Energy Market Update 7-19-2024

September Crude is down cents September RB is September ULSD is

Overview

Crude prices have retreated today as a stronger U.S. dollar and concerns over Chinese demand are outweighing a "tighter supply outlook". (to quote Reuters)

Chinese officials acknowledged on Friday the sweeping list of economic goals re-emphasised at the end of a key twice-a-decade Communist Party meeting this week contained "many complex contradictions", pointing to a bumpy road ahead for policy implementation. (Reuters) This statement comes in addition to the recent weaker than expected GDP data and the lower crude oil imports seen in June's data.

A Microsoft technical issue has seen traders in oil, gas, power, stocks, currencies and bonds from London to Singapore struggling to operate on Friday as a global cyber outage hampered operations, companies, banks and trading sources said. (WSJ/BBC)

This week, a Reuters analyst had an unequivocal opinion about China's oil sector. China's crude oil market is unambiguously weak. Not only has the world's biggest importer seen a fall in arrivals in the first half of the year, it has also been boosting the volumes being added to stockpiles, he wrote. China added 1.48 MMBPD to either commercial or strategic oil stockpiles in June as lower refinery runs outweighed soft crude imports. For the first half of 2024, China put about 900 MBPD into storage tanks, and this amount has been accelerating in recent months. The tepid amount of crude oil? imports and the increasing volume of inventory builds undermine the still bullish demand 2024 forecasts from industry groups such as OPEC and the IEA, the Reuters analyst writes. It means that China is going to have to have an exceptionally strong second half in order to meet demand growth estimates, which in turn implies a robust recovery in economic growth, signs of which remain elusive so far, the Reuters analyst concludes.

Sentiment towards China was further dented by reports earlier this week suggesting that the U.S. was planning stricter trade restrictions on the country’s technology sector- a move that stands to attract retaliatory measures from Beijing. Speculation over a Donald Trump presidency also further soured sentiment towards China, given that Trump has maintained largely protectionist policies.

The financial markets seemed disappointed by comments from the ECB President yesterday regarding possible interest rate cuts in Europe. Central bank chief Christine Lagarde said the "question of September and what we do in September is wide open," although markets have largely priced in a 25% rate cut probability. (Quantum Commodities)

Canadian wildfires are again threatening oil production with dozens of new fires breaking out over the last 48 hours. More than 130 fires are burning in Alberta, which are putting about 500 MBPD of marketable oil sands production at risk. (Marketwatch)

Mr. Trump said that he will push for increasing U.S. oil production, a move that could herald higher supply in the coming years. In his acceptance speech Thursday night, Trump uttered the phrase : "drill baby, drill".

"The oil market is once again relatively rangebound," said analysts at ING, in a note. "To the upside, growing Chinese demand concerns are capping the market, following a raft of data earlier this week suggesting a softer demand picture. To the downside, expectations of a tight market through the third quarter continue to provide a floor to prices."

Technicals

Momentums are neutral on the September daily charts for the energies.

September RB has a double top from yesterday/today at 2.4868/2.4865. Above that resistance is seen at 2.4967-2.4981 and then at the 2.52 area. Support comes in at 2.4505-2.4517 and then in the 2.4279 area.

September ULSD support is seen at 2.4831-2.4843 and then at the 2.4682 area. Resistance lies at the highs seen Tuesday/Thursday at 2.5293-2.5315 and then at 2.5400-2.5420.

September WTI sees support at 80.36-80.42 and then at 79.43-79.50. Resistance lies at 82.27-82.29 and then at 83.20-83.24.

Natural Gas --August NG is down 4.9 cents

NG prices are lower now after yesterday's relief rally supported by a bullish EIA storage number and by short covering, Cooler weather near term seems to be weighing on prices for now .

The August futures open interest on the CME dropped by over 26,000 contracts in Thursday's rally. We see this as mostly short covering given the 9 cent higher settlement on the day.

The EIA storage data saw only 10 BCF added. This was well below estimates for a build of between 26 and 29 BCF. Total storage rose to 3.209 TCF. That is +250 BCF/+8.45% versus last year's level and +465 BCF/+16.9% versus the 5 year average storage level. Notable in this week's data is the 10 BCF draw in the key South Central region, which is the Gulf Coast. This suggests strong power burn demand in Texas and the South, given that feed gas volume along the Gulf Coast has been hampered of late.? This week's EIA data could also be a mild compensation to last week's number having been over forecasts. But, given the heat seen this week, next week's EIA storage number should be equally low in terms of storage injection, maybe even better as Freeport trickles back on and more Texas homes get their power back. We harken back to a comment we made last week on July 12th about the possibility of seeing a draw in the EIA data.

The weather outlook in Texas and the South is showing temperatures in the 10 day outlook will revert to below normal. Yet, despite GWDDs sinking to 5 yr lows for July 18 as cooler temperatures expand, the natural gas power burn demand is holding up well and was on track to top 45 BCF/d on Thursday, which was essentially flat versus 2023. The stronger gas power burn was due to very weak wind generation which was not expected to top 600 GWh Thursday, less than half of year-ago levels, as per Celsius Energy data.

For right now, technically, the NG market seems to be framed by support at 2.012 / 2.015 and resistance at the 2.134-2.149 area.

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