Energy Market Update 4-8-2024

Crude is down 38 cents?????? RB is down 1.80 cents???? ULSD is down 3.47 cents

Overview

Energies have fallen as Israel and Hamas have renewed peace talks and Israel has withdrawn a significant amount of troops from Southern Gaza. (Reuters)

The Israel Defence Force said Sunday that it had "concluded its mission" in the Southern Gaza city of Khan Younis and had started withdrawing ground troops, leaving just one division in the Gaza Strip. However, US National Security Spokesman John Kirby said on Sunday that Israel's decision to withdraw some troops from Southern Gaza does not appear to indicate a shift in military strategy. "As we understand it, and through their public announcements, it is really just about rest and refit for these troops that have been on the ground for four months, and not necessarily — that we can tell — indicative of some coming new operation," Kirby said in an interview ABC. "The word we're getting is they're tired, they need to be refitted."? (Quantum Commodities)

Iran said it asked the US to “step aside” as the country prepares a response to a suspected Israeli attack on its consulate in Syria while Hezbollah, its main proxy in the Middle East, warned the Jewish state it’s ready for war. CNN reported that the US is on high alert and is preparing for a “significant” response from Iran against Israeli or American targets in the region. (Bloomberg)

Saudi OSP's to Asian customers were raised for May delivery. The 30 cent boost to A-light crude was in line with estimates. Medium and Heavy crude grades saw 50 cent increases for Asian customers, which was seen due to oilfield maintenance in Saudi Arabia, OPEC+ production cuts and rising domestic consumption in several Middle East producing countries, as per Reuters commentary. OSP's to the U.S. and N W Europe were all unchanged, except for the Heavy crude grade price to Europe, which saw an increase of 30 cents. OSP's to the Med were raised by 10 cents for all grades, except for Heavy crude, which saw an increase of 40 cents.

Another Russian refinery has suspended operations. Flooding due to a dam breaking has caused a refinery with an annual capacity of 6 million tons of oil (120.5 MBPD)? to cease operations. (Reuters)

A fire hit a Pemex offshore platform. The complex to which the platform belongs produces 200 MBPD of crude oil. No details are available as to how much oil and gas production has currently been affected. (LSEG)

Investors in the financial markets are convinced that crude oil is a "buy" now with $100/b in sight, Vitol Asia's head Mike Muller told a podcast on April 7. "Fundamental physical changes in the oil markets have taken a second tier back seat to the money flows, and financial markets have convinced themselves this one is a buy," Muller told the daily Gulf Intelligence energy markets podcast. While crude inventories have come down, refined product stockpiles on water are still "pretty high," he said. He adds that the prompt oil market is "not necessarily? tight", but that most people see it tightening later in the year.? On the plus side, Muller said, "India's economy is growing faster than expected, China is taking steps to boost economic growth, industrial manufacturing globally is positive, while Kurdish oil flows from northern Iraq are not back yet." Vitol is projecting that demand for refined oil products will be "a lot, lot" higher in the second half of 2024 than in 2023, perhaps as much as 2 MMBPD, Muller said.? (Platts)

The Baker Hughes oil rig count showed an increase of 2 units in Friday's report.

CFTC data regarding money managers' positioning showed an increase in length in WTI, RB, ULSD and Brent in the week ended April 2. Rb length rose by 4,583 contracts and ULSD by 2,427 contracts. WTI net length on ICE/CME rose by a combined 9,842 contracts. Speculators increased their net long in ICE Brent by 9,866 lots over the last reporting week to 299,835 lots as of last Tuesday. This is the largest net long speculators have held since mid-February last year, according to ING analysis. ING adds that given the move in the market since last Tuesday, it is likely that speculators currently hold their largest net long since October 2021.

This week will see a whole host of data and reports that may have an impact on energy prices. On Tuesday, the EIA will release its Monthly Short Term Energy Outlook (STEO). On Wednesday, the U.S. CPI data will be released. On Thursday, OPEC will give its Monthly Oil Market report, while that from the IEA will be released on Friday. Also on Friday, China will release its first batch of March trade data, which will include oil imports.

Technicals

The momentum for the crude oils has turned negative from an overbought status. RB's momentum is negative, while that for the distillates remains positive. Yet, despite the negative momentum , for now the crude oils have forged near term support looking at recent lows.

