Energy Market Update 7-18-2023

Crude?is?up?18?cents????RB?is?up?2.32?cents?????ULSD?is?up?1.76?cents

Overview

The words being used today to describe crude prices are "stabilizing" and "holding". Energies are being supported by a weaker dollar and some possible hoped for Chinese stimulus.

The Chinese Central Bank is seen possibly lowering bank reserve requirements in the 3rd quarter after an official referred to the requirement as a potential monetary policy tool to shore up China's economic recovery. However, solely cutting the reserve requirement may not be sufficient to revive the economy, analysts said, and urged more easing of property market regulations and stronger fiscal support, including consumption coupons. (Investing.com/ChinaDaily.com)

Overshadowed by the negative GDP data out of China was the fact that refinery thruputs rose?by 1.6% in May as refiners resumed operations after maintenance, meeting summer travel demand. Total refinery throughput was 14.83 MMBPD. This was up from May's level of 14.60 MMBPD. The average run rate for the first 6 months of the year was 14.66 MMBPD, up 9.9 % year on year. (Reuters)

Monday's weekly data from Vortexa shows the amount of crude oil held worldwide on tankers that have been stationary for at least a week fell -21% w/w to 94.60 MMBBL as of July 14.

The EIA's monthly Drilling Report forecasts that U.S. crude production from the major shale basins will fall in August by 18 MBPD to 9.397 MMBPD. Bloomberg reporting says that some of this is due to capital spending dropping as producers seek to pay out more dividends to shareholders. WSJ expounds on the rig count and U.S. shale production in an article, in which they state "the shale patch is shedding rigs at the fastest pace since the height of the Covid-19 pandemic despite healthy oil prices." "Private companies, which added rigs at a breakneck pace as the pandemic abated, have drilled up many of their best remaining wells, forcing them to decelerate." The number of rigs drilling for oil and gas has dropped to about 670 from around 800 at the beginning of the year, with private drillers accounting for roughly 70% of the decrease, according to investment bank TD Cowen.??Small frackers have largely exhausted their best wells, the Wall Street Journal reported last year. Public oil companies' executives have been signaling that inflation in the oil patch has started to subside and that the tight market for labor, fracking pumps and rigs seems to be loosening up. Inflation and less-productive wells had increased the average break-even for companies. Companies are dealing, though, with limited pipeline capacity, leaving some no choice but to flare a large chunk of gas production that they can't bring to market, they said.

Technicals

With the expiration of the August WTI options, trading in futures has seen the volume move to September. Total WTI open interest on the CME fell in Monday's activity by over 35,000 contracts due to the options expiration. Momentum remains negative for the energies.

September WTI support is seen at 72.63-72.69. There is a double bottom from yesterday/today at 73.78-73.82. Resistance above comes in at 74.99-75.06 and then at 75.94-76.00.

September RB futures see support at 2.5580-85 from the 60 minute chart and then at 2.5404-20 from the daily chart. Resistance is seen at 2.6130 and then at the recent high seen last week at 2.6211.

ULSD for September sees support at 2.5345-61 and resistance at 2 of the 4 prior sessions' highs at 2.6127-2.6151.

Natural?Gas--NG?is?up?8.9?cents

NG is higher as Texas is setting records for power usage. WSJ cites the EIA's Drilling Report from Monday as supportive for NG today as it portends a possible decline in production. ( see the above comments re production prospects.)

The EIA in its monthly Drilling report forecasts U.S. NG shale production to drop next month by 0.1 BCF/d to 97.972 BCF/d.?While the expected August decline is small, it nonetheless may suggest the trend toward ever-higher US production rates may have finally peaked as low prices for the commodity force producers to curb activity, as per WSJ commentary.

ERCOT said that power demand on Monday set a record of 81.911 MW, and that demand will rise further to 86.575 MW today. Houston is set to see highs of 100 or more degrees through Friday. The normal high is 94 degrees. (Reuters)

The notion of a "range bound" and "tight range" we mentioned yesterday is amplified in that the 30-day close-to-close futures volatility has fallen to to 52.2%, the lowest level since April 2022 for a fifth day in a row. Historic volatility has averaged 84.5% so far this year. (Reuters)

Refinitiv forecast U.S. gas demand, including exports, would rise from 108.7 BCF/d this week to 109.1 BCF/d next week. These estimates are higher than those seen Friday of 106.6 and 107.4 BCF/d respectively for this week and then next week.

On Monday, the IEA , in its annual gas market report, said that "even if Europe’s gas storage sites are filled close to 100 per cent of capacity before October — the expectation of which has helped lower prices in recent months — that was “no guarantee” against future market tensions."?“Our simulations show that a cold winter, together with a full halt of Russian piped gas supplies to the European Union . . . could easily renew price volatility,” the IEA said.?The IEA said that in a scenario where there is a combination of a cold winter, a complete halt of Russian pipeline gas and low liquefied natural gas availability, EU storage could enter next April with only 20 per cent gas, a level that would threaten supply disruptions. (Fin.?Times)

The momentum indicator on the weekly continuation chart has turned negative this week. This has led us to consider that August futures have seen their highs above 2.80 given that the contract has only one more week to live, which amplifies the notion of the seasonal change upcoming. Short covering will not be the catalyst for a rally given that money managers have in fact turned net long the past 2 weeks.

For now we see support for the August futures at the prior 2 lows at 2.484-2.492. Light resistance is seen at 2.632-2.634 and then at 2.692-2.696. Momentum remains negative basis the DC chart. There was a notable drop in open interest in NG futures on the CME from Monday's activity. It looks primarily like long liquidation in the August contract.

Disclaimer

This article and its contents are provided for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any commodity, futures contract, option contract, or other transaction. Although any statements of fact have been obtained from and are based on sources that the Firm believes to be reliable, we do not guarantee their accuracy, and any such information may be incomplete or condensed.

Commodity trading involves risks, and you should fully understand those risks prior to trading. Liquidity Energy LLC and its affiliates assume no liability for the use of any information contained herein. Neither the information nor any opinion expressed shall be construed as an offer to buy or sell any futures or options on futures contracts. Information contained herein was obtained from sources believed to be reliable, but is not guaranteed as to its accuracy. Any opinions expressed herein are subject to change without notice, are that of the individual, and not necessarily the opinion of Liquidity Energy LLC