Energy Market Update 8-8-2024

Crude is up 11 cents??????? RB is up 1.49 cents????? ULSD is down 1.03

Overview

"Steady" and "consolidating" are the words being used to describe energy prices today. Rb and Crude oils are higher today, while ULSD & Gasoil are near unchanged. The crude oil market is supported by the force majeure in Libya and the better than expected draw in crude supplies seen in yesterday's DOE statistics. But, these factors are being offset by the specter of the "financial turmoil" seen earlier this week and the weak demand suggested by the manufacturing data seen last week in the U.S. and China.

In the DOE stats seen Wednesday, crude supplies fell by 3.728 MMBBL, which was better than forecast and better than the small build seen in the API data. That marked the sixth consecutive week of crude oil stock declines, noted analysts at ING, leaving commercial crude inventories at their lowest level since February. Product demand fell on the week for both gasoline and distillates. They both registered demand this week below that seen in the prior 2 years. Also, net crude imports rose on the week. Crude oil production rose by 100 MBPD to a record total of 13.4 MMBPD. Gasoline demand fell on the week by 283 MBPD to 8.967 MMBPD. Thus it fell back under the psychologically strong level of 9 MMBPD that is associated with driving season. The prior 2 years saw gasoline demand of 9.302 and 9.123 MMBPD. Distillate demand fell by 256 MBPD this week to 3.469 MMBPD, which is below the last 2 years figures of 3.762 and 3.724 MMBPD. Net crude imports rose by 552 MBPD this week as crude exports fell more than crude imports. Crude exports fell by 1.281 MMBPD to a total 3.638 MMBPD, while crude imports fell by 729 MBPD to 6.224 MMBPD. The DOE data does not add up to warrant a crude rally, given that U.S.? production rose on the week, while supply also increased via the rise in net crude imports of 552 MBPD for the week. The supply rise is not quite offset by the rise in crude inputs to refineries (hence demand) of 252 MBPD. The crude adjustment accounting entry shown by the DOE is minus 437 MBPD this week, thus assisting the crude withdrawal by roughly 3 MMBBL.

Libya's state-owned oil firm NOC declared force majeure on crude exports from its El Sharara field on Wednesday, after production was forcibly shut down earlier this week. Eight cargoes of Esharara crude oil totaling 5 MMBBL were scheduled to be exported from Zawia in August, according to loading programmes. A 630 MBBL cargo chartered by Norway's Equinor departed the terminal on August 3rd, Kpler data showed. El Sharara was producing 260 MBPD-270 MBPD before the latest disruption. Exports of Esharara crude from Zawia averaged 163 MBPD between May and July, according to Kpler.? (Argus Media)

The AAA reports that today's national retail gasoline price at the pump is $3.455, which is the lowest since June 25. One month ago the price was $3.506. The diesel average price at the pump today is $3.784, down from the price one month ago of $3.844.

"Thankfully, there's a consensus that most speculative shorts and carry trades involving the Japanese yen, which were at the heart of recent market turmoil, have been substantially reduced," said one analyst quoted in Quantum Commodities reporting.

Technicals

RB & WTI have momentums that are trying to turn positive on their DC charts. ULSD still has negative momentum. The energies today so far are having inside days with narrow trading ranges.

WTI spot futures see support at the $74 area and then at 72.48-72.58. Resistance lies at the $76 area and then at 77.29.

RB for September sees support at 2.324502.3262 and then at 2.3050-2.3075. Resistance lies near 2.4231.

ULSD September futures see support at 2,3134 and then at 2.3019. Resistance lies at 2.3764-2.3778 and then at 2.4006-2.4020.

Natural Gas- NG is down 4.4 cents

NG spot futures are lower this morning as the next day cash Henry Hub price has retreated back below $2. The current cash price is $1.90, which supports a September futures of near $2.06/$2.08.? Some of the pressure on the spot futures may be a function of the ongoing index roll. This is very evident in the CME's open interest figures from yesterday- with the September contract seeing open interest decline by over 49,000 contracts. This open interest drop may have also been due to some short covering. TTF prices have risen today to their best value since last December on the DC chart.

The EIA storage data due out today is seen as a build of +26/+30 BCF. This compares to last year's build of 25 BCF and the 5 year average build of 38 BCF.

NG production slipped this week due to pipeline cleaning and inspection projects. NGI says that this maintenance slowed output by 2.5 BCF/d.? This corroborates the drop we cited yesterday in Bloomberg data that had Tuesday's output at 100.8 BCF/d, down from the production figure on July 26 of 103.9 BCF/d. Yet, LSEG said gas output in the Lower 48 states had risen to an average of 103.6 BCF/d so far in August, up from 103.4 BCF/d in July. (Reuters) Celsius Energy analysis re NG production seen Wednesday read as follows: " Due to declines in natural gas imports & production, total supply will slide by -1.3 BCF/d to just 106.2 BCF/d today per my early-cycle pipeline data, down -2.6 BCF/d vs 2023 & the lowest since mid-June, if it holds. "

