Energy Market Update 5-2-2024

Crude is unchanged?????? RB is down 23 points???????? ULSD is down 69 points

Overview

Energies were higher overnight after the steep sell off seen Wednesday as Mideast tension is still simmering with Israel set to continue its assault on Southern Gaza and Reuters adds that the potential exists for low prices to spur U.S. government buying for strategic reserves. Also, news wires tout the possibility for OPEC+ to extend voluntary production cuts.

The DOE data seen Wednesday disappointed as crude supplies rose by 7.265 MMBBL, well more than the forecast for a draw of 1.1 to 1.5 MMBBL. The crude build was primarily in the Gulf Coast region. Net crude imports rose by 1.536 MMBPD, which led to the crude build. Disappointment also came from a build in gasoline supplies of 0.344 MMBBL, which was contrary to the draw of over 1 MMBBL that was forecast. Some point to the continued gasoline demand being under 9 MMBPD, which is associated with driving season.? Gasoline demand did rise this week by 195 MBPD to 8.618 MMBPD, equaling the level seen a year ago, but below 2022 demand of 8.856 MMBPD. Distillate demand rose by 126 MBPD to 3.678 MMBPD. This still lags the prior 2 years' demand of 3.872 and 3.956 MMBPD.

Three sources from OPEC+ producers who have reduced production said they could extend the voluntary production cuts of 2.2 MMBPD until the end of the year if demand fails to pick up. (Reuters)

In the Mideast, the situation remains tense as Israel prepares for a ground offensive in Rafah, while a senior IDF official said the military was preparing for an offensive against Hezbollah in the north. (Quantum Commodities)

The U.S. has previously said it aims to replenish the SPR? at $79 a barrel or less. (Reuters)

In India, gasoline demand rose 13.8% year on year in April. Diesel demand was up 1.1% year on year in April. Indian thruput hit a record in March, up 2% year on year amid good economic growth. (Quantum Commodities/XM.com)

The Fed kept rates steady in the minutes released Wednesday, but said that inflation progress has stalled and thus they need to extend their wait and see rate stance. This news contributed to Wednesday's selloff in energies.

The U.S. ISM in April fell to 49.2 from 50.3 in March. Forecasts were calling for a reading of 49.9/50.0. " Manufacturing is being constrained by higher borrowing costs and spending shifting back to services and away from goods.", as per a Reuters comment. A measure of prices paid by factories for inputs approached a two-year high. With price pressures picking up in the first quarter, the surge in input costs is unlikely to be welcomed by Federal Reserve officials, Reuters adds.

A Russian refinery 120 miles Southeast of Moscow was damaged (again) by drones Wednesday. The refinery with a capacity of 340 MBPD was damaged prior in mid-March. Most of the products of the Ryazan Refinery are exported. Oil Price.com reporting says that as of mid-April there were 660 MBPD of refinery capacity offline, down form a total of 907 MBPD as per the end of March, thus reducing the capacity taken offline by Ukrainian drone hits to around 10%, from 14%.? Russia said in early April it can repair all damaged units within two months. Russia’s Energy Minister said that all damaged refineries in the country would be restarted by the beginning of June.?? (Liga.net/Bloomberg/DW.com/OilPrice.com)

Technicals

The energies still have negative momentum, but that for the ULSD and crude are getting near oversold. Rb and ULSD have made fresh lows this morning for the recent selloff.

RB has a mean reversion set up on its DC and June daily charts from Wednesday's close. The lower bollinger band on the DC and daily charts lie at 2.5625. Chart based support is seen at 2.5495-2.5500, Resistance lies at 2.6224-2.6243.

ULSD for June sees support at 2.4300--2.4315 and then at 2.4119-2.4130 via the June daily chart. Resistance lies at the 2.4835-2.4840 area.

June WTI has support at 78.73-78.83 and then at the $78 area. Resistance lies at 80.41-80.49.

Natural Gas--NG is up 4.0 cents

NG prices are higher as better feedgas volume, a somewhat bullish EIA number expected today and Chesapeake talking of output cutbacks are countering the overall weak shoulder season demand this time of year.

NG may also be supported by the prospect for heat in some parts of Texas in the coming week. Houston will temps of 90 to 92 , while San Antonio will see highs of 95 to 98 degrees during a 4 day period next week. The four-month window from May through August marks the high point for power generation and demand in the state of Texas, the largest U.S. user of fossil fuels for power generation and the country's top power sector emitter. (Reuters)

The EIA storage data due out today is seen as a build of 51 to 56 BCF. This compares to last year's build of 62 BCF and the 5 year average build of 72 BCF.

LNG volumes to the Freeport facility rose to 1.0 BCF/d or 45% capacity Wednesday. As a result, total LNG feedgas was expected to reach 12.9 BCF/d, which was a one-month high & down just -0.5 BCF/d YoY, as per Celsius Energy.

Chesapeake Energy said it curtailed production by about 0.2 BCF/d in 1Q and expects to curtail around 0.4 BCF/d in 2Q as its builds capacity for when the market recovers. The company expects its Q2 output to be between 2.6 and 2.7 BCF/f, versus a level of 3.65 BCF/d seen in Q2 2023. The company said it plans to drop an additional rig in the Marcellus around mid-year. The company is also executing its previously disclosed plan to delay bringing completed wells online for production. The company had disappointing earnings in Q1 due to persistently low NG prices. (Reuters)

Yesterday saw a large drop in the June put option open interest on the CME, notably in the $1.50 put strike. We saw size trading on the CME in the June $1.75/$1.50 put spread at a cost of 3.7 cents. There was some June futures buying at $1.93 against the put spreads at the same time. We also saw size trading in the July $1.75/$1.50 put spread at a price of 1/2 cent. We get the sense that the expectation for a drop to $1.50 in NG prices has faded as per the trades we are seeing and the open interest drop in the $1.50 strike.

June NG had a very small trading range of 5.7 cents on Wednesday suggesting that NG has maybe found a range between 1.91 and 2.09. The small trading range is fitting to us for the shoulder season period as the market is quieter. Support for June futures lies at the lows seen this week at 1.913/1.916. The JUne daily chart has lows from prior at 1.907/1.909, thus that area of 1.907 to 1.916 is getting stronger as support. If broken, support below lies at 1.836-1.840 via DC chart data. Resistance lies above at 2.037-2.040.

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