Energy Market Update 8-27-2024

Crude is down 74 cents????? October RB is down 1.14 cents??????? October ULSD is down 3.06 cents

Overview

Energies are lower, giving back some of the recent steep gains. Words being used today are "slipping", "cooling", and "easing" as news wires talk of the need to assess recent geopolitical events--most notably how much Libyan production has actually been shut in.

Libya's El Feel oilfield has halted output, engineers told Reuters on Tuesday, as closures spread amid a standoff over control of the central bank and the country's oil revenue. There has still been no confirmation of any closures from Libya's internationally recognized government in Tripoli - which is heavily dependent on the fields for its revenues - or from the National Oil Corp (NOC) which controls the country's oil resources.? Production capacity at the (now shuttered) El Feel oilfield reached 70 MBPD in May.? Engineers at the southeastern Amal and Nafoora oilfields said earlier on Tuesday production was halted, while engineers at Abu Attifel, also in the east, said production output was reduced. Fields in the east account for almost all the country's production, which is said to be about 1.17 MMBPD. (Reuters)

Iran's supreme leader opened the door Tuesday to renewed negotiations with the United States over his country's rapidly advancing nuclear program, telling its civilian government there was “no barrier" to engaging with its “enemy.” Ayatollah Ali Khamenei's remarks set clear red lines for any talks taking place under the government of reformist President Masoud Pezeshkian and renewed his warnings that Washington wasn't to be trusted.? (AP)

Platts detailed a few days ago record volumes of diesel arriving in Europe this month. US exports will account for the bulk of arrivals. The arrival of new product has already translated to strong injections to European fuel inventories, leaving diesel and gasoil volumes stored at the Amsterdam-Rotterdam-Antwerp almost 20% higher than 2023 levels and at the highest levels since June 2023. Demand has flagged amid stalling German inland consumption and little sign of imminent recovery. "Diesel cracks in Europe are mostly healthy and continue to trade sideways, and there's talk about seasonal uplift this autumn due to heating oil season," said an oil analyst at S&P Global, before flagging that ARA stocks above the 5-year average could mitigate strength.

Today's U.S. national retail gasoline price has fallen to $3.350, the lowest since March 4th. Experts say the trend is likely to continue in the coming months, possibly leading to $3-a-gallon gasoline for the first time since 2021. OPIS' chief? analyst offers the following reasons for lower demand: Remote work means fewer commuters. There are an estimated 3.3 million electric vehicles on U.S. roads, more than twice as many as in 2021. More EVs have helped keep demand for gasoline in check, although Kloza notes that the effect is relatively modest, with every million EVs sold reducing demand by about 22,000 barrels a day. And Kloza also notes the gradually aging U.S. population — older Americans, he says, “tend to drive a lot less.”?? An AAA spokesperson says: " prices at the pump should “keep dropping steadily” through the end of the year. Especially as refineries start to shift away from summer blend gasoline toward cheaper winter blends in September."? GasBuddy’s De Haan says pump prices could crack the $3-a-gallon level before Thanksgiving and remain low into next year. (NPR)

Goldman Sachs has lowered its expected trading range for Brent crude oil prices. Goldman said it now expects spot Brent prices to trade between $70/b and $85/b through 2025, with prices averaging $77/b in 2025. They cite weaker Chinese demand and greater U.S. production for their price estimate drop. Contrary to earlier expectations of drawdowns during the summer months, inventories have remained higher than anticipated, they say. (Investing.com/Platts)

Technicals

Technically the energies are having inside trading days today.

WTI spot futures have support at 75.84-75.85 and then at 75.18-75.23. Resistance lies at the Monday high at 77.60-77.69 and then at 78.16-78.19.

October RB sees support at 2.1136-2.1145 and then at 2.0877-2.0879. Resistance lies at 2.1601-2.1615 and then at 2.1708-2.1714, which is Monday's high.

October ULSD has support at 2.3310-2.3316. Resistance lies at the Monday high at 2.3840-2.3863.

Natural Gas-- October NG is down 4.9 cents

NG prices have slipped further today as the stepladder downward path continues. The down move is due to expectations for less demand as temperatures are set to cool come early September, but for now the heat is back on in much of the U.S.

We failed to mention yesterday that CFTC data issued Friday showed money managers covered short positions in the week ended Tuesday Aug. 20 as per the COT report. The net short position fell by 21.133 contracts to a total net short position of 40,280 contracts. This short covering seems to have been a powerful catalyst for the NG spot futures to have risen to the 2.301 high seen August 15th.

The natural gas power burn demand rose sharply Monday to above 48 BCF/d as intense late-Summer heat expands across the Heartland. Monday's power burn was almost 3 BCF/d above the year ago level. At the same time, production was seen at 100.8 BCF/d Monday, down from last year's output for the day of 103.0 BCF/d. (data from Celsius Energy)

A Reuters analyst detailed how Asian LNG prices may have peaked. The price as of August 23 for N. Asian spot delivered LNG fell 70 cents on the week to $13.80, from the 8 month high seen the week before. The analyst cited strong demand from Japan & China this summer for the rise to the high. Japan's demand was a function of A/C load need due to the warm summer. But, Chinese demand he says was fueled by use for trucking. Wood Mackenzie saying in a report last month that LNG truck sales "rose from below 10% to reach as much as 30% of the market in the latter months of 2023".? Price sensitive buyers of LNG in Asia have retreated recently due to the runup to 8 month highs.? N. Asian demand typically sees a peak in summer, usually August, followed by declining imports until October before arrivals kick up again to meet winter demand. Asian prices may fall back also as European storage has reached 90%, more than two months prior to its target date, thus reducing the competing force for LNG imports.

Technically, our attached line chart shows the spot futures for JKM to have had a mean reversion last week, in which the contract pierced the upper bollinger band and then fell back. The high then was $14.50/MMbtu. Support lies best at the $12.78/MMbtu area.

As for European TTF prices, they found support the prior 3 sessions just above 36 Euro/Mwh for the spot futures. Resistance above lies at the 40.45 Euro/Mwh area. Currently the price for the spot September TTF is about 38.62 Euro/Mwh.

Yesterday LSEG forecast average gas demand in the Lower 48, including exports, will slide from 105.2 BCF/d this week to 102.8 BCF/d next week. These forecasts were up a total of 0.8 BCF/d from those seen Friday.

The September NG/LN options expire today with the $1.90 put showing open interest on the CME of 15,961 contracts. The open interest for the $1.90 puts rose by 2,654 contracts on Monday, with a strategy having been seen done Monday of selling the $1.90 puts against buying the $2.00 call for September for a cost of 3 ticks.

Technically the spot futures are not far from the September contract low of 1.882. One colleague suggests the following though :" A Major Bounce Is Coming, But Don’t Try To Time It." That timing notion of a bounce likely not in the cards for now is underscored by the continued downward pointing momentum. October NG has support at 2.041 and then at its contract low of 1.991. Resistance lies at 2.147-2.149 and then at 2.186-2.191.

Disclaimer

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