Energy Market Update 8-5-2024

Crude is down $1.29??????? RB is down 4.37 cents???????? ULSD is down 4.65 cents

Overview

Energies have sunk to fresh multi month lows as concerns grow of a possible recession in the U.S. after Friday's weak jobs report. This is added to worries over Chinese demand. Overseas stock markets fell quite a bit.

Stock markets tumbled on Monday on fear of a U.S. recession. Japan's Nikkei average closed 12.40% lower, its largest one-day fall since October 1987. South Korea's equity market lost 8.8%, in its worst performance since 2008.? European shares fell to near six-month lows. After the opening, the benchmark Stoxx Europe 600 index fell by 3%. (Reuters)

A worryingly weak July payrolls report on Friday saw markets price in a 78% chance the Federal Reserve will not only cut rates in September, but ease by a full 50 basis points. Futures imply 122 basis points of cuts in the 5.25-5.5% funds rate this year, and rates of around 3.0% by the end of 2025. (Reuters)

Reuters detailed weak Chinese diesel demand, which 4 of 5 analysts surveyed expect to fall between 2 and 7% on an annual basis in the second half of this year. A rise in the use of LNG powered trucks and a weak property sector are seen weighing on diesel demand. Weak demand from manufacturing and construction is expected to persist in the second half as China grapples with a listless real estate sector that ties up about 70% of its household wealth, while external risks grow. External risks are coming from both relatively slow worldwide economic growth and also ongoing U.S. tariffs on Chinese goods. China's oil consumption contracted in the second quarter, pushing its refiners to cut fuel output and imports of crude. Gasoline demand, which accounts for a fifth of China's oil consumption, is expected to expand marginally in the second half, forecasts say, as EV sales continue to grow. Rystad and Woodmac expect gasoline demand annual growth of 1.2% and 1% respectively, to 3.45 MMBPD and 3.97 MMBPD, in the second half, while FGE expects demand to stay flat. Aviation fuel is the main growth sector for China's refined fuel use, thanks to pent-up travel demand, with analysts forecasting on-year growth of 8% to 15%, to between 870 MBPD to 1.04 MMBPD, in the second half. Reflecting overall weak demand, Chinese refinery throughput in the first half was down 0.4% on the year at 14.44 MMBPD, official data showed, with Sinopec, Asia's largest refiner, cutting diesel output 8.8% as domestic sales of refined fuel fell 2.5%. FGE expects refinery runs to drop 200 MBPD annually in the second half to 14.7 MMBPD, while Kpler forecasts crude intake averaging 15.9 MMBPD from July to December, little changed from 15.81 MMBPD a year earlier.

One bright spot today is the Caixin China Services PMI having rebounded in July, coming in at 52.1 versus 51.2 in June. This extends the expansion streak (readings over 50) to 19 straight months. The July reading beat the forecast of 51.4. (Forexlive)

Production at Libya's Sharara oil field, the country's biggest, was partially suspended on Sunday August 4 after protestors entered the operations room, sources told S&P Global Commodity Insights. Estimates of production lost ranged from 28 MBPD to 70 MBPD, although it couldn't be determined what current production was. Sharara has a maximum capacity of 320 MBPD with recent production at 250 MBPD. A source at Libya's National Oil Corp said that the disruptors were taking steps to reduce output to zero. (Platts)

Saudi Arabia raised their OSP for September loadings for their flagship A-Light crude oil grade to Asia by 20 cents. The hike in the OSP was the first in 3 months and was said to reflect Saudi confidence in demand from China. Yet, Reuters and Bloomberg surveys had forecast an increase of 50 cents for the A-Light to Asia. Medium and Heavy crude prices to Asia were unchanged. Prices to NW Europe and the Mediterranean were lowered by $2.75 for all crude grades. Prices to the U.S. were reduced by 75 cents for all crude grades.

OPEC's July oil output, as per a Reuters survey, showed output rose by 100 MBPD to 26.70 MMBPD. Saudi Arabia provided the largest supply boost last month of 70 MBPD, the survey found, as exports rebounded from June when they were lower than expected. Production reached 9 MMBPD in July, close to the kingdom's target.

CFTC data seen Friday for the week ended Tuesday July 30 showed money managers again reduced length in RB and WTI by quite a bit. RB length fell by 9,088 contracts, mostly due to long positions being reduced. WTI net length on ICE/CME combined fell by 31,294 contracts as here also mostly long positions on the CME were liquidated.? ULSD positions were basically unchanged, but money managers remained net short 15,229 contracts.

The Baker Hughes oil rig count seen Friday was unchanged.

Retail prices for gasoline and diesel in the U.S. have fallen further today. The diesel price of $3.788 is the lowest since June 18. A month ago, the average diesel price was $3.846. The gasoline average price today is $3.472. One month ago it was $3.514.?

Technicals

The ULSD, RB, Brent and Gasoil spot futures contracts are all testing their DC chart's lower bollinger bands today. Some analysts are describing the fall in energies as being "oversold against underlying fundamentals." The highs of the overnight session were made on the opening.

RB has a mean reversion setup from Friday's close below the lower DC bollinger band. The band today lies at 2.3030. Support via the DC chart lies at 2.2479. Resistance comes in at 2.3045-2.3060 and then at the 2.33 area. Momentum points lower.

ULSD sees its lower bollinger band lying at 2.2825. Resistance above is seen at 2.3134-2.3143 and then at 2.3455-2.3458. Support lies at 2.2566 and 2.2352. Momentum points lower.

WTI sees support at 71.17-71.25 and then at 70.47-70.50. Resistance lies at 73.95-74.00. Momentum is trying to turn down here.

Brent has its lower DC chart bollinger at 75.47. Support lies at 74.70-74.79 and resistance at 77.60-77.65.

Gasoil spot futures have support at the low seen recently at 695.50 and resistance at the 720 area. The lower DC bollinger here intersects at 703.25.

Natural Gas-- NG is down 4.6 cents

The weakness in global markets is seen weighing on NG and TTF pricing. NG is also likely being hurt by a cool down setting up in the Midwest and Eastern sections of the U.S. in the coming days. September NG has fallen to a fresh contract low today.

Temperatures in Chicago, Detroit, Washington, DC, Philadelphia and NY will be as much as 13 to 14 degrees below normal for a day or so and remain below normal during the period from Wednesday 8/7 to Saturday 8/17.

The Friday CFTC COT report showed money managers covered 2,182 contracts of their net short position in the week ended Tuesday July 30. Their total net short position stood at 53,537 contracts.

Friday's Baker Hughes NG rig count showed a decline of 3 units.

TTF has been repelled from its attack on its upper bollinger band the past 3 sessions. There is a double top from last Thursday/Friday at Euro 37.075 / 37.150. Support below lies at the 34 Euro/Mwh area. Last week, prices surged due to concerns that geopolitical tensions in the Middle East could disrupt supply. However, this week, prices started under significant selling pressure in global financial markets.

On Friday, LSEG forecast average gas demand in the Lower 48, including exports, will rise from 105.4 BCF/d the past week to 110.0 BCF/d this week. This was down 0.8 BCF/d from Wednesday's forecast and down 1.9 BCF/d total from Monday's forecast.

Technically, the DC chart's lower bollinger band lies near the next support from the August futures low seen on its expiration. The bollinger band lies at 1.858. The August expiration low was 1.856. Below that support is seen at 1.746-1.754. Resistance lies above at 1.983-1.991.? Yet, despite the negative price action, momentum remains positive on the DC chart.

Disclaimer

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