Energy Market Update 5-8-2024

Crude is down 65 cents??????? RB is down 2.36 cents?????? ULSD is down 0.81 cents

Overview

Energies are lower as API data showed builds versus forecasts for draws. Some point to a stronger dollar for some of today's price weakness. Some also cite the EIA raising its global supply estimate, while also reducing their demand forecast in yesterday's Short Term Energy Outlook (STEO).

API???????????? Forecast?????????? Actual

Crude Oil??? -1.43/+1.2?????? +0.509

Gasoline???? -0.8/-1.392??????? +1.46

Distillate???? -1.1/-1.197??????? +1.7

Cushing?????? +0.795??????????? +1.339

In the EIA's STEO seen Tuesday, the biggest change from last month was the reduction in the price forecasts for crude oil in this month's report. WTI is seen averaging $83.05 in 2024, down from April's estimate of $83.78. The drop in 2025 was more pronounced. WTI is seen averaging $80.88 in 2025, down from April's estimate of $82.48. Brent in 2024 is seen averaging $87.79 ( versus April's estimate of $88.55). In 2025, Brent is seen averaging $85.38 ( down from last month's forecast of $86.98). The price reductions were a function of supply estimates being raised and demand being lowered. Global oil demand for 2024 was lowered to 102.84 MMBPD from April's estimate of 102.91 MMBPD. Global demand in 2025 was left unchanged at 104.26 MMBPD. U S output and demand were left unchanged. Global supply in 2024 is seen averaging 102.76 MMBPD, up from April's estimate of 102.65 MMBPD. Global production in 2025 is seen at 104.65 MMBPD, up from April's estimate of 104.61 MMBPD.

Oil prices found some support on Tuesday from a U.S. government solicitation to buy oil for the Strategic Petroleum Reserve. The DOE announced solicitations for up to 3.3 MMBBL to be delivered in October. This as prices fell below the $79-a-barrel cap it set itself for the replenishment. Of the 180 MMBBL that the Biden administration sold from the SPR during 2022 at a price around $95, the administration has purchased back 32.3 MMBBL at an average price of $76.98? throughout 2023 and early 2024. An additional 18.4 MMBBL are anticipated to be refilled by October 31, 2024," said S&P Global Commodity Insights. (Reuters/WSJ/Platts)

Countering news stories that stated that Russia's Deputy Prime Minister Novak suggested OPEC+ might raise production, Novak took issue with the headline on the Interfax report, saying? "There is currently no discussion within OPEC+ on increasing oil output." (MarketWatch) The story seen Tuesday of a possible production increase had weighed on energy prices.

According to Kpler, Chinese crude inventories marked a two-year low at the beginning of April and even though they have built since then, at 944 MMBBL they are some 50 MMBBL lower than a year ago.

Saudi Arabia's national oil company credited a lower volume of crude oil sold and weaker refining and chemicals margins for the decline in its profits. Net profit was $27.27 billion, down from $31.88 billion a year prior, missing the $27.79 billion expected by analysts polled by Visible Alpha. (WSJ)

The strength of the U.S. housing market and potentially stalled progress on inflation means monetary policy may not be as tight as Federal Reserve officials think it is, Minneapolis Federal Reserve President Kashkari said in a new essay on Tuesday that raises the possibility price pressures are "settling" to a level above the Fed's 2% target. Prior to the Fed's last meeting he said that disappointing inflation data and ongoing growth might mean the Fed does not cut interest rates at all this year, but that further increases in the benchmark policy rate were "not a likely scenario." (Reuters)

Morgan Stanley said they see the geopolitical risk for oil prices dissipating as fears of further escalation in the conflict subside. They said they had removed a $4 risk premium on oil prices for the third quarter as a result yet still see strong fundamentals supporting Brent prices at around $90 a barrel over the summer. (Reuters)

Crude oil and RB fell to fresh lows overnight for the recent selloff. RB has momentum that is bottoming. ULSD has momentum that is trying to stay positive from an oversold condition, while the momentum for WTI is neutral at a near oversold condition.

June ULSD is well above the lows seen the past 5 sessions. Chart support lies at last Thursday's low of 2.4219. Resistance comes in at the 2.4814 area.

June RB sees support at 2.4795. The low today is above that at 2.4826. Resistance lies at the 2.55 area and then at the 2.58 area.

WTI spot futures see support at the overnight low at 76.79-76.89 and then at 76.32-76.38. Resistance lies at the prior 2 sessions' highs at 79.09-79.17.

Natural Gas- NG is up 4.3 cents

NG has risen to a fresh high for the recent rally as the themes continue of rising LNG demand, lower NG production and some heat in Texas. Some support may also be attributed to the EIA's STEO painting a slightly more bullish picture than seen last month. All this even as Reuters reporting says that there is " a forecast calling for demand to decline more than expected over the next two weeks and an ongoing oversupply of gas in storage."

