Energy Market Update 5-28-2024

Crude is up $1.35???? July RB is up 2.73 cents?????? July ULSD is up 5.08 cents???? (these prices are versus Friday's settlement)

Overview

Energy prices have risen further versus values seen Monday morning as the themes of OPEC+ rolling over output cuts and better travel demand in the U.S are augmented by geopolitical tension.

Tensions in the Middle East ratcheted up after an Israeli strike on Rafah left dozens of civilian casualties, while an Egyptian soldier was killed in a clash with Israeli military close to the Rafah Border Crossing.

Additionally, the UN nuclear watchdog agency IAEA issued a report Monday warning over Iran's continuation of its uranium enrichment program, which could also heighten geopolitical tensions. Iran has further increased its stockpile of uranium enriched to near weapons-grade level, as per the report. (Quantum Commodities/AP news)

U.S. air travel has surged, with domestic flight seat numbers in May increasing by 5% month-on-month and nearly 6% year-on-year, surpassing 2019 levels, according to flight analytics firm OAG. (FX Empire) Friday saw a record number of passengers screened by the TSA at US airports. (CBS News)

This is in addition to the most number of travelers in 20 years expected on the roads this past holiday weekend, as per the AAA.

Saudi Arabia is expected to cut its official selling prices to Asia for first time in 5 months for July loadings. This is after hitting a five-month high in June. The price for the flagship A-light crude grade is seen dropping by 30 to 50 cents. This is due to Middle East benchmarks and margins for Asian refiners having weakened, refining sources said. The sources added that Aramco is likely to reduce its OSPs after the first and third-month price spread for Middle East benchmark Dubai narrowed in backwardation by about 40 cents this month. The average margin at a complex refinery in Singapore, the bellwether for Asian refiners, slipped under $3 a barrel in the past 15 days from $3.96 in April, LSEG data showed. (Reuters)

Also aiding prices the past day or more is the prospect that OPEC+ will roll over its production cuts into the third quarter when they meet this coming weekend. The decision to hold the meeting online is being read as a sign members aren't expecting any major disagreements after a chaotic November meeting that initially left oil traders confused and also saw Angola leave OPEC, the commodity analyst at Commerzbank, said in a note. (Market Watch)

In the U.S., PCE price index data, which is the Federal Reserve’s preferred inflation gauge, is due Friday, and is expected to show some mild cooling in inflation. But the reading is still expected to remain well above the Fed’s 2% annual target, giving the bank more impetus to keep rates higher for longer. Beyond the inflation data, purchasing managers index readings from top oil importer China are also due this week.? (Investing.com)

Technicals

Momentum for the charts for the July products is negative, but prices are well off the lows seen Friday. Momentum for the WTI on the DC chart has turned positive.

WTI spot futures have resistance at 80.11 and then at 81.57-81.62. Support lies at 77.17-77.25.

July RB support is seen at 2.4509-2.4521. Resistance lies at 2.5339-2.5359.

July ULSD sees support at 2.4375-2.4385. Resistance lies at the 2.50 area.

Natural Gas- July NG is up 3 ticks versus Friday's settlement.

NG prices are near unchanged now after attempting to rally Monday. The heat is abating in Texas for the next several days. Today is the last day for the June LN/NG options with the $2.50 strike with very large open interest totaling 41,600 contracts. That is likely to act as a magnet for the close for the June futures. Currently NG June futures are near $2.51.

A Reuters analyst detailed LNG imports into Asia this month. Total imports are seen at 23.61 million metric tons (=1,166 BCF). This month's imports are up from the year ago level of 20.75 million metric tons (=996 BCF). The rise in LNG imports is being attributed greatly to the fact that this month's cargoes were likely purchased when prices fell below $10/MMBtu. As a result, India's May imports are the strongest since October 2020. Now that the spot price has risen decisively above that level, it raises the possibility that Indian utilities will scale back purchases as LNG will no longer be competitive in the domestic market. This may start to undermine imports in South Asia from July onwards, as well as in China, where a rise above $10/MMBtu makes it difficult for LNG to compete in the domestic market. Yet, China's imports are likely to exceed the 5.80 million tons from May last year, continuing the trend so far this year of higher LNG arrivals amid a recovering economy and constrained hydropower output. China, the world's top buyer, is on track to receive 5.96 million tons in May, down from 6.47 million in April and the lowest monthly total since February, according to Kpler. The overall dynamic for the big three North Asian importers (China, S. Korea and Japan) is that arrivals are trending lower, in line with usual seasonal moves, but imports are higher on an annual basis, which does provide fundamental support for the higher spot price.

Notable news from the weekend is the positioning change held by money managers seen in Friday's CFTC Commitment of Traders Report. Money managers covered short positions and thus turned net long for the first time since Nov. 3 , 2023. One source said that this reduces the possibility of a short squeeze and reinforced for them that a near term high is in place.

Technically July NG has negative momentum. July futures are currently trading below the lows seen all last week. Resistance lies at 2.905-2.910. Support lies at the low seen on the opening Sunday evening at 2.732-2.735. Below that support lies at 2.669-2.673.

Disclaimer

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