Energy Market Update 10-19-2023

December crude is down 61 cents?? December RB is down 1.14 cents?? December ULSD is near unchanged

Overview

Crude oil is lower as news wires tout the easing of sanctions against Venezuela, which Reuters qualified as being " the most extensive rollback of Trump-era restrictions on Caracas."? Likely adding to the fall in energy prices is the fact that there is a continued rise in U.S. note/bond yields.

"The United States issued a six-month license authorizing transactions in Venezuela's energy sector, after a deal was reached between Venezuela's government and the political opposition there to ensure fair 2024 elections. The license allows Venezuela to produce and export oil to its chosen markets for the next six months without limitation. The deal is not expected to quickly expand Venezuela's oil output but could boost profits by returning some foreign companies to its oilfields and providing its crude to a wider set of cash-paying customers, experts said." (Reuters) Any short-term boost in crude oil supply is likely to be limited to 200 MPBD at best, said analysts. (Quantum Commodities) Washington has given President Maduro until the end of November to begin lifting bans on opposition presidential candidates and start releasing political prisoners and "wrongfully detained" Americans. (Reuters)

Treasury yields rose further overnight with two-year and 20-year yields now both above 5.25%, the latter at a record high and the former the highest since 2006. Thirty-year yields are also now above 5% and hit a 16-year high at 5.06% on Thursday. (Reuters)? Some Fed officials have signaled the run-up in long-term yield could substitute for a further central-bank rate increase. Rates rising has likely taken a toll on consumers. Fortune magazine led an article with the statement : "It’s a message now echoing in every corner of Wall Street: Consumers have finally run out of steam." Both the Citibank and BofA CEO have warned "“the softening of the growth in demand, is…evident.” from consumers. BofA's CEO said : "they’re spending some money in excess of what they bring in. So that means the economy has slowed down, consistent with a low growth, low inflation economy.”

DOE data seen Wednesday was supportive for crude oil with exports rising by 2.234 MMBPD to a very strong level of 5.301 MMBPD. This caused net crude imports to fall to a very low level of 0.641, thus getting close to making the U.S. a net crude oil exporter. Crude oil supplies fell by 4.491 MMBBL, the 4th drop in supplies in the past 5 weeks. (Reuters)? Distillate demand in the U.S. for the week rose by 746 MBPD to a very strong figure of 4.416 MMBPD. This figure is better than the prior 2 years' demand. The demand was the best in a year, as per Reuters. Gasoline demand also rose on the week. demand rose by 362 MBPD to a total 8.943 MMBPD. This is better than last year's demand, but fell well short of the demand of 9.634 MMBPD seen 2 years ago. Cushing supplies fell by 0.758 MMBBL to 21.013 MMBBL, which is the lowest level since October 2014, "prompting concerns about the quality of oil remaining at the delivery point for U.S. oil futures." (Reuters quote) Crude inputs to refineries rose by 193 MBPD to 15.396 MMBPD, suggesting that refinery maintenance has peaked.??

Distillate prices eased Wednesday with the narrative being that cracks in Europe are softening due to a shift in focus from supply to demand, as per Quantum Commodities commentary. The crack for diesel in NW Europe is seen at $34 this week, down from $40 a month ago. Diesel imports into Europe out of Asia and the Mideast in September were high. Prompt Gasoil barge prices in September were high and thus choked off some demand.(HotCopper.co.NZ Chemanalyst.com) The December HO/WTI crack has eased to near $40, down $7 versus its value a month ago. Momentum is turning negative on the daily chart after the crack rebounded from a low of near $37 ten days ago. The crack seems poised to test below $40 again, with strong resistance having formed now between $43 and $44.??

Technicals

Momentums remain positive for the energies.

WTI for December sees support at the $85 area and then at 84.30-84.39. Resistance lies at 87.76 and then at 88.57-88.66.

December RB has support at the overnight low at 2.2942-2.2960 and then at the 2.27 area. Resistance lies at the double top from Wednesday/today at 2.3396-2.3410. Above that resistance lies at 2.3674-2.3683.

ULSD for December sees support at 2.9954-2.9971 and then at the 2.97 area. Resistance comes in at 3.0567-3.0574 and then at 3.0965-3.0970.

Natural Gas --NG is down 3.9 cents

NG spot futures prices are lower as weather demand remains weak. Unseasonable warmth is set to hit the Lower 48 today, as per Celsius Energy commentary. The drop in prices comes even as the EIA storage data is seen slightly narrowing the surplus to the 5 year average.

Even though the weather is turning seasonally cooler, meteorologists forecast it is still expected to remain milder than usual through early November, as per Reuters.

The EIA is forecast to show a build of 79 to 81 BCF. The 5 year average build for the period is 85 BCF. Last year saw an injection of 113 BCF.

End of Season storage estimates have fallen quite a bit since before the summer. Storage is now seen at 3.797 TCF as per "The Desk's" survey. The EIA in last month's STEO forecast storage end of October at 3.854 TCF. Before the summer, estimates were for a figure of 4.0-4.2 TCF, as per a comment in NGI. The biggest factor behind the surplus drop was this year’s record power burn, as per RBN commentary. They add that coal-to-gas switching and low wind generation drove market share gains for gas. Coal to gas switching came partially as coal power generation has been retired. (NGI) Now, as we move towards winter, the market's focus will switch slowly to end of winter storage level projections.? EBW Analytics Group is projecting 1,650 BCF for end-of-March inventories in a normal winter scenario. Criterion Research LLC, is expecting a slightly higher end-of-winter balance of 1,710 BCF. Mobius Risk group sees end of season storage at around 1.9 TCF. (NGI)

Technically, the lack of big price moves in recent weeks has seen 30-day close-to-close futures volatility fall to 49.5%, the lowest since April 2022, as per Reuters. Price momentum for the spot futures contract remains negative as the spot futures are almost testing $3. Support below that psychological level is seen at 2.975 and then at 2.935-2.940. Resistance lies at 3.107-3.109 and then at 3.154-3.158. Adding to the negative picture is the 50 day moving average falling below the 100 day average on the November daily chart. The current spot futures price has fallen below both averages. Both averages lie near 3.09.

Disclaimer

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