Energy Market Update 9-26-2024

Crude is down $2.35 November RB is down 4.11 cents November ULSD is down 4.80 cents

Energies are lower on news that the Saudis are set to increase their oil output in December. In addition, reports have feuding parties in Libya agreeing on a central bank governor, which should pave the way for a resumption of oil exports and hence production.

Saudi Arabia is preparing to abandon its unofficial price target of $100 a barrel for crude as it prepares to increase output, the Financial Times (FT) reported on Thursday. The FT report said Saudi Arabia is committed to resuming that production on December 1 even if it leads to a period of lower prices. The briefings to the FT could also be a warning shot aimed at those within the OPEC coalition that have been persistently overproducing – most notably Iraq and Kazakhstan, along with Russia to a lesser extent. The FT report said that Saudi Arabia is no longer willing to continue ceding market share to other producers, believing it has enough alternative funding options to cover a period of lower prices, such as tapping foreign exchange reserves or issuing sovereign debt. OPEC+'s Joint Ministerial Monitoring Committee is set to meet October 2.

A United Nations statement on Wednesday said delegates from divided Libya's east and west agreed on the process of appointing a central bank governor, a step which could help resolve the crisis over control of the country's oil revenue that has disrupted exports. Libya's crude exports have averaged about 400 MBPD in September, down from over 1 MMBPD in August, shipping data show. (Reuters)

The DOE data saw crude supplies draw more than expected. The draw of 4.471 MMBBL dropped crude inventories to their lowest level since April 1, 2022. The draw also saw the storage deficit versus the 5 year average drop to -22.9 MMbbl, which is the largest deficit seen since October 27, 2023. (Celsius Energy) Yet, we believe that crude supplies should have risen, given higher net crude imports/supply and lower crude inputs to refineries/demand. But, it looks to us as if the crude oil supply draw is due to the EIA's accounting adjustment. The accounting adjustment showed a "drop in supply" of 1.274 MMBPD, thus making for a draw of 8.92 MMBBL. Product demand rose to strong levels in this week's data. Gasoline demand rose by 429 MBPD to 9.205 MMBPD, beating the prior 2 years demand by 586 and 380 MBPD. Distillate demand rose by 224 MBPD to 4.022 MMBPD. This was better than last year's demand by 50 MBPD, but below 2022 demand by 156 MBPD. Yet, for us, a figure over 4.0 MMBPD is healthy.

The BSEE said Wednesday that 511 MBPD/ 29.18% of oil production in the U.S. Gulf was shut in.

Data out today showed U.S. durable goods orders were flat in August, the Commerce Department said Thursday. The result was much better than anticipated. Economists had forecast a 3% fall in orders for durable goods - products made to last at least three years. (Market Watch)

Top government officials in China pledged on Thursday to deploy "necessary fiscal spending" to meet this year's economic growth target of roughly 5%, acknowledging new problems and raising market expectations for fresh stimulus in addition to measures announced this week. (Reuters)

LSEG on Wednesday revised its forecast for diesel arrivals this month to 6.73 million metric tons (mt) from 6.23 million mt this time last week. Diesel cargoes into the European Union and the UK are seen rising this month to their highest level in about 1 1/2 years, with a rebound in shipments from the Middle East helping to offset a small dip in US flows. Diesel demand in Europe has been down lately compared with previous years largely due to weak industrial activity and lower road fuel consumption. However, an expected steep reduction in refinery processing in Europe amid seasonal autumn maintenance, coupled with economic run cuts by some refiners, is likely to curb supplies of the fuel in the continent this month. “September is typically a high-demand month for freight and diesel in Europe, coinciding with the start of fall refinery maintenance season, which exacerbates the diesel deficit on the continent,” said the senior demand analyst at Kpler. “The US is well-positioned to help close this gap.” The US overtook Saudi Arabia as the biggest supplier to Europe back in July and has continued to be so. European diesel imports from the US soared to just under 1/2 MMBPD in August, the highest in Kpler data since the start of 2017. Shipments from the US are expected to slip in September to about 409 MBPD. That’s still almost double the supply from Saudi Arabia at about 212 MBPD. Lackluster manufacturing activity in the US in the second and third quarters of 2024 has reduced diesel and distillate fuel consumption. That depressed prices in the US, making arbitrage opportunities to Europe more profitable, the Kpler analyst said. “With Asian middle distillate markets well supplied, Middle Eastern products are now vying with US Gulf exports for European demand,” the IEA said. (Financial Post)

Technicals

Technically the momentum for WTI and RB have turned downward. Our projections of 9 days ago for higher prices based on an inverted head and shoulders pattern have been shattered.

