Energy Market Update 4-9-2024

Crude is down 25 cents?????? RB is up 77 points????? ULSD is down 54 points

Overview

Energies are mixed with ULSD and crude oil lower now, but RB higher after spending the overnight higher as hopes for a ceasefire "wane" (Reuters).

Also underpinning prices was a statement from Prime Minister Netanyahu that Israel has "set a date" for an invasion of the Southern Gaza town of Rafah. (Quantum Commodities)

In addition, Mexico has announced more cuts to their crude exports.Pemex is planning to cut at least 330 MBPD of crude exports in May, leaving customers in the United States, Europe and Asia with a third less supply, two sources said. This comes in addition to the withdrawal of 436 MBPD of Maya, Isthmus and Olmeca crudes this month, ordered by Pemex, because it needs to supply more to its domestic refineries as it targets energy self-sufficiency. Mexico's energy ministry expects domestic processing to increase to an average of 1.04 MMBPD this year from 713.3 MBPD in 2023. (Reuters) The 3 crude grades whose exports are being reduced this month are all heavy sour crudes.

Reuters reported Monday that Iraq is repairing a pipeline that could allow it to send 350 MBPD to Turkey by the end of the month. This is so as to circumvent the pipeline that runs the Kurdistan region, that has been shut for over 1 year.? Baghdad had balked at a Kurdish demand that the federal government pay a $6 per barrel transit fee to Russian oil firm Rosneft, which partly owns the pipeline. The federal government in Baghdad will require oil companies to negotiate with it to sell their oil via the revived pipeline to Turkey, potentially angering the Kurds who rely on almost entirely on oil revenue.

A Reuters article suggests that U.S. oil production is capped, even as prices have risen close to $90. They say that a weak natural gas market, steeper costs and a focus on shareholder returns over new production are keeping shale drillers from big output increases. In Texas, Louisiana and New Mexico, producers were already cutting output in the first quarter as costs climbed. The breakeven price to drill a new well in the Permian rose $4 per barrel in the last year, according to a survey by Federal Reserve Bank of Dallas But, almost all firms in the survey can profitably drill a new well at current prices, the Dallas Fed says. "We need gas prices to get to $2.50 for an overall increase in activity. The Permian customers that have associated gas are seeing awful differentials," said the CEO of oilfield firm Deep Well Services. NG pricing at the Permian Waha hub has gone negative a few times in recent weeks, as excess supply and a lack of pipeline takeaway capacity and gas processing plant capacity has trapped the gas in the region. "Rig activity levels continue to plateau suggesting that these price levels have not generated an activity response," said an analyst with Enverus. Less access to financing and investor pressures to deliver higher returns also are restraining oil production expansions, said the CEO of contract driller Enterprise Offshore Drilling. Potential fees on producers for methane releases above certain thresholds are being watched closely by producers as another cost. The fees would start this year at $900 per metric ton and rise to $1,500 per ton in 2026.

Russia is seeking to import gasoline from Kazakhstan in case shortages occur on the Russian market because of the diminished refining capacity due to maintenance and damages from Ukrainian drone attacks, Reuters reported on Monday, citing industry sources. Russia has asked Kazakhstan to prepare to potentially deliver 100,000 tons of gasoline (835 MMBBL), the sources told Reuters. Russia suspended gasoline exports from March 1 until August 31, 2024, to ensure supply for the domestic market in peak demand season. (Oil Price.com)

Reuters details the rise in heavy crude prices along the Gulf Coast. We have mentioned several of the events that have precipitated the strength in heavier crude grades: Mexico cutting exports of its heavy crude, OPEC+ output cuts ( we noted the UAE keeping more heavy crude domestically for refining purposes), the imminent May 1 opening of the Canadian Trans Mountain pipeline that will send more oil to the Pacific Coast, and the possibility for the reinstatement of sanctions against Venezuela that would put 140 to 170 MBPD of imports into the U.S. at risk. The Heavy versus Light Louisiana crude grade discount has narrowed to 20 cents after being at a 60 cents discount for all of 2023. Prices for Canadian crude in Houston are up, trading at an average discount of $4.35 to WTI this quarter compared with an average discount of more than $6 in the last year.

In the Mideast, the sweet grades of crude are under some pressure as the gasoline crack there has fallen to its lowest value in 3 months, as per Quantum Commodities reporting. The May gasoline crack continued to slide for a sixth straight session to $10.67/bbl.

The Main Pass Oil Gathering pipeline in the Gulf of Mexico has successfully undergone a line integrity test and will be restarted soon after transportation was halted for more than six months, shutting 61 MBPD of offshore production, following a November spill. (Oil Price.com)

Bloomberg adds the following comments re WTI : "? algorithms for crude futures have reached their maximum long positions, according to traders.". "On Friday, volume for bullish oil call options was at the second-highest level on record."

Treasury yields rose on Monday to their highest level since November. The 30 year bond yield was 4.55%. (Bloomberg)

Technicals

The energies are having inside trading days versus the range in prices seen yesterday. Momentum for the crude oil and RB are negative, while that for ULSD remains positive.

WTI spot futures have resistance at last week's high at 87.63 and then at 88.29-88.33. Support lies at the lows from Monday and last Thursday at 84.64-84.69.

May RB sees support at 2.7240-2.7266 and resistance at 2.7910-2.7930 and then at the high seen Friday at 2.8172. The gasoline average at the pump as per the AAA is at $3.608 today, which is the highest level since October 13.

ULSD for May sees support at 2.7135-2.7150 and then at 2.6933-2.6955, which are the lows from Monday and last Thursday. Resistance lies at 2.7566-2.7588 and then at 2.7729-2.7740.

Natural Gas - NG is up 4.9 cents

NG prices are up again today with the theme the past 24 hours being : more demand and less production. Other reasons mentioned for the rally are : NG looks cheap relative to the rest of the energy sector and speculative buying.

Henry Hub (HH) cash prices rebounded Monday to trade near $1.70, thus supporting an NG futures price in the mid-$1.80's,? given the cash futures differential we had seen last week.

The speculative buying noted above may have been due to short covering given the very very large drop of 51,000 contracts in May futures open interest on the CME seen from Monday's activity. That is on the heels of the drop of 45,000 contracts in May open interest seen from Friday.

LSEG said gas output in the Lower 48 U.S. states fell to an average of 99.4 BCF/d so far in April, down from 100.8 BCF/d in March. The April average is up from a level of 97.8 BCF/d seen one week ago in the early stages of the month.

On Monday, LSEG forecast gas demand in the Lower 48, including exports, would fall from 101.2 BCF/d this week to 96.4 BCF/d next week. This is down 2.3 BCF/d versus the estimates seen on Friday.

The Oxford Institute for Energy Studies writes Japan, Korea and Taiwan are all struggling to meet their emissions reduction targets as they work to decarbonize their energy systems. Failures to grow renewables in the power sector fast enough to meet end-of-decade emission targets mean that there will inevitably be recourse to LNG and even coal imports at higher volumes for longer. Japan, Korea and Taiwan are three of the world’s most important buyers of LNG. Only in Taiwan is there a target to increase LNG, from 39% of power generation in 2022 to 50% by 2025 (next year) but this is to offset a phase-out of nuclear, which would increase emissions.

Technically NG has neutral momentum as it has traded as high as 1.905 so far today, being one tic below the high seen last week of 1.906. Above that resistance lies at 1.983-1.993. Support comes in at 1.778-1.782.

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