May WTI sees support at the low seen overnight and the low from Thursday at 84.64-84.69. Resistance comes in at the high seen last week at 87.63.

Brent spot futures have 3 of their past 4 lows between 88.67 and 88.78. Resistance comes in at the high seen last week at 91.91.

RB spot futures have resistance at 2.7743-2.7749, tested with an overnight high of 2.7754. Above that resistance lies at last week's high at 2.8172. Support comes in at 2.7236-2.7266, tested with an overnight low of 2.7240. Below that support lies at 2.6816-2.6836.

ULSD for May sees support at 2.7135-2.7150 and then at 2.6933-2.6947. The overnight low of 2.7019 lies between those. Resistance is seen at 2.7860-2.7863.

Natural Gas-NG is up 1.6 cents

NG prices are higher as the theme remains lower production offset by lower weather demand as we turn to the shoulder season and storage supplies remain ample.

A Reuters analyst details how Asian LNG imports in March rose sharply versus the 2023 level as low prices spurred buying. LNG imports in to Asia stood at 24.16 million metric tons ( = 1.16 TCF of natural gas), up 11.5% from a year ago and up 6.3% versus February's level. In late February, the spot price for LNG in Asia fell to a 3 year low of $8.30/MMBTU. The spot price has shifted slightly higher in recent weeks, ending at $9.50/MMBTU in the seven days to April 5, up from $9.40 the prior week. China is the world's largest LNG importer and it tends to buy more spot cargoes when the price is below $10/MMBTU as this allows the fuel to remain competitive in some areas of China's partially regulated natural gas market. India's LNG imports rose to a 40-month high in March. It will most likely take an increase in the spot price to levels above $10/MMBTU before spot buying may ease in countries like China and India, the Reuters analyst adds. ING adds that stronger buying appetite from Asia and a comfortable European storage environment suggests that spot Asian LNG will continue to trade at a premium to European prices.

The robust demand for LNG in Asia stands in contrast to the softening in Europe, with Kpler data showing arrivals of 9.10 million tons (437 BCF) in March, the lowest since September, and down 20% versus the year ago March level. (LSEG) European storage was 58% full at the end of March, a record high storage level. (ING) The forecast for the next two weeks in Northwest Europe is for milder than usual weather. In fact, storage has already started to edge higher in early April, ING says. ING adds that they expect European storage to be 100% full ahead of next winter. Thus, they say that comfortable storage levels suggest that upside in prices through the year is likely capped. As a result, we have left our TTF forecast unchanged at Euro 25/MWh ($7.33/ MMBTU) for both the second and third quarter of this year. ING believes that their fourth quarter forecast of EUR35/MWh ($10.25/MMBTU) is looking increasingly unlikely. Today the TTF price for the spot May futures is printing Euro 27.140/MWh ($7.95/MMBTU).

The Baker Hughes NG rig count fell by 2 units in Friday's report. According to Baker Hughes, the gas rig count in the US has fallen by 7% this year to its lowest levels since January 2022. ING adds "with the view that output will be largely flat this year, the potential for strong demand from the power sector (due to the low-price environment) and stronger demand from LNG plants, along with new export capacity (Plaquemines phase 1 and Corpus Christi) set to start up later this year, we believe that Henry Hub should trend higher through the year."

CFTC data for the week ended April 2nd showed money managers covered 2,254 contracts of their net short position to end with a total net short position of 83,182 contracts.

We have seen the following comments regarding NG prices: " The February Lows are Likely To Hold, But $2/MMBTU Looks Less Likely For May Contract"..." Choppy, sideways is still the most likely course of trade through the rest of this month and possibly beyond," as production cuts are offset by the large storage surplus.

Notable technically is the very large drop in open interest from Friday's activity for the May NG futures on the CME as the index roll is clearly underway. The drop for the May contract alone was just shy of 45,000 contracts.

NG has negative momentum on the DC chart. The DC NG chart shows a slight stepladder down over the past few sessions. Support for the spot futures lies at 1.704-1.706. Below that we see the gap on the DC chart from 1.686 to 1.647.? Resistance comes in at 1.853 and then at the high seen last week at 1.906.

Disclaimer

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