TTF prices have risen in the past 2 days on the back of the increased fighting in the Ukraine war, with Ukraine forces having seized a key section of a natural gas pipeline in a Russian border town. This is the only entry point for Russian gas into Europe. (Energy Watch) Bloomberg reporting says that the Russian gas is still flowing via Ukraine, but at a reduced volume. There are still concerns over the future of Russian pipeline flows via Ukraine, with Ukraine making it clear that it does not plan to extend the transit deal with Gazprom when it expires at the end of this year. Today's TTF spot futures price near Euro 38.930/Mwh is equal to $11.41/MMbtu. The spike high seen in early June at 38.70 has thus been exceeded. Next resistance lies at 41.760 to 41.845 Euro. Support lies at 35.65/35.75 Euro/Mwh. As we have seen several times of late, the TTF spot futures are attacking the upper DC bollinger band. Momentum is currently still negative. ING points out that speculative longs in TTF are at their highest level since 2021. While storage is comfortable, speculators appear fixated on the risks that hang over the market.

TTF prices have moved higher even as storage levels in Europe are still above the 5 year average. As of August 6, EU storage was more than 86% full, above the 5-year average of 78%. However, lower LNG inflows recently, due to some cargoes being diverted to Asia, have meant that the pace of storage builds is somewhat slower year-on-year, and so inventories are starting to fall below year-ago levels. EU storage was 87% full at this stage last year. Also impacting EU storage will be the usual summer scheduled maintenance in Norwegian gas fields. But ING writes "our balance still shows that EU storage will likely go into the 2024/25 winter with storage close to 100% full, assuming no significant supply shocks."? ING adds :" We now expect TTF to average EUR30/MWh this quarter." UBS Research says that the heightened geopolitical tension raised by Ukraine and the recent Mideast news have established a new price floor in the mid-to-low €30s for TTF prices. UBS expects a return to the low-€40s range in the fourth quarter as seasonal demand increases. (Investing.com)

The uptick in TTF pricing comes even as recent data shows European gas demand having weakened this year. EU gas demand over the first seven months of the year is down a little more than 3% YoY.? The power generation sector continues to drag on demand with spark spreads in negative territory. Strong renewable output and stronger nuclear generation have weighed on fossil fuel power generation. ING's balance shows that EU gas demand is likely to be largely flat YoY in 2024, growing less than 1%. This still leaves demand 19% below 2021 levels.

Demand for LNG in Asia remains a supportive factor for global gas prices. LSEG data shows that Asian LNG imports over the first seven months of 2024 grew 10.3% YoY.? Imports grew into every key market in Asia except for Bangladesh. Unsurprisingly the key drivers behind the growth in LNG were China and India, which made up 64% of the growth in Asian LNG demand so far this year. Asia is expected to be the dominant driver in global gas demand growth this year, a trend which is unlikely to change in the years ahead as economies in the region transition towards cleaner fuels. Residential and commercial, power and industry demand have all witnessed growth this year in Asia. This demand and uncertainty over flows in Europe should support U.S. LNG exports. But the build out of future U.S. LNG plants has been put in some doubt recently due to legal issues and contract disputes between construction companies and the energy companies.

On Tuesday, a federal appeals court ruled to vacate FERC authorization for 2 LNG projects in Texas.? The Federal Energy Regulatory Commission must do more to justify its reauthorization of two liquefied natural gas projects. One is named Rio Grande and the other is named Texas LNG. (Bloomberg law) This most recent decision will likely delay Texas LNG’s final investment decision, which it planned to make later this year. The length of any delays depends on how long it takes FERC to develop a supplemental Environmental Impact Study (EIS)—a process that typically takes at least 6 months—and how any further appeals play out, one research firm said.? (Oil &Gas Journal) The Rio Grande facility is said to be looking at a Phase 1 completion in 2029, as per Reuters. The facility has been in development for several years, suffering repeated delays, Reuters adds. Will this impact any ongoing LNG projects set to come onstream in the next year or 2 ?? One analyst offered the following comment regarding the Appellate Court decision : " "Long-term markets could see some selling after the D.C. Circuit Court ruling. " CME settlements Wednesday showed Calendar 2028 and 2029 contracts down slightly--versus the positive settlements in calendar 2026 of as much as 6 cents and calendar 2027 of as much as 2 cents.

LSEG estimated 220 cooling degree days (CDDs) over the next two weeks. The normal for this time of year is 190 CDDs. (Reuters)

LSEG forecast average gas demand in the Lower 48 states, including exports, to be 109.7 BCF/d this week, before declining to 104.5 BCF/d next week. These estimates were down a total of 1.7 BCF/d from Monday's estimates.

In its August STEO, the EIA projected end October 2024 NG storage at 3.954 TCF, down from last month's estimate of 3.968 TCF. The Desk's survey for end of season is calling for supply to be 3.922 TCF.

Technically, NG has positive momentum. Support lies at 1.991-1.994 and then at 1.920-1.927. Resistance lies at 2.149-2.155 and then at 2.218.

Disclaimer

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