Energy Market Update 2-20-2024

April crude is down 52 cents April RB is down 3.72 cents April ULSD is down 2.15 cents (Prices are versus Friday's settlement)

Overview

Prices remain lower versus Friday's settlement due to concerns over global growth.

China announced its biggest ever reduction in the benchmark mortgage rate on Tuesday, as authorities sought to prop up the struggling property market and broader economy. The 25-basis point cut to the five-year loan prime rate was the largest since the reference rate was introduced in 2019 and far more than analysts had expected. The cut was expected to be 5 to 15 basis points. While the new mortgage reference rate comes into effect immediately, existing mortgage holders will not benefit from any reduction in loan repayments until next year, as mortgage rate repricing is on a yearly basis. But, while the property and banking sectors made gains in the equity market, the rates decision failed to shore up broader investor confidence. (Reuters)

The down move in energy prices comes even as more unrest simmered in the Mideast the past few days. On Monday, Houthi strikes forced a crew to abandon ship in the Red Sea for the first time. At least four more vessels were hit by drone and missile strikes since Friday (including the ship that was abandoned). Israel launched several missile strikes against Lebanon this week, targeting Hezbollah weapons depots after a number of attacks against Israel. (Reuters/Quantum Commodities) But, the U. S. has proposed a draft United Nations Security Council resolution calling for a temporary ceasefire in the Israel-Hamas war and opposing a major ground offensive by its ally Israel in Rafah, according to the text seen by Reuters.

The White House will approve a request from a group of Midwest governors to allow year-round sales of gasoline with higher blends of ethanol, but will push the start date into next year, two sources familiar with discussions said. The move would thus allow the sale of the 15% ethanol fuel blend that is currently blocked due to anti-smog regulations restricting sales from June 1 to Sept. 15 throughout much of the United States. The sales of gasoline with a higher blend of ethanol is a win for the biofuel industry and farmers that want an expanded market for their corn. The move would be aimed at keeping down consumer pump prices during the high-demand summer driving season by boosting the overall volume of available fuel. (Reuters)

"Geopolitical risk positioning saw speculators build up bullish positions in the crude market to their highest level in nearly a year last week as hopes of a ceasefire in Gaza were dashed, while long positioning in the gasoil market touched a two-year high." (Quantum Commodities)

Today is the last trading day for the March WTI futures.

Technicals

RB and WTI have forged fresh lows today versus the range seen Monday. Product momentum remains negative with that for WTI looking as if it is cresting.

WTI for April has formed a small wall of resistance from 3 of the 4 past sessions' highs lying between 78.43 and 78.56. If breached, next resistance lies at 79.09. Support lies at 76.69-76.77 and then at 76.26-76.30.

April RB is having an inside day versus Friday's trading range. Support is seen at the double bottom of Friday and the current session at 2.5234-2.5243. Below that support lies at 2.4906-19. Resistance comes in at 2.5778-2.5794 and then at 2.5980-2.5985.

April ULSD is also having an inside day versus the range of prices seen Friday. Support lies at the low of the session at 2.7081-2.7100 and then at 2.6904-2.6924. Resistance is seen at 2.7659-2.7679 and then at 2.7915-2.7938.

Natural Gas--March NG is down 3.5 cents versus Friday's settlement

NG prices remain lower vs Friday's settlement on warmer than normal weather demand.

December was especially mild, causing inventories to deplete by only 300 BCF, the smallest seasonal draw since December 2015, and compared with a ten-year average draw of 478 BCF, as per Reuters analysis. The reduction in heating demand of 11% so far during winter 2023/24 is consistent with previous strong El Ni?o episodes, they add. In addition, more natural gas is being produced and captured from wells drilled primarily to extract oil, adding to production growth, the Reuters analyst continues. This prompted a few producers last week to signal their intent to throttle back output. "If drillers continue to announce declining production guidance and weather stabilizes ... natural gas may soon form a short-term bottom with an overdue relief rally possible," analysts at energy consulting firm EBW Analytics Group said in a note. (Reuters)

This week's EIA storage data will widen the storage surpluses to the 5 year average and possibly to last year. Early estimates are calling for a draw of 63 to 82 BCF. Last year saw a draw of 75 BCF. The 5 year average is -168 BCF. The EIA storage data this week will be released at the usual time on Thursday at 10:30 AM EST. The average rate of withdrawals from storage has been 12% lower than the five-year average so far in the withdrawal season, November through March, per EIA's estimates. If the rate of withdrawals from storage matches the five-year average of 10.9 BCF/d for the remainder of the withdrawal season, the total inventory on March 31 would be 348 BCF higher than the five-year average for that time of year, according to the EIA, which would put the total at 1.974 TCF.

Technically the NG futures market remains oversold. The NG spot futures set a fresh low of 1.522 on the opening on Sunday evening, almost testing support at 1.519-1.522 from values seen in the spring of 2020. Below that support is seen at 1.432-1.440. Resistance comes in at 1.637-1.640 and then at 1.684-1.685 via the 60 minute March chart.

Disclaimer

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