Energy Market Update 3-8-2024

Crude is down 24 cents??? RB is down 52 points???? ULSD is down 2.70 cents

Overview

Energy prices are lower with watchwords of "stable" and "easing" being heard today. Price action overall remains sideways.

The Non Farm Payroll data issued today showed 275,000 new jobs were added in February. Estimates were calling for 198,000 to 200,000 jobs to be created. Downward revisions to January's and December's data saw 167,000 jobs taken from prior data, thus more than offsetting the strong February number. Energy prices rallied post NFP data issuance as concern over interest rates tightening on the strong February number were mitigated by the downward revisions to the prior months.

The European Central Bank will likely start lowering interest rates some time between April and June, the French central bank head and ECB policymaker said on Friday. The S&P 500 and Gold prices hit new record highs on Thursday on hopes for rate cuts in the U.S. after Fed Chair Powell said Thursday that the central bank was "not far" from gaining enough confidence that inflation is falling sufficiently to begin cutting interest rates. (Reuters)

A Platts survey shows OPEC+ production in February was over their quota level. Total output from the 22 member alliance was 41.21 MMBPD, which was 175 MBPD over their agreed quota. Iraq was the biggest offender as their production was 4.27 MMBPD versus their quota of 4.00 MMBPD.

Also casting a slight pall on energy prices were comments from the IEA. The IEA's oil markets and industry division head told Reuters the agency sees a relatively well-supplied market in 2024 with demand growth slowing. The IEA sees demand growth this year slowing to +1.2/+1.3 MMBPD from the 2023 pace of +2.3 MMBPD. The IEA expects supply to grow to a record high of about 103.8 MMBPD, almost entirely driven by producers outside OPEC+, including the United States, Brazil and Guyana. "So far, that's sufficient to meet the demand growth," the IEA official said.

A Reuters analyst wrote about Distillate supplies as per the DOE data seen this week. He says stocks were -18 MMBBL/ -13% below the prior ten-year average. Diesel supplies remain tight despite the lackluster state of manufacturing and freight activity, he adds. Supporting the diesel stock tightness are notes from the EIA issued 2 days ago. The headline to their notes reads : "Reduced refinery activity puts upward pressure on gasoline and diesel prices ". They write that the current Gulf Coast refinery maintenance started earlier than normal and has had a larger impact on refinery operations. Lower refinery production has led to decreased inventories of both motor gasoline and diesel. On the U.S. Gulf Coast, inventories started the year at above-average levels but have since decreased significantly as refinery utilization has dropped. Inventories of both gasoline and diesel dropped below their 2023 levels. Although Midwest inventories are still closer to the high end of the five-year range, inventory draws will continue as long as the Whiting refinery remains offline.

Quantum Commodities reports that European jet fuel has seen its pricing fall into a narrow contango with the market seen as well-supplied before summer. The contango is the first one observed in 9 months, they add.

Technicals

Momentum for the ULSD is positive, while that for Crude Oil and RB are negative basis the DC charts.

WTI spot futures tested the upper bollinger band on the DC chart overnight. That band lies at about 79.80. Chart based resistance is seen there and then at 80.85. Support lies at 77.99-78.02 and then at 77.17-77.23.

ULSD spot futures see resistance at 2.7050-2.7055 and then at the overnight high at 2.7240-2.7244. Support lies at 2.6415 and then at 2.6150-2.6155.

RB for April sees support at 2.5192 and resistance at 2.5891-2.5925. Price action this week has been sideways.

Natural Gas --NG is down 4.9 cents

NG is lower after falling over 11 cents for the spot futures Thursday, as the market sees the storage surplus remaining very large as we head to the end of withdrawal season and the wide differential between cash and futures prices was corrected.

The EIA storage data showed a draw of 40 BCF, which was in line with expectations. Total storage fell to 2.334 TCF. This remains +551BCF/+30.9% versus the 5 year average and +280BCF/+13.6% versus last year's level. The EIA wrote in its weekly NG update issued Thursday:" If the rate of withdrawals from storage matched the five-year average of 5.0 BCF/d for the remainder of the withdrawal season, the total inventory would be 2.184 TCF on March 31, which is 551 BCF higher than the five-year average." The Desk's forecast for end of season storage, seen earlier this week, is 2.231 TCF.

We had written earlier this week that a colleague had said that the HH next day cash vs spot futures price differential was too large and that he believed that both prices would likely move toward one another. On Monday, the HH next day cash was valued at about $1.48 vs NG April/spot futures trading in the high $1.90's. Thursday midday the two prices were $1.55 vs $1.85.

Reuters writes that world wind-powered electricity output could hit record highs over the coming weeks as wind speeds pick up across key wind farms in China, Europe and the United States as the Northern Hemisphere spring season sets in. Reuters analysis adds that a combination of shifts in jet streams and changes to the sun's angle on the earth tend to increase wind speeds at turbine level during the spring months, and lead to higher levels of wind power generation than at other times of the year. Fossil fuel-powered generation also tends to drop during the spring months due to lower heating demand, which allows for wind power to register its highest share of total electricity production for the year during the spring months. Wind power's share of total electricity generation in the 2 largest markets China and the United States rose to a record last April of 13.05% and 13.95% respectively.

Europe’s weather is forecast to be warmer than average for the time of year through until almost the start of April, according to the European Centre for Medium-Range Weather Forecasts. The mild outlook implies the depletion season is likely to end relatively early, with stocks set to start refilling from a record high level. Germany may be able to start filling gas storage facilities ahead of the 2024-25 winter as early as next week, operators group INES said on Thursday. Total gas in storage in Europe on Tuesday stood at 68% of the infrastructure's total capacity, well above a legally mandated minimum of 40% defined for Feb. 1, the website of European storage operators group GIE showed. (Reuters/NaturalGasWorld)

Yet, TTF prices this week rose to a high of 28.725 Euro/Mwh and have been relatively stable versus the downdraft seen in late February. The TTF price today is 26.135 Euro/Mwh. April daily chart's momentum has turned negative upon the drop from the week's high.

Technically NG has seen its momentum turn negative as it as been clearly repelled from values in the mid to upper $1.90's. We had spoken of the upside gap on the DC chart the other day, having taken our eye off the one that exists below, that was created more recently. That gap lies down to 1.720. That is where we see our first support. Below that support lies at? 1.65-1.661. Resistance is seen at 1.843-1.844 via data from the April 60 minute chart. Above that resistance is seen at 1.888-1.890.

Disclaimer

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