Energy Market Update 9-17-2024

Crude is up 3 cents RB is down 0.23 cents ULSD is down 0.73 cents

Overview

Crude prices are unchanged this morning. Overnight prices were supported by the continued themes of a Fed rate cut this week, some crude supply still shut in in the Gulf of Mexico, and the lingering oil supply outage in Libya. News wires still mention the underlying demand concerns, which are reflected in distillate cracks, which we detail below. Platts commentary suggests that the demand woes in China may cause a fresh round of stimulus from Beijing.

OPEC+ ratcheted up pressure on quota busters after delaying output hike as per Platts reporting Monday. Plans by OPEC and its allies to begin restoring production at the end of 2024 may rest on the performance of compliance laggards Iraq and Kazakhstan. Iraq alone pumped more than 200 MBPD over its quota in August, according to OPEC data -- more than the 180 MBPD output hike that the entire alliance was hoping to implement in October and has now postponed to December. Iraq pumped 4.228 MMBPD in August, according to secondary sources, down 50 MBPD from July but still well above its quota of 4 MMBPD. Kazakhstan, meanwhile, was on target with its August quota but still has many months of cap busting to make up for, with a patchy record on compliance.

The amount of oil and gas production that was shut in Monday in the GOM shrank from Sunday. Monday's oil production shut in amounted to 213.2 MBPD (= 12.18 % ), which was down from Sunday's 338.69 MBPD.

One analyst's comments re the crude price : "the rebound "must be put into perspective as crude lost 23% between early July and last week's low. Crude was exceptionally oversold ahead of this rally, and even with the latest pickup, it remains oversold,". "Crude hasn't bounced sharply enough to set off a serious bout of short-covering which should have driven prices much higher," he added. But, overall, banks' estimates for crude prices are being lowered.

Macquarie has trimmed its oil price outlook for the rest of 2024, citing lower-than-expected demand, especially from China, and growing non-OPEC supplies. The bank cut its outlook for Brent and WTI by $2/b to $80/b and $75/b, respectively, flagging a "heavy oversupply" across the next five quarters. UBS became the latest bank to trim oil price forecasts, citing weaker global demand and healthy supplies. The Swiss bank lowered its 2024 Brent forecast by $4 to $80/b per barrel, slashing its Q4 outlook to $75/b from $83/b. By contrast, Goldman Sachs gave a more positive picture for Q4, saying Brent prices could recover to $77/b in the next quarter as current pessimism over demand subsides and stock levels fall. (Quantum Commodities)

Quantum Commodities reported about how both Gasoil margins were near a 3-year low in Asia and diesel cracks in Europe had slumped to a fresh low. Asian refiners' margins slumped to their lowest seasonal levels since 2020 last week as supplies of diesel and gasoline rose after peak summer travel demand ended, industry officials and analysts said on Friday. Persistent weak margins could prompt refiners to trim their output again. Asia has been cutting runs since May, 400,000-500,000 barrels per day, including China," said the director of Research at consultancy Energy Aspects. "We've already included 300,000 bpd of run cuts for Q4 potentially another 100,000 based on where the margins are today." Complex refining margins in Singapore, the regional bellwether, slumped to $1.62 a barrel this week, LSEG data showed, with the average in the first week of September down 68% from the same period last month. Asia's diesel margins are hovering near 18-month lows while the cash discounts for 10ppm sulphur gasoil have hit a near four-year low amid a widening in contango in its market structure.

As for Europe's diesel market, Reuters commentary says :" Since June, traders have been moving record volume of diesel on very-large crude carriers from Asia to the west, adding to rising inventories in Europe." “Unsurprisingly this weakness is leading refiners to reduce their run rate. In Spain, it is reported that Repsol will be cutting run rates by around 5%. While in Italy, ENI will reportedly reduce run rates by as much as 10% at some of its refineries. A reduction in run rates is obviously not great for crude oil demand,” according to a note from ING Bank. (Platts)

In the U.S, the average retail price for diesel has fallen to its lowest value since October 4, 2021 as per EIA data. The EIA says the price as of 9/16 was $3.526. This is down $1.107 from a year ago, as per the EIA's data.

