Energy Market Update 12-18-2023

February Crude is up $1.83??? February RB is up 4.5 cents?? February ULSD is up 7.85 cents

Overview

Energies prices are higher now after having flip-flopped either side of unchanged overnight. The upside catalysts are concerns over Red Sea shipping and Russia's pronouncement of further output cuts.

BP has said that they would pause all tanker transits thru the Red Sea.? It made the decision because of the "deteriorating security situation" though they said that it was a temporary move. Several container shipping lines have said prior that they would shun gong into the Red Sea shipping lanes. Maersk and the Mediterranean Shipping Company, the world's largest shipping group, said that they would divert its ships from the area. Hapag-Lloyd and CMA-CGM have also stopped shipments through the region. Instead of using the 20 mile wide Bab al-Mandab Strait that lies at the mouth of the Red Sea off Yemen, this meant that ships must take the much longer route navigating around southern Africa. Avoiding the Red Sea means ships can’t use Egypt’s Suez Canal, forcing them instead to go the long way around Africa. (BBC/Bloomberg) Over the weekend, the U.S. said that its destroyer shot down 14 drones in Red Sea launched from Yemen. The Houthi rebels have threatened to attack any vessels heading to Israeli ports unless food and medicine are allowed into the besieged Gaza Strip. (CBS News)

Russia eyes additional oil export cuts of about 50 MBPD in December, as per a comment from Deputy Prime Minister Novak seen over the weekend.? That cut is earlier than promised. Earlier this month, Russia agreed to reduce its oil exports by 500 MBPD during the first quarter of 2024 as part of its OPEC+ commitments. Russia is said to be concerned that its flagship Urals crude grade has seen prices fall back below the G7 cap of $60. Prices for that crude had risen over $80 in September. (Reuters/Upstreamonline.com/Barron's)

Goldman Sachs lowered their Brent oil forecast for 2024 by $10, citing U.S. production " moderating any upside." Brent is set to rise to $85 a barrel by June, and average $80-$81 in 2024 and 2025. The forecast trim came as Goldman lifted its outlook for U.S. liquids supply growth to 0.9 MMBPD from 0.5 MMBPD for 2024. The Brent crude price is forecast to be between $70 and $90 a barrel next year. Goldman sees only moderate price volatility next year. (Barron's/WSJ)

The following analysis of Brent pricing was seen on Reuters: Brent’s front-month futures price has averaged $82 so far in 2023 (and there are too few trading days left to move the average significantly before the end of the year). After adjusting for inflation, prices have been close to the prior ten-year average ($87) and the average since the start of the century ($89).

Bank analysts' research seen the last few days came from Commerzbank and JP Morgan. Commerzbank says :" Concerns that the market would be oversupplied are seen as "exaggerated," the analysts say in a note, and Brent crude could be trading back at $80 a barrel by the end of the first quarter after declining significantly in recent weeks. "The oil price has fallen too far. After all, thanks to the OPEC+ production cuts the oil market should not be oversupplied in the first quarter," the analysts say. "What is more, the mid-term economic outlook looks brighter now that rate cuts may well be on the cards sooner than expected." (WSJ source)

The Baker Hughes oil rig count fell by 2 units in Friday's report.

CFTC data issued Friday showed money managers reduced length in RB,ULSD and WTI in the week ended Tuesday December 12. The key to the drop in net length was shedding of long positions more so than adding new shorts. RB length fell by 5,654 contracts. ULSD fell by 9,999 contracts. WTI saw a drop in net length of 17,074 contracts on ICE/CME combined.

Technicals

Momentum is positive as energies rise over prior resistances. Prices are well off the lows seen middle of last week. All resistances and supports below are for the February as those months now have the highest volume traded.

WTI sees support at 72.53-72.61 and resistance at 74.30-74.35.

RB sees support at the 2.14 area. Resistance lies at 2.2009-2.2024 and then at 2.2174-2.2186.

ULSD support lies at 2.6276-2.6286 and then at 2.5933-2.5937. Resistance comes in at 2.7070-2.7081.

Natural Gas--January NG is up 8.8 cents

NG is higher as demand prospects have improved. Forecaster Maxar Technologies said a brief round of below-average temperatures will start Dec 20, mainly along the Southeast U.S., which will boost heating demand for natural gas. (Nasdaq.com) One analyst cited the rally of the past few sessions as a short-term counter-trend rally.

LSEG forecast U.S. gas demand in the Lower 48, including exports, would rise from 125.1 BCF/d last week to 127.7 BCF/d this week with the usual seasonal cooling at this time of year before sliding to 124.1 BCF/d during the last week of the year when many businesses and government offices shut for the Christmas holiday. The demand forecast for this week of 127.7 BCF/d is up quite a bit from the forecast seen Thursday of 125.4 BCF/d and Wednesday's prediction of 122.2 BCF/d.

Bloomberg reports that the Red Sea tanker news caused a rally in TTF prices. Technically TTF prices have the look of a possible key upside reversal today. A close over Euro/Mwh 34.76 would confirm the reversal. There is an upside gap to fill to 38.54 Euro/Mwh. Support below lies in the 30.50 Euro/Mwh area.The Baker Hughes NG rig count was unchanged in the Friday report.

Money managers added a very small amount to their net short position in the week ended Tuesday December 12 as per the Friday CFTC Commitment of Traders report. Money managers upped their net total short position by 1,468 contracts to 123,044 contracts.The total amount of shares outstanding in UNG, the ETF, stood at a record 197.9 million contracts as of December 13. (Reuters)

Technically NG has positive momentum as it has filled the gap that existed from 2.490 to 2.538. We see some support now at the 2.54 area. Below that support lies at 2.484-2.489. Resistance comes in at 2.636-2.640 and then at 2.692-2.697.

Disclaimer

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