Energy Market Update 8-9-2023

Crude?is?up?82?cents????RB?is?up?2.3?cents?????ULSD?is?up?3.11?cents

Overview

Fears of disruptions to Russian oil flow out of the Black Sea has propelled crude oil and ULSD to fresh multi month highs. ULSD is the leader today, helped also by a surprise draw in the API data.

President Zelensky said that Ukraine would retaliate to prevent Russia from "blocking our waters". (Bloomberg) "The Black Sea route accounts for nearly 15-20% of the oil that Russia sells daily on global markets and is also a major transit corridor for Kazakh crude.” as per ING analysis. (Quantum)

API?????????????????Forecast???????????Actual

Crude?Oil???????-0.233/+1.3???????+4.07

Gasoline????????-0.3/+0.217????????-0.4

Distillate????????-0.107/+0.2????????-2.1

Cushing??????????+0.575??????????????-0.1

Runs????????????? ?+0.3%??????????????n/av

The EIA's Short Term Energy Outlook (STEO) issued Tuesday raised price forecasts for crude oil quite a bit. They also increased their predictions for U.S. crude production to new record levels. U.S. crude production is seen at 12.76 MMBPD in 2023, up from last month's forecast of 12.56 MMBPD. Production next year is seen rising to 13.09 MMBPD, up from last month's estimate of 12.85 MMBPD. U.S. and global demand figures were basically unchanged from last month. The price estimates for 2023 WTI and Brent were raised to $77.79 and $82.62 respectively, from last month's forecasts of $74.43 and $79.34. In 2024, WTI and Brent are seen averaging $81.48 and $86.48, up from last month's estimates of $78.51 and $83.51.?U.S. GDP growth in the EIA's forecast increases by 1.9% in 2023, up from 1.5% in last month’s forecast.

Top U.S. shale oil producers are raising output by pulling more from each well, but lack the level of activity to add significant new volumes, a Reuters analysis of investor forecasts showed. U.S. producers expect to inch production higher for the rest of the year, according to second-quarter forecasts, by squeezing more oil and gas from each well. The gains will add 850 MBPD to production, according to U.S. estimates. Companies are seeing lower fracking costs and longer well life, using more sand to bring oil up faster among other ways. Most analysts remain skeptical shale gains can outrun the well decline rates over the long term without a sharp boost in drilling activity. "Significant growth will require a reversal of rig count declines and a stronger response to upticks in oil prices.", as Enverus Energy analysis. (Reuters)

We notice a fair amount of bullish call option spreads in heating oil spreads having been added this week. The Oct/Nov, Nov/Dec and Dec/Jan spreads have seen the 8 cent, 15 cent and 20 cent calls' open interest rise this week.

Technicals

Momentum for crude oil and ULSD are positive, while that for RB remains negative.

WTI spot futures have risen to their best value since last November. Resistance above is seen at 85.20-85.30. Support lies at 82.59-82.63, which is just below the overnight low of 82.67. Below that support is seen at 81.51-81.52.

ULSD spot futures have risen to their best value since early February. Support is seen at 3.0570-3.0616. Resistance lies at 3.1475-3.1502. The RSI has risen again over 70, suggesting an overbought condition.

September RB sees support at 2.8281-2.8302, tested with a low overnight of 2.8292. Resistance above is seen at 2.8943 and then at 2.9130.

Natural?Gas?-NG?is?up?16.4?cents

The NG spot futures price has risen today to its best value since the beginning of March, supported by the continued heat wave in the South, storage surplus reductions seen in the coming weeks and by a strong rally in the European gas price today.

The rally seen Tuesday was led by the winter months as they settled up more than the front 2 months. If the storage surplus shrinks as expected that puts more of a strain on reliability of winter supplies. Again Tuesday, NG futures open interest on the CME fell quite a bit as September positions were closed out as well as rolled forward.

The EIA's STEO raised estimates for NG production in the U.S. for 2023 and 2024 to fresh records, while also lowering their price estimates for this year and next. NG output in 2023 is seen at 103.0 BCF/d ( versus the July estimate of 102.3 BCF/d). In 2024 production is seen rising to 104.1 BCF/d, up from last month's estimate of 102.4 BCF/d. The EIA sees the NG Henry Hub price in 2023 averaging $2.58, down from July's estimate of $2.62. In 2024, the Henry Hub price is seen averaging $3.22, down 7 cents from last month's forecast. U.S. NG demand estimates were raised slightly. Demand in 2023 was raised by 0.3 BCF/d to 89.3 BCF/d and for 2024 demand was raised by 0.1 BCF/d to 87.9 BCF/d. The EIA sees end of season storage this year at 3.882 TCF, which is down marginally from last month's estimate of 3.885 TCF.

TTF prices have leaped today to the best value for the spot month September contract since July 3rd. Prices are up 24% at this writing as supply concerns are heightened by the Ukraine President's threat, as well as maintenance issues surrounding Norwegian supply.

Technically NG is firm with little resistance ahead of the psychological $3 level. Momentum and price action remain positive. The only drawback is the upper bollinger band on the DC chart is close overhead. That band lies currently at 2.873. Resistance though is up at 3.027, the high from early March. Support comes in at 2.839 and then at 2.786-2.789.

Disclaimer

This article and its contents are provided for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any commodity, futures contract, option contract, or other transaction. Although any statements of fact have been obtained from and are based on sources that the Firm believes to be reliable, we do not guarantee their accuracy, and any such information may be incomplete or condensed.

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