Energy Market Update 9-24-2024

Crude is up $1.51??? November RB is up 3.86 cents???? November ULSD is up 3.37 cents

Overview

Energies are higher on the back of Chinese stimulus, increased Mideast tension and supply disruptions in the U.S. due to the hurricane seen hitting the Gulf Coast region later this week.

China's central bank on Tuesday unveiled its biggest stimulus since the pandemic to pull the economy out of its deflationary funk, but analysts warned more fiscal help was vital to hit the government's 5% growth target. The Banks's Governor announced that the central bank will in the near future cut reserve requirement ratios by 50 basis points, freeing up about 1 trillion yuan ($142 billion) for new lending. In a bid to increase market liquidity, the PBOC further planned to lower its seven-day repo rate by 20 bps while also hinting at a possible 0.2%-0.25% cut in loan prime rates, which is the central bank’s preferred benchmark for interest rates. China's central bank will guide commercial banks to reduce the interest rates on existing mortgages by 0.5 percentage point on average, in order to provide some relief to households. Asian stocks hit 2-1/2 year highs. The yuan currency jumped to a 16-month high against the dollar.? (Reuters/Platts)

Yet, the IEA director said Monday that global oil demand growth will likely remain below 1 MMBPD in the near future, largely because of a slowdown in China's economy. "In the last 10 years more than 60% of global oil demand growth came from China only," he said. "Production growth continues to outpace the rise in demand, which is helping to keep a lid on oil prices despite the loss of barrels from Libya and geopolitical turmoil in the Middle East," he said. Output growth is being driven primarily by the "American quartet" – the US, Canada, Brazil and Guyana, he said. Non-OPEC crude production is growing this year, with S&P Global Commodity Insights analysts expecting output to rise 1.55 MMBPD between the third quarter of 2024 and first quarter of 2025. "Canada is leading global growth over this period," the analysts said in a report, pointing to an expected increase of 315 MBPD by Q1 2025. "Oil sands mines are ramping up out of the second quarter 2024's maintenance, and at the same time, debottlenecking (new pipelines) initiatives are beginning to add new volumes." (Platts)

Israel's military said it launched airstrikes against Hezbollah sites in Lebanon on Monday, which Lebanese authorities said killed 492 people and sent tens of thousands fleeing for safety. Israel launched more attacks today/Tuesday.? Hezbollah said it attacked military facilities in Israel on Tuesday. Israel's military chief said Hezbollah, which suffered major blows recently, must not be given a break and that attacks on the Iran-backed group would be accelerated after Lebanon's deadliest day in decades. Russia said Israeli strikes on Lebanon could completely destabilize the oil-producing Middle East. (Reuters)

In the Gulf of Mexico, as the second hurricane in two weeks was predicted to tear through offshore oilfields, several oil companies paused some of their production. BP shut in oil and gas output at 2 offshore platforms and curtailed output at two others. Chevron said it has begun evacuating all personnel and shutting in production at 2 offshore platforms. Shell said that it had shut in production at one platform, curtailed production at another, and was pausing some drilling operations. (Reuters) At current, we have not seen any hard data giving an estimate of the amount of production lost in the GOM so far due to this round of shut ins.

Energies retreated Monday on the back of the disappointing European PMI data seen earlier and although U.S. business activity was steady in September, average prices charged for goods and services rose at the fastest pace in six months, thus potentially hinting at a pickup in inflation in the coming months. The dollar firmed Monday on the back of those 2 data readings. (Quantum Commodities)

S&P Global said on Monday that its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, was little changed at 54.4 this month compared to a final reading of 54.6 in August. September's reading aligns with reports this month, including retail sales, that have suggested the economy maintained its solid growth momentum in the third quarter.

Technicals

RB & ULSD open interest fell quite a bit in Monday's activity due to October contract liquidation. Momentum remains positive for the energies.

Spot WTI futures see support at 70.10-70.13 and then at 69.49. Resistance is seen at the double top on the DC chart from last week at 72.40-72.49 and then at 74.13-74.17.

November RB sees support at 1.9656 and then at 1.9481. Resistance lies at 2.0254-2.0261 and then at 2.0359-2.0367.

ULSD for November sees support at 2.1665-2.1679 and then at 2.1403. Resistance lies at 2.2193 and then at 2.2424.

Natural Gas --November is down 2.1 cents

NG prices are now lower after rising overnight to a fresh high for the strong recent rally, which was fueled mostly by concerns over supply disruptions as a hurricane is set to hit the U.S. later this week. The storm is seen hitting the Panhandle of Florida avoiding LNG export plants in the Gulf of Mexico, thus keeping demand up. Recent lower gas production versus strong power burns boosted prices in the past few sessions, along with the gas storage surplus shrinking further.

The storm could make landfall along the Florida Panhandle on Thursday night as a Category 2 or Category 3 hurricane, which would thus stay away from much of the Gulf's oil & gas production. Yet, one analyst said: ""Depending on the path of that storm we could see as much as 3 BCF/day shut in at least temporarily later this week."

As November futures approach $3, the question is whether producers will begin to raise output by completing deferred wells like was seen in June & July. "So far, there is no sign of that with production holding below 101 BCF/d, down 2-3 BCF/d vs 2023", as per Celsius Energy commentary.

With milder autumn weather coming, LSEG forecast average gas demand in the Lower 48 states, including exports, will slide from 99.1 BCF/d this week to 97.7 BCF/d next week. The forecast for this week is down 1.4 BCF/d from that seen Wednesday of last week.

Early estimates we have seen for this week's EIA gas storage data are calling for a build of 50 to 54 BCF, thus shrinking the gas storage surplus further. This week's estimates compare to last year's injection of 82 BCF and the 5 year build of 88 BCF.

Momentum is positive for the NG contract. October spot NG futures were up 14.4 % over the prior 3 sessions. The November futures have bumped up against the upper bollinger band on the daily chart for the 2nd day in a row. The contract has a mean reversion set up from yesterday's close over the upper bollinger band. That band lies currently near $2.88. Resistance for the November futures lies at 2.881-2.885, which was tested overnight with a high of 2.895. Above that resistance comes in at 2.957-2.958. Support is seen at 2.753-2.756 and then at 2.693-2.696.

Disclaimer

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