As for gasoline, prices in Asia slipped to their lowest in three years this week with cracks hovering at their lowest since October, LSEG data showed. Gasoline prices came under pressure from a switch to winter grade in the United States, and as Nigeria's new Dangote refinery has started producing the motor fuel, as per a Taiwanese oil executive. He added that his firm Formosa Petrochemical is gradually reducing operating rates at its refinery ahead of a scheduled maintenance in mid-September, Lin said. Its refinery is processing 420,000-430,000 barrels per day of crude this week, compared with 440,000-450,000 bpd in August. (Reuters)

Today is the last trading day for the LO / WTI crude options for October. This led to a sharp decline in the October futures contract's open interest on the CME in Monday's activity. The $70 strike for the expiring October options has a total open interest of near 25,000 contracts, which may cause some fireworks for the futures expiration today. Will options players seek to keep the settlement near $70 today?

Technicals

Momentum is positive for the energies. The WTI and RB contracts look to have an inverted head and shoulders pattern after the recent sell off.

In WTI, on the DC chart, the inverted head and shoulders pattern suggests a possible rebound to near $76.30. For now, though, there is a double top on the DC WTI chart from yesterday/today at 70.70-70.75. Above that resistance lies at 71.46. Support lies at 68.75-68.82.

November RB's inverted head and shoulders suggests a rebound to near $2.07. For now there is a double top from yesterday/today on the November Rb chart at 1.9559/1.9580. Above this resistance comes in at 1.9781. Support lies at 1.8975-1.8985.

ULSD on the DC chart has tested support at 2.0814/2.0824 today with a low of 2.0815. below this support lies at 2.0676 and then at the recent low at 2.0431. Resistance lies at 2.1157 and then at 2.1468.

Natural Gas-NG is up 4.7 cents

NG prices are higher, having made a fresh high overnight for the recent rally, as "Futures Find Footing Amid Warmer Weather, Tighter Supply/Demand Balances"-to quote an NGI headline.

As for NG shut ins, Monday saw 0.298 BCF/d ( 16.02%) of gas production shut in, versus Sunday's volume of 0.515 BCF/d. Overall, in the U.S., lower-48 state dry gas production Monday was 100 BCF/d (-0.7% y/y), according to Bloomberg data.

Natural gas futures pushed higher Monday as LNG export volumes bounced back over the weekend following former Hurricane Francine and lingering heat across southern regions was expected to boost cooling demand, as per NGI commentary seen Monday. LNG net flows to US LNG export terminals Monday were 13 BCF/d (-2.0% w/w), according to BNEF, which puts it within 0.5 BCF/d of its pre-Francine levels, as per Celsius Energy.

LSEG forecast average gas demand in the Lower 48, including exports, rose from 99.6 BCF/d last week to 100.2 BCF/d this week and is seen rising to 100.9 BCF/d next week. The forecasts for last week and this week were up 0.6 BCF/d total from last Wednesday's forecasts.

Dutch and British wholesale gas prices declined on higher forecast temperatures this week and supply outages easing, as per Reuters reporting. EU storage as of September 11 was 93.2% full. This compares to last year at this same time having storage that was +0.2 TWH higher. But, this year's storage level is +100 Twh versus the 5 year average from 2019 to 2023, as per NGI reporting. Today, the TTF spot futures made a fresh low since late July, testing support at 34 Euros/Mwh,; but prices have held. The TTF spot futures contract has been testing the lower bollinger band on the DC chart the past week. Momentum is getting near oversold on the DC chart.

A pipeline explosion yesterday near Houston may have caused some of the upward price action. The fire occurred at a valve station on a 20-inch (50.8-cm) pipeline used to carry NGLs, according to Energy Transfer. NGLs can be used as inputs for petrochemical plants or burned for space heating and cooking, among other uses, according to Reuters reporting.

Technically, momentum on the DC chart is getting near overbought. Upside resistance comes in at 2.440-2.448 and then at 2.484-2.485. Support lies at 2.348-2.350 and then at 2.313-2.315. The 100 day moving average on the DC chart lies at 2.334 today.

Disclaimer

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