WTI spot futures have support at 67.24-67.31, tested with a low of 67.16. Below that support lies at 65.63. Resistance comes in at 70.10-70.13, which is just above the session high of 70.01.

RB for November has support at 1.9222-1.9229, which was tested with an overnight low of 1.9202. Below that support lies at 1.8975-1.8985. Resistance comes in at 1.9781-1.9798 and then at 1.9927-1.9945. The overnight high is 1.9855.

November ULSD sees support at 2.1178-2.1179, which was tested with a low of 2.1142. Below that support lies at 2.0974-2.0980. Resistance comes in at 2.1707-2.1716 and then at the overnight high at 2.1886-2.1900.

Natural Gas--November NG is up 1.0 cents

November NG futures are higher, with the expiring October contract rising overnight to a fresh high for the recent rally. The front contract has been helped by the shut in of some gas in the Gulf of Mexico due to the hurricane that is seen hitting the Florida Panhandle this evening. Also supportive is the reduction of supply from Texas on a pipeline that moves gas towards Louisiana, which we believe has been the main catalyst for the Henry Hub next day cash price rising the past 2 days to a value over that of the spot futures contract.

The EIA storage data due out today is also seen as supportive. Forecasts are for a build of 53 BCF as per WSJ and Reuters surveys. This compares to the 5 year average build of 88 BCF and last year's build of 82 BCF.

On Tuesday, the natural gas share of the power stack was a very impressive 47.6%, by far the highest for September 24 in the last 6 years. In addition to coal-to-gas switching, big gains in renewables capacity (wind, solar) this year can actually amplify the gas share when they underperform, according to Celsius Energy analysis.

The strong electricity generation from NG is further underscored by commentary from Reuters. U.S. electricity generation totaled a record 2,069 billion kWh in the first six months of 2024, up from 1,971 billion kWh in the same period a year earlier, and surpassing the previous peak of 2,048 billion kWh set in 2022. The extra 98 billion kWh compared with last year came mostly from gas-fired generation (+43 billion kWh) with other major contributions from solar (+24 billion kWh) and wind (+19 billion kWh).

The BSEE said Wednesday that 0.313 BCF/d (16.85%) of natural gas production in the U.S. Gulf was shut in. But, LNG exports have as yet not been affected by the hurricane, as per Celsius Energy. The hurricane, though, is seen leading to widespread power outages across the Southeast. (CNN)

U.S. energy company EQT plans to reverse some natural gas production curtailments in October and November as demand for the fuel and prices have increased. "Production curtailments will be a normal part of our strategy when prices are low," Rice said, noting the company reduced approximately 1 BCF/d of production in the spring. Total curtailments across the U.S. industry reached circa 2 BCF/d, after prices collapsed to multi-year lows in the spring. Analysts have said they expect EQT and other U.S. producers to raise output in late 2024 and in 2025 to meet growing export demand as new U.S. LNG plants enter service. (Reuters)

Belgium is seeking a ban on Russian LNG imports into the European Union as the current sanctions regime cannot halt rising imports of Russian LNG at EU import terminals, Belgium's Energy Minister told the Financial Times. Now Belgium sees the recent EU attempts to reduce Russian LNG revenues as insufficient to allow European companies to exit long-term LNG contracts with Russia, most of which were signed before 2022. The Minister of Climate Policy and Green Growth of the Netherlands, this week also called for additional sanctions via “a common European approach” as Russian LNG imports into Rotterdam, Europe’s largest port, have increased in the third quarter. (Oil Price)

In NG futures, we saw a strong move Wednesday in the October November front spread. Settlement prices saw October gain 6 cents versus November, thus shrinking the spread to 18.0 cents, which is the narrowest for the spread since July of 2022. We are now curious to see if the spread expires strongly today when October NG goes off the board. Yet, the front spread's strength was not seen along the rest of the NG curve, as the backs gained more with the upcoming winter 2024/2025 strip gaining less than the rest of Calendar 2025.

Technically momentum on the DC chart is getting overbought and will become even more overbought when the November contract becomes the spot futures starting tomorrow. In addition, with November becoming the spot futures prices will rise over the upper bollinger band on the DC chart. That band currently lies at 2.730. November futures are printing 2.824. November futures have support at 2.775-2.776 and then at 2.728. Resistance lies at 2.881-2.885, which was tested with an overnight high of 2.883. Above that resistance lies at 2.957-2.958. Momentum for the November futures is positive on its daily chart.

Disclaimer

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