The EIA's STEO issued Tuesday lowered their production estimate for gas production in 2024 and 2025. U.S. NG production in 2024 is seen averaging 103.0 BCF/d, down from the estimate of 103.6 BCF/d seen in April. For 2025, gas output is seen averaging a record 104.8 BCF/d , down 0.1 BCF/d from April's estimate. The EIA? raised their NG price forecasts for this year and next. NG prices are seen averaging $2.18 in 2024, up 3 cents from last month's forecast, while the forecast for 2025 rose by 20 cents to $3.09. The EIA lowered NG demand in the US for 2024, while raising it for 2025. Demand for 2024 is seen at 89.3 BCF/d, versus April's forecast of 89.9 BCF/d. While demand in 2025 was raised to 89.6 BCF/d, from last month's estimate of 89.1 BCF/d. The EIA in its monthly outlook says it expects Q2 dry gas production to be down 2% from Q1. In addition to price-induced output curtailments, "a wide difference between the price of natural gas and petroleum products is encouraging producers to extract higher-value hydrocarbon gas liquids from the natural gas stream," the EIA says.

NG production, as per Celsius Energy data, fell by 0.9 BCF/d from Monday to Tuesday's output of 98.1 BCF/d; this is down 3.2 BCF/d versus last year and a new seasonal low. Output is down nearly 8 BCF/d from December’s record highs, Celsius adds.

The heat in Texas has caused power supplier ERCOT to issue a Weather Watch for Wednesday "due to unseasonably high temperatures, high levels of expected maintenance outages during the spring shoulder months, and the potential for lower reserves." (Reuters)

In the spot market, meanwhile, U.S. power and gas prices turned negative in Texas, California and Arizona as pipeline maintenance trapped gas in the Permian Shale in West Texas amid low demand for energy and ample hydropower in the West. (Reuters)

The amount of gas flowing to the 2.1 BCF/d Freeport plant was on track to hold near a two-month high of 1.4 BCF/d for a third day in a row on Tuesday, up from an average of 0.4 BCF/d in April. (Reuters)

LSEG projects NG demand in the US to be 92.6 BCF/d this week dropping to 90.4 BCF/d next week. These forecasts seen Tuesday were down 1.4 BCF/d total from Monday's estimates.

Much has been made the past few days in the news about Artificial Intelligence (AI) and the demand surge that will come in the future.? A spike in power usage from AI data centers could significantly boost natural gas demand in the second half of the decade, analysts at Tudor Pickering Holt & Co said in a report. As much as 8.5 BCF/d of natural gas could be required additionally to match the rise in demand, the report said. Wells Fargo puts the demand increase at 10 BCF/d. According to the Tudor, Pickering report, natural gas prices could average $4/ MMBTU during the second half of the decade. Prices on the CME for some of the latter half of the decade are already near there. Calendar year 2026's strip settled Tuesday at an average price of $3.925, Calendar year 2027 settled at an average price of $4.003, and Calendar year 2028 settled at an average of $3.955. The Tudor report estimates current power demand from data centers at 11 GW, which, in the base case, is expected to grow to 42 GW by 2030. CNBC reporting on the AI demand surge expected, said that renewables alone will struggle to meet the surge. Solar and wind alone may be inadequate to meet the electricity load, because they are dependent on variable weather, according to an April note from consulting firm Rystad Energy. Natural gas is expected to supply 60% of the power demand growth from AI and data centers, while renewables will provide the remaining 40%, according to Goldman Sachs’ report published in April. (CNBC) Bottom line as Chevron's CEO says : "Data centers don’t shut down when the sun goes down,” Wirth said. “We need to have the ability to provide baseload supply for all of these needs. I think natural gas will be a big part of that equation going forward.” (CNBC)

In NG futures settlement prices Tuesday from the CME, the first 4 contract months settled up on the day, while the rest of the NG curve was down on the day. June was up 1.2 cents, July was up 0.8 cents, August was up 0.3 cents and September was up 0.2 cents. The rise in settlement prices in the first 3 contract months coincided with open interest declines on the CME in those contract months. This suggests that Tuesday's higher settlements were due to some degree to short covering.

Technically NG has momentum on the DC chart that is getting overbought. Resistance above comes in at 2.303-2.308 and then at 2.325-2.328 from data from the June daily chart. Support lies below at 2.173-2.179. The June daily chart sees the upper bollinger band intersect at 2.288. On the positive side, the 100 day moving average on the June daily chart lies at 2.245. The June futures have not been above the 100 day moving average since November 8.

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