Outlook: After a volatile overnight session, energies are holding marginal losses this morning. WTI is on track to trade lower for the fifth consecutive session with economic headwinds outweighing geopolitical risk this week. Diesel has continued to be the weak leg and is observing a significant technical breakdown as it looks to close below the 200-week moving average for the first time since Q1 2021. Gasoline futures hold the largest loss today but are up 29% YTD which has the White House scrambling to lower pump prices ahead of the driving season. It will likely take another run up in prices to prompt the release of more SPR barrels which would be highly scrutinized. Despite a large chunk of risk premium evaporating from the market today, upside risks will still be present on any rhetoric that hints toward Iran changing its mind on a retaliation this weekend. Energies have room to slide before tipping oversold which may allow weakness to extend into next week.
Crude
- Israel launched a retaliatory attack against Iran last night which pushed crude up over $3.50 to $86.28 before fully retreating on comments from Iran saying they won’t respond.
- The missile strike was again minimal and did not cause destruction in any key areas.
- While Iran stated they don’t intend to retaliate, risk premium is unlikely to completely deteriorate ahead of the weekend.
- The IMF stated Saudi Arabia will need an oil price of $96.20 to balance its budget this year.
- Goldman Sachs views $90 as the ceiling for Brent (~$85 WTI) in their base case scenario with no geopolitical supply hits.
- OPEC+ spare production capacity is a looming bearish driver.
- Crude spreads are tightening this morning with the prompt trading to a high of 75 cents.
- High interest rates and a strong dollar have outweighed risk appetite this week.
- Baker Hughes will report rig counts at 12:00 pm CT.
- As of 8:06 am CST: Brent crude oil down $0.51 to $86.61, US dollar index down $0.187 to 105.964 while the nearby e-mini S&P 500 futures contract is down 3.25 to 5045.00.
Diesel
- Prompt continuous diesel futures are on track to close below the 200-week moving average for the first time since February 2021.
- $2.50 has been an area of support for diesel this year and may entice buyers again.
- Contango now extends through the October contract.
- Prompt futures traded to a high of $2.6488 overnight due to the Israeli strike.
Gasoline
- The Biden administration’s economic advisor say the White House will make sure gas prices remain affordable this summer. Gasoline futures are up 29% YTD while pump prices average $3.67.
- Prompt futures traded to a high of $2.7859 overnight due to the Israeli strike.
Propane
- Conway is trading at .7375 while Belvieu is trading at .7725.
- Conway Swap Oct24-Mar25 strip indicative midpoint ~.8025.
- Conway propane is trading at 38% to WTI.
- The EIA reported propane stocks rose 3.9 million barrels last week which exceeded the median industry estimate.
Natural Gas
- Overnight weather runs removed 1 TDDs to the two-week forecast.
- The EIA reported nat gas stocks rose 50 Bcf last week, which fell in line with industry estimates.
- Natural gas stocks are 622 Bcf above the 5-year seasonal average.
Continuous Weekly HO: Diesel futures are on track to close below the 200-week moving average for the first time since Q1 2021 and is a bearish technical development.
