Energy Market Update 9-25-2024

Crude is down $1.16 November RB is down 1.84 cents November ULSD is down 1.39 cents

Overview

Energy prices are lower as demand concerns resurface. "Investors reassessed whether China's latest stimulus plans will be able to boost its economy and spur fuel demand." (Reuters) The retreat in energy prices comes even as the API data was bullish, with crude oil and gasoline draws exceeding forecasts.

Besides concerns as to whether China's stimulus package is strong enough, yesterday's news saw September U.S. consumer confidence fall the most in three years. The Conference Board’s consumer confidence index slid to 98.7, down from 105.6 in August, the biggest one-month decline since August 2021. Fears grew about jobs and business conditions. (CNBC)

API Forecast Actual

Crude Oil -0.8/-3.0 -4.339

Gasoline -0.02/-0.8 -3.438

Distillate -1.2/-2.1 -1.115

Cushing n/av -0.026

Runs -0.3/-0.8% n/av

Tropical Storm Helene was expected to turn eastward lessening the risk to U.S. offshore oil production, forecasters said on Tuesday. As a result, Shell said on Tuesday it has started the process of restoring oil production at its Stones platform. But, one other of Shell's platforms in the Gulf remained shut. (Reuters) The BSEE said that as of Tuesday 284 MBPD / 16.21% oil production was shut in the Gulf of Mexico.

The Mideast remains on edge as "Iran has hinted at retaliation against Israel, after Iran's President told CNN that its ally Hezbollah "cannot stand alone against a country that is being defended and supported and supplied by Western countries, by European countries and the United States." In the latest escalation, Israel said it had killed the head of Hezbollah's missile systems, in what it described as a targeted attack on the southern suburbs of Beirut. (Quantum Commodities)

Oil Price recently reported that the cost of insuring a ship through the Red Sea has more than doubled since the start of September and some underwriters are pausing cover as the risk of attack from Yemen's Houthis on commercial vessels increases, industry sources said. We have also read of more goods being transported via air to avoid the perils of transporting over water. Air transport has increased due to the Red Sea shipping crisis, which has caused longer transit times and increased the cost of shipping cargo by sea. The increase in air freight volumes is primarily due to cargo bound for Europe. Some goods needing shorter transit times may, therefore, have been switched to air transport.

The EIA released a report yesterday saying that the U.S. is the world’s largest exporter of motor gasoline (finished gasoline plus gasoline blending components), supplying over 16% of total global exports. U.S. motor gasoline exports in 2023 averaged 900 MBPD. The United States was a net importer of motor gasoline for over a half century from 1961 to 2015. The growth in U.S. refined product exports reflects several factors, including generally increasing refinery capacity from 2010 to 2023 and rising production from existing refineries through increased utilization. Although refinery capacity has grown, U.S. consumption of gasoline has not, making more gasoline available for export. The majority of U.S. motor gasoline exports (over 500 MBPD) go to Mexico, with the remainder going primarily to Central American and South American countries. Other large gasoline exporters, including Singapore and the Netherlands, have never exceeded 700 MBPD in gasoline exports. China and India have both added significant refining capacity since 2010 and have also increased gasoline exports. (eia.gov)

Technicals

Momentum remains positive for the energies.

ULSD for November currently has a double bottom from yesterday/today at 2.1665-2.1673. Below that support is seen at 2.1403. Resistance comes in at 2.2145.

November RB sees support at 1.9656 and then at 1.9481. Resistance lies at 2.0244-2.0254, which are the highs from Monday/Tuesday.

WTI spot futures see support at 69.49 and then at 68.75-68.82. Resistance lies at 72.40-72.49.

Natural Gas-- November NG is up 6.8 cents

NG futures prices are higher as speculative bullish sentiment underpins prices. A firm cash price at the Henry Hub is also supportive.

The Henry Hub (HH) next day cash price on Tuesday was printing over the front month spot futures for the first time since mid-January. HH was printing $2.630, while October futures showed a print of $2.606. This unusual occurrence was seen to be due to the force majeure that Kinder Morgan had announced Monday, that thus caused reduced volume ( somewhere in the range of 0.4 BCF/d of natural gas one colleague suggested) moving along that "segment". The force majeure refers to a line that consists of eastbound flows of Texas gas toward the Southeast. The pipeline thus ends up helping feed Cheniere's Sabine and Corpus Christi LNG facilities. The bottom line as per the force majeure is that it forced more physical purchases tied to HH pricing, as per one colleague's assessment.

Yesterday's fall back in futures prices was seen due to profit taking after the recent sharp run up. Also contributing to yesterday's pull back were the forecasts for milder weather and the expectation that Hurricane Helene will miss most of the producing regions in the Gulf of Mexico.

But. the BSEE said that as of Tuesday 0.208 BCF / 11.2% oil production was shut in the Gulf of Mexico.

In the weather outlook for September 24-30, NatGasWeather reports that demand is expected to remain low to very low, given milder temperatures across most of the U.S. With milder autumn weather coming, LSEG forecast average gas demand in the Lower 48 states, including exports, will slide from 98.5 BCF/d this week to 96.4 BCF/d next week. These forecasts were down 1.9 BCF/d total from the prior day's estimates.

Today is the last trading day for the October NG / LN options. The $2.50 and $2.75 strikes have large amounts of open interest. The $2.50 strike has total open interest of over 66,000 contracts and the $2.75 strike has almost 54,000 contracts of open interest. The nearest strike of $2.60 has total open interest of near 20,000 contracts. Is that enough to keep the futures settlement near $2.60 today??

Reuters analysis details how Southeast Asia is fast becoming a key growth market for natural gas, and on paper has an aggressive development pipeline for gas-fired power stations that if completed would ensure the region would be a major gas consumer for decades. Southeast Asia is also one of the fastest growing destinations for shipments of LNG. Total LNG volumes to the region have more than doubled since 2019, outpacing all other key markets, according to Kpler. But, only around 6% of the region's announced power projects are currently under construction. The remainder are still only planned on paper. Possibly hampering the further development of gas-fired plants, clean energy capacity development has grown at three times the pace of gas-fired capacity since 2018, and has recently exceeded regional gas capacity for the first time. Of all the announced gas-fired capacity plans in Southeast Asia, roughly half is slated to be built in Vietnam, GEM data shows. But Vietnam is also a leading clean energy capacity builder, which is altering the extent of the country's gas-fired needs.

Investment funds sold the equivalent of 25 TWh of futures and options linked to TTF prices over the seven days ending on September 20. Investors have sold gas in each of the last three weeks reducing their total position by 76 TWh since August 30. Sales have reversed some of the 139 TWh purchased over the previous seven weeks since July 12 and 291 TWh bought over 28 weeks since February 16. (Reuters)

Technically the mean reversion set up from Monday was confirmed with a settlement below the upper bollinger band Tuesday. Momentum remains positive. Support for the November NG lies at 2.753-2.756. Resistance lies at 2.881-2.885 and then at 2.957-2.958.

Disclaimer

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