Energy Market Update 5-25-2023

Crude is down $1.13??July RB is down 4.72 cents??July ULSD is down 3.50 cents

Overview

Concerns over the U.S. economy have resurfaced today with worries over the debt ceiling, a stronger dollar, and comments from a Fed Governor. In addition, Russia's Deputy Prime Minister says he sees no changes at the upcoming OPEC meeting. (Quantum)

The credit rating agency Fitch has raised the possibility of a downgrade to the U.S. government's debt rating. Fitch placed it on credit watch negative, citing the uncertainty surrounding the debt ceiling. (Investing.com) House Republicans are pushing debt ceiling talks to the brink, displaying risky political bravado as they prepare to leave town Thursday for the holiday weekend just days before the U.S. could face an unprecedented default that could hurl the global economy into chaos. A defiant House Speaker Kevin McCarthy said the debt ceiling standoff was “not my fault” as Republican negotiators and the White House failed to finish out talks. (AP)

Fed Governor Waller sees a rate 'hike' or a 'skip' in June, but no 'stop'. He is concerned about the lack of progress on inflation, and while skipping an interest rate hike at the U.S. central bank's meeting next month may be possible, an end to the hiking campaign isn't likely. (Reuters)

Russian Deputy Prime Minister Alexander Novak said he expected OPEC+ to stand pat at its meeting in Vienna on June 4. “I don't think that there will be any new steps, because just a month ago certain decisions were made regarding the voluntary reduction of oil production by some countries due to the fact that we saw the slow pace of global economic recovery," Novak said, according to the state-owned news agency RIA. (Investing) 17 of 23 analysts polled by Bloomberg see no change in OPEC policy at next week's meeting.

Yesterday's DOE stats were very bullish on several fronts. Crude supplies fell by 12.456 MMBBL. This was the biggest drop since Nov. 25,2022. The drop was mostly due to a fall in net crude imports of 1.249 MMBPD. Gasoline supplies fell by 2.053 MMBBL taking them to their lowest seasonal level in a decade as per Quantum Commodities. Product demand rose. Gasoline demand was up 529 MBPD for the week to 9.437 MMBPD, beating last year's level of 8.798 MMBPD and falling just short of the 2021 figure of 9.479 MMBPD. Distillate demand rose on the week by 462 MBPD to 4.198 MMBPD, beating last year's level of 3.867 MMBPD, but falling short of the level seen in 2021 of 4.461 MMBPD. Yet, most notable for us is the rise in finished gasoline production. Finished gasoline production rose this week by 833 MBPD to a very high figure of 10.315 MMBPD. We see this as an indication that refiners are seriously ramping up for driving season. The question becomes whether refiners will keep churning out gasoline at this high rate in the coming weeks and will demand be able to keep up?

Curious to us is the fact that news stories about a new wave of Covid infections in China have not been cited so much in comments about the energy markets. "Chinese authorities are rushing to push out vaccines to fight an ongoing new wave of coronavirus cases expected to peak in June and infect as many as 65 million people a week" : Washington Post quote. The new outbreak could be the largest wave of infections since China dismantled its strict zero-covid regime last winter, causing as much as 85 percent of the population to be infected at the time, the Post adds.

Technicals

RB momentum basis the July daily chart is turning negative from overbought condition today, as we suggested the past few days. Quantum Commodities points out that the gasoline crack hit a 10 month high yesterday amid refinery outages and tight supply, they said. July RB sees resistance near 2.62, which was tested yesterday with a high of 2.6239. Support lies at 2.5419-2.5446.

July ULSD has negative momentum. Resistance on the daily chart is seen at 2.4086-2.4106. Support lies at 2.3442-2.3447.?

The crude oils still have positive momentum on the DC chart bases. Resistance lies at 74.63-74.73 on the WTI DC chart. Support comes in at 72.19-25. Yesterday's rise to 74.73 tested the 50 day moving average on the DC chart that intersects today at 74.53.

Natural Gas- July NG is down 1.0 cent

NG is lower as today's EIA data is set to widen the surplus to last year and the 5 year average. A build of 98 to 106 BCF is expected. This compares to last year's build of 88 BCF and the 5 year average build for the period of 96 BCF.

The U.S. Natural Gas Supply Association said today :"Ample storage levels, milder weather and a boost in production are likely to place downward pressure on US natural gas prices this summer, even as demand is seen reaching record levels." These comments came in the their annual Summer Outlook. This comes even as they project for customer demand to average a record-setting 97 BCF/d, rising 3% from last summer, mainly in the power burn and export sectors. But they see a commensurate 3% summer-on-summer increase in production to 101.3 BCF/d while entering summer with much higher storage levels. This summer was also forecasted to have 7% fewer cooling degree days than in 2022. Strong exports and increased power sector demand "make additional natural gas pipeline takeaway capacity imperative so that quick-ramping natural gas can be available to provide balance and reliability to the grid," (Reuters)

Refinitiv forecast U.S. gas demand, including exports, would ease from 91.2 BCF/d this week to 90.5 BCF/d next week. Gas flows to the seven big U.S. LNG export plants fell from a record 14.0 BCF/d in April to an average of 12.9 BCF/d so far in May due to maintenance work at several plants. (Reuters)

The amount of gas exported from Canada to the United States was on track to hold near a near three-week high of 8.1 bcfd for a second day in a row on Wednesday. Over the past few weeks, the average amount of gas flowing from Canada to the United States averaged just 7.2 BCF/d?as wildfires in Alberta and other western provinces caused some producers to shut oil and gas output, according to Refinitiv. That is well below the 8.3 BCF/d average amount of gas Canada exported to the United States since the start of the year and 2022's average of 9.0 BCF/d. (Reuters)

Today's June NG options expiration sees the $2.25 with a fair amount of open interest. There are over 20,000 contracts outstanding on the CME between puts and calls. No other nearby strikes have significant open interest. The $2.00 and $2.50 have sizable open interest, but given cash next day pricing in the low $2.20's, we do not see either of those strikes being at risk today. June NG futures this morning are valued near $2.35.

Normal weather patterns through the first week of June are not enough to spark a rally for NG prices currently it seems.

Technically July NG tested its 50 day moving average on the opening of the overnight session last night. The moving average lies at 2.589; the overnight high is 2.607. Support basis the daily chart lies at 2.415-2.417. The past 3 sessions see lows between 2.484 and 2.495. Is this support? Upside resistance lies at 2.630-2.634. We see the market as well defined in its parameters. Downside support lies near 2.31, while the high seen last week of 2.685 was a 50% retracement of the high seen in early March at 3.336 to the low of 2.031 seen May 5th. Momentum on the July daily chart remains negative.

Disclaimer

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