Energy Market Update 2-1-2024

Crude is up 64 cents RB is up 6 ticks ULSD is down 54 points

Overview

Crude oil prices are higher as news wire accounts tout rising Mideast tension. Russian Deputy Prime Minister Alexander Novak said on Thursday, after participating in the OPEC+ meeting, that the situation in the oil market is stable.

A U.S. naval vessel intercepted a missile fired by Houthi militants towards the Gulf of Aden on Wednesday evening, along with what the US said were three Iranian drones. (Quantum Commodities)

OPEC+ will decide in March whether or not to extend voluntary oil production cuts in place for the first quarter, two OPEC+ sources said on Thursday after a ministerial panel meeting made no changes to the group's output policy. If the first quarter voluntary cuts are unwound, OPEC+ would begin to return 2.2 MMBPD to the market from the beginning of April. This would leave in place 3.66 MMBPD of output cuts agreed earlier. Saudi Arabia has said that the cuts could continue beyond the first quarter if needed. (Reuters)

The DOE stats were less supportive for crude oil and gasoline than distillate. Crude oil supplies rose as production increased, net imports rose and crude inputs to refineries fell. Crude supplies rose by 1.234 MMBBL, while a draw of just under 1 MMBBL was forecast. U.S. crude production rose by 700 MBPD to a total 13.0 MMBPD. Net crude imports rose by 565 MBPD to 1.711 MMBPD. Crude inputs to refineries fell by 428 MBPD to 14.848 MMBPD. This signals to us that refinery maintenance is ongoing. Expectations were for refinery usage to increase to gain back some of what was lost due to the mid-January freeze. Gasoline was hurt by a large increase in finished gasoline output for the week. Gasoline output rose by 956 MBPD to 9.281 MMBPD. Gasoline demand rose for the week, but still lagged that of the prior 2 years. Gasoline demand was up 264 MBPD to 8.144 MMBPD, which is less than that of 8.491 MMBPD seen last year and 8.226 MMBPD seen in 2022. Distillate data showed demand falling by a little. Demand this week was down 27 MBPD to 3.757 MMBPD, beating last year's figure of 3.692 MMBPD, but well below that seen 2 years ago of 4.669 MMBPD.

U.S. crude production in November rose 0.6% to a new monthly record of 13.31 MMBPD, as output in Texas and New Mexico notched records as well, the EIA said on Wednesday.

OPEC output in January fell by 410 MBPD to 26.33 MMBPD. The greatest drop was from Libya, where protests impacted output. Output in January was 214 MBPD above the implied OPEC target, largely because of Iraq, Nigeria and Gabon pumping more than their targets, the survey found. Iraqi output remains 141,000 bpd above the country's self-declared target for the first quarter, the survey found. (Reuters)

A Reuters survey of 38 economists and analysts forecast Brent crude would average $81.44 in 2024, down $1.12 from the December survey. WTI forecasts for 2024 were also lowered from last month by $1.58 to $77.26. Record production in the West and slow economic growth will keep a lid on oil prices in 2024 and limit any geopolitical risk premium resulting from escalating Middle East tensions, Reuters added.

Russia has reduced gasoline exports to non-CIS countries to compensate for unplanned repairs at refineries, the Ministry of Energy said on Wednesday, as the country grappled with the impact of fires and drone attacks on its energy infrastructure. It said gasoline and diesel exports have been reduced in January by 37% and 23% respectively from the same month in 2023...This comes also as European refiners enter into maintenance programs as we have detailed recently.

Gasoline prices at the pump in the U.S. have risen to $3.150 today, as per the AAA. This is up from the price one week ago of $3.102 and the low of $3.066 seen on December 18.

Asian air passenger demand is set to return to pre-pandemic levels in 2024, the Association of Asia Pacific Airlines (AAPA) said Wednesday. (Quantum Commodities)

The Fed in its minutes seen Wednesday said that it is not appropriate to reduce their interest rate target range until they have greater confidence that inflation is moving sustainably towards 2%. The Fed kept interest rates unchanged at their recent meeting. Investors see less of a chance the Federal Reserve will cut interest rates in March. The odds of a rate cut in March fell to 47.7%, according to the CME FedWatch Tool. That is down from near 65% chance earlier in the day. (Barron's)

Technicals

Momentums are negative for the energies.

WTI has a small stepladder down look since making its high 4 days ago. Support lies at 75.16-75.21. Resistance lies at 77.24-77.27 and then at 78.11-78.14, which is the double top from Tuesday/Wednesday.

RB spot futures resistance lies at 2.2850-2.2875. Below that resistance level, there are 3 highs from the past 3 sessions at 2.2544 to 2.2654. Support lies at the overnight low at 2.2150-2.2163 and then at 2.1822-2.1836.

March ULSD sees resistance at 2.8418-2.8448. Support lies at 2.7617-2.7629.

There is a rollover gap on the DC chart in Brent to the upside from the March futures expiration. The gap goes from 81.45 to 81.59. Resistance above that is seen at 82.54-82.57. Support at 80.13-80.19 was tested overnight with a low of 80.16.

Natural Gas- NG is down 8 ticks

NG is a little lower now, after rallying overnight as a cooler forecast from the middle of February supported NG. A comment from an analyst may also sum up some of the recent price support : "Front month March futures are trying to solidify a bottom just above $2.00 as the risk vs return for traders being short below $2.00 (with all of February still in front of us) does not equate well,".

NG prices were supported Wednesday not just by the possibility of cold arriving in the middle of February, but possibly also now by the lower wind generation seen in the large demand area of Texas. On Wednesday, wind power ran at 1500 MW of a total capacity of 39,000 MW in Texas. ERCOT on Tuesday afternoon ran NG as 60% of its fuel mix. They have been running NG usage usually at 40-45% of their fuel mix.

Financial company LSEG said gas output in the Lower 48 states fell to an average of 103.7 BCF/d so far in January, down from a monthly record high of 108.0 BCF/d in December. LSEG sees demand at 125.7 BCF/d this week, rising to 127.3 BCF/d next week. Wednesday's forecast was a total increase of 2.2 BCF/d from the prior day's estimates.

Gross natural gas production in the U.S. Lower 48 states jumped about 1.6 BCF/d to a record 118.1 BCF/d in November, up from 116.5 BCF/d in October, according to EIA's monthly 914 production report. That topped the prior monthly record of 116.6 BCF/d in September.

Today's EIA NG storage data is seen as a draw of 190 to 202 BCF. This compares to last year's draw of 141 BCF and the 5 year average draw of 185 BCF.

Technically NG failed to make the possible key reversal yesterday, failing to close over the high of the prior session. Momentum still points lower -slightly. Resistance above is seen at 2.187-2.188. The notion we cited above from an analyst of a bottom possibly being forged above $2.00 is reinforced by the lows in March futures from the 3 prior sessions that are bunched at 2.037-2.047. This is our current support level.

Disclaimer

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