large amount of buying of futures contract in NG futures for the upcoming rebalancing of the commodities index funds. The buying is said to be concentrated in the March contract. The rebalancing is set to begin on Monday January 8th.

The EIA NG storage data forecasts we have seen have a wide range of a draw of 36 to 56 BCF. Last year saw 219 BCF drawn from storage. The 5 year average draw is 87 BCF.

According to a new report by the International Energy Forum (IEF), ten new importers are expected to join the international LNG market in the next two years, helping to drive a 25% expansion in global LNG trade by 2028. Over the period 2019-2022, LNG trade grew by 16%, owing, in particular, to the surge in European demand as a result of the war in Ukraine and loss of pipeline imports from Russia. (Natural Gas World)

Technically NG spot futures have positive momentum. Prices have a nice upward channel look since bottoming on December 13. We see resistance in spot futures at 2.868-2.872 and then at 2.951-2.958. Support is likely at the prior double top on the DC chart that existed with yesterday's 2.719 high and the 2.722 high seen on the January expiration. The spot futures are testing the 50 and 100 day moving averages on the DC chart basis today. The 50 day average les at 2.847 and the 100 average lies at 2.831. The 200 day average that intersects at 2.618 has been pierced.

Disclaimer

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