Energy Market Update 8-6-2024

Crude is down 25 cents RB is down 1.63 cents ULSD is down 0.70 cents

Overview

Energies are now lower on demand concerns, after they had rallied overnight following the bounce seen Monday off the lows. The rally Monday into the overnight hours was said to be due to the stoppage in production at Libya's Sharara field, impacting output of about 250 MBPD. Geopolitical tension in the Mideast is also being cited as having underpinned prices. News wires are describing the market as "steady" today.

Saudi Aramco CEO Amin Nasser said Aug. 6 that global oil demand is expected to grow by 1.6 MMBPD to 2 MMBPD this year, with the market currently “overreacting” to US recession fears. In March, Nasser had forecast global oil demand growth of 1.5 MMBPD for 2024. The demand growth currently is being driven by jet fuel, gasoline and petrochemicals, he said. US refineries operated at a 93% utilization rate for the past three months, a record high, he noted. (Platts) Saudi Aramco today reported a 3.4% fall in second-quarter profit on lower crude volumes and softer refining margins. (Reuters)

China’s independent refineries cut their combined feedstock imports to a three-month low of 3.65 MMBPD in July amid low utilization rates, data from S&P Global Commodity Insights showed Aug. 5. July's feedstock imports were down 2.97% from June and down 9.7% from a year ago. The small Shandong-based independent refineries operated at an average of 49.1% of their capacity in July, two percentage points lower from June as refining margins fell. On a year-on-year basis, the refining margins fell 74.9%, and the utilization rate was down 12 percentage points from last July, OilChem data showed. (Platts)

The positive U.S. services sector ISM data seen Monday was also said to be supporting the rally in equities and energies of the past 24 hours. July's services ISM rose to 51.4 from June's level of 48.8, which was a 4 year low. Economists polled by Reuters had forecast the services PMI rising to 51.0. Within the services ISM, the measure of services employment increased to 51.1 - growing for the first time since January - from 46.1 in June. The five-point rise in the index was the second-largest in more than three years after January's 6.7 point increase. That would support views that the slowdown in nonfarm payrolls in July did not signal the start of labor market deterioration. (Reuters)

On Monday, at least five U.S. personnel were injured in an attack against a military base in Iraq, U.S. officials told Reuters. It was unclear whether the attack was linked to the retaliation threats by Iran after the death of a Hamas leader last week. (Reuters)

Money managers liquidated a lot of length in ICE Brent and ICE Gasoil in the week ended last Tuesday July 30. Brent length fell by 68,359 contracts (-46,7%) to a total of 77,990 contracts, leaving speculators with their smallest net long Brent position since mid-June. Gasoil length fell by 11,422 contracts (-44.9%) to 14,040 contracts, the smallest long position held since January. (ING) ING added commentary today that reads as follows: " "Investors have been exiting commodities in recent weeks, highlighted in positioning data and this has continued in recent days,".

The stock-market correction hasn't gone far enough, say Goldman strategists. They say that valuations are still elevated, particularly in the U.S., with the price-to-earnings ratio still above 20. The Goldman team said that, in a recession, the price-to-earnings ratio could fall to 18. The Goldman team also put the decline in context - until the summer, the S&P 500 had one of its best starts ever, and the correction has come after one of the longest periods without a 5% drawdown in 20 years. After Monday's 3% decline, the S&P 500 is still up 9% on the year. (Marketwatch) Yet, despite the concerns over equity valuations and macroeconomic growth, Goldman Sachs maintains confidence that the $75 floor for Brent oil prices will hold, driven by several key factors, including resilient oil demand, limited recession risk, and potential recovery in speculative positioning. The analysts note that oil demand remains robust in Western economies and solid in India. US gasoline demand, European oil product consumption, and jet fuel use in OECD countries show above-trend growth. (Investing.com)

Technicals

Momentum is neutral for the energies.

RB spot futures confirmed the mean reversion set up seen Friday, as on Monday the September settlement (2.3336) was over the lower bollinger band (2.3246). Today the lower bollinger band lies at 2.3083. Support basis the DC chart comes in at 2.3045-2.3060 and then at 2.2700-2.2720. Resistance is seen at 2.3600-2.3615 and then at 2.3935-2.3945. The overnight high is 2.3733.

WTI spot futures have a double top from yesterday/today at 74.46/74.56. There is some light resistance ahead of that at 73.81-73.82. Support lies at 71.17-71.25 and then at 70.47-70.50.

ULSD spot futures also have a double top from yesterday/today at 2.3400-2.3402. Above that resistance lies near 2.3608. Support comes in at 2.2646, which is yesterday's low and then support comes in at the early June DC low at 2.2566.

Natural Gas--NG is up 4.5 cents

NG spot futures are rallying after the recent selloff that is said to have been due to continued high NG output in the US and a cooling off of temperatures in some portions of the US in the coming days. Analysts' comments we have seen say that NG is "undervalued" and "close to bottoming", given the size of the decline (40%) off the high seen in mid-June.

While temperatures in the East and Midwest are seen cooling some in the coming days, Platts reports that NG and electricity prices in the Western portion of the US remain "elevated" as excessive heat covers the region. Elsewhere in the US, a hot weather alert was in effect 12 pm ET Aug. 5 to 10 pm Aug. 8 for Midcontinent Independent System Operator's (MISO) South Region, which encompasses Louisiana and parts of Texas, Arkansas and Mississippi, because of high temperatures expected to exceed 100 F.

Estimates for this week's EIA storage data are calling for a build of 28 to 30 BCF. This compares to last year's build of 25 BCF and the 5 year average build of 38 BCF.

Yesterday the next day Henry Hub cash price was valued in the upper $1.70's. This supports a spot futures price of mid $1.90's in our view, given the 16 to 18 cent premium that the September futures carried when August expired.

Canadian Natural Resources Ltd. is tapping the brakes on natural gas production growth until prices improve, management said. Wells will be drilled and completed, but not turned to sales until prices strengthen, according to President Scott Stauth. (NGI) Is this a sign of what is to come for U S NG producers?

Technically momentum for the spot NG futures has turned negative on the DC chart due to the recent selloff. Resistance lies at 2.050-2.056. Support lies at 1.913-1.916 and then at the August contract's low at 1.856.

Disclaimer

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