Energy Market Update 6-13-2024

Crude is down 13 cents RB is up 0.65 cents ULSD is up 1.54 cents

Overview

Crude oil prices are lower on the back of the DOE inventory build and the Fed minutes that suggest only 1 rate cut this year versus expectations prior for 2 cuts. Some also cite the bearish IEA report seen yesterday as continuing to weigh on energy prices.

The Federal Reserve held interest rates steady on Wednesday and pushed out the start of rate cuts to perhaps as late as December. Fed Chair Jerome Powell said policymakers were content to leave rates where they are until the economy sends a clear signal that something else is needed. Under the current projections, absent a surprise in upcoming inflation or jobs data, the cuts would likely not begin until December, moving the Fed's decision out of the Nov. 5 U.S. presidential election cycle. The market prior had expected that there would be 2 rate cuts this year, beginning in September. (Reuters)

Crude stocks built by 3.73 MMBBL in yesterday's DOE report. This was contrary to the draw seen in the API data and the forecast for a draw. Crude production rose by 100 MBPD to a total 13.2 MMBPD. Crude inputs to refineries fell by 97 MBPD. But they remained high at 17.047 MMBPD. The crude build was due mostly to the rise in crude net imports. Crude oil imports rose and crude oil exports fell by almost equal amounts. The net crude imports rose by 2.559 MMBPD on the week. So the question here is whether this sharp rise in net crude imports is a one time event? or is it a function of high refinery runs and thus a greater need for more crude imports to come? And / or is it also a function of less demand for now for US Crude to be exported ? Gasoline supplies rose by 2.566 MMBBL. This was also contrary to a draw seen in the API data and a forecast for a modest draw. But, gasoline demand rose by 94 MBPD this week to 9.040 MMBPD. Yet, this demand level lags slightly behind the prior 2 years' figures by 50 to 150 MBPD. Distillate demand rose by 282 MBPD to 3.649 MMBPD, beating the prior 2 years by 30 to 75 MBPD. The Distillate supply increase was as expected at +0.881 MMBBL.

The IEA yesterday forecast a supply glut for oil by the end of the decade, citing surging supplies and slowing demand growth for crude thanks to lower-emissions energy sources. Oil-demand growth is set to peak by 2029 and start to contract the next year, reaching 105.4 MMBPD in 2030 as the rollout of clean-energy technologies accelerates. Demand in 2025 is seen at 104.2 MMBPD. The rise in demand in this decade will be driven by strong demand from economies in Asia, particularly in India and China. Meanwhile, oil-production capacity is set to increase to nearly 113.8 MMBPD, driven by producers in the U.S. and the Americas. which are forecast to account for three quarters of the expected increase to 2030. (WSJ)

The EIA sees US distillate demand climbing in the second half of the year as manufacturing demand rebounds, but limited by increased substitution of renewable diesel. The EIA expects manufacturing activity will increase over the next 18 months, supporting trucking demand and increasing distillate consumption. The EIA forecasts distillate crack spreads will remain lower than last year through the summer and will then increase toward the end of the year when more distillate is used for heating and the corn harvest. (EIA.gov/outlooks)

In the latest attack on shipping, Iran-allied Houthi militants on Wednesday took responsibility for small craft and missile attacks that left a Greek-owned coal carrier in need of rescue near Yemen's Red Sea port of Hodeidah. (Reuters)

Technicals

Momentum for the energies is still positive, although that for August RB is seen turning towards neutral.

August RB has support at 2.3577-2.3580, which has been tested with a low of 2.3558 today. Below that support lies at 2.3352-2.3370. Resistance above lies at 2.3932-2.3954 and then at 2.4137-2.4155.

WTI spot futures see support at 77.63-77.69, which was tested with a low today of 77.67. Below that we see support at 76.67-76.70. Upside resistance is seen at yesterday's high at 79.32-79.38. Above that the recent highs at 80.60-80.62 provide resistance.

The ULSD spot futures have acted the best in the price drop seen the past 24 hours as the contract today failed to fall below yesterday's low. Support is seen at 2.4230 and then at 2.4009-2.4014. Resistance lies at 2.4703-2.4713 and then at 2.4924-2.4935.

Natural Gas--NG is down 5.2 cents

NG is lower again today as it tests $3.00 on the downside again today as it did yesterday. Profit taking and supply concerns have stopped this week's rally.

NG was likely weighed down Wednesday by the news that EQT has started to bring back the 1 BCF/d curtailed in late February. The EQT CEO described it as an incremental undertaking without a specific timeline. He said EQT could unfurl the retrenchment gradually, with the pace determined in part on prices. (NGI)

Also possibly limiting the NG upside was the news from Tuesday that the FERC authorized Mountain Valley Pipeline to put the 303-mile, 2.0 BCF/d pipeline into service. (NGI) Analysts expect the Mountain Valley startup will allow Appalachian producers to slowly boost output in coming months as other energy firms fix constraints on connecting pipes in Virginia and other states, allowing gas flows on Mountain Valley to reach the pipe's full 2-Bcf/d capacity. (Reuters) But, we had heard from a colleague earlier in the week that most estimates are for the flow on the MVP pipeline to be about 0.7 to 1 BCF the first year.

Yesterday, ANR lifted the force majeure on its Southeast Mainline. The pipeline interruption of June 3rd had affected 0.378 BCF/d of supply to the Gulf Coast. The pipeline is now seen operating at full capacity. (https://ebb.anrpl.com/)

Today's EIA storage data will shrink the storage surplus with a forecasted increase of 73 BCF as per the WSJ survey. This compares to the 5 year average build of 89 BCF and last year's build of 90 BCF.

On Wednesday, LSEG forecast gas demand in the Lower 48, including exports, would jump from 95.3 BCF/d this week to 98.9 BCF/d next week. This was basically unchanged versus the forecast seen Monday. On the supply side, LSEG said gas output in the Lower 48 U.S. states fell to an average of 97.7 BCF/d so far in June, from 98.1 BCF/d in May.

NG futures open interest on the CME rose a total of 6,682 contracts in Tuesday's activity, even as July spot month open interest fell by 24,095 contracts. This suggests a fair amount of new length was added in Tuesday's trading in the August thru October as per the CME data.

Technically NG has seen momentum turn negative on the DC chart basis. The price action the past 24 hours strongly suggests that the highs seen this week are a near term peak. Resistance lies at the overnight high at 3.091-3.096 and then at the high seen Tuesday at 3.159. Support at 2.956-2.960 has been tested this morning with a low of 2.954. Below this we see support at 2.884.

Disclaimer

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