Outlook: The energy complex is starting the week of with a softer tone in the absence of geopolitical escalation over the weekend. The US is moving forward with another aid package for Ukraine and Israel which could stir up conflict, but without fundamental disruption, traders are becoming conditioned to the risk environment. This package includes additional sanctions against Iran, however, there are doubts of strict enforcement due to the conflicting goal of holding down energy prices this summer. Early election odds lean in favor of the Democrats maintaining control of the office and they’ve declared it a priority to keep energy prices affordable knowing its importance heading into November. The macroeconomic environment will lend a hand in suppressing demand/prices if the prospect of interest rate cuts keeps being pushed further back. The economic report slate is relatively light until later in the week when we see Q1 GDP followed by Personal Consumption Expenditures, which is a key inflationary data point for the Fed. Without further supply disruptions in energy, the market is making a strong case for a near-term downward bias.
Crude
- Risk premium continuing to fade this morning in the absence of geopolitical escalation over the weekend.
- Russia’s oil processing fell to an 11-month low of 5.2 mbpd last week. Drone strikes and flooding have stunted run rates.
- Global crude in floating storage fell 18% last week. (BBG)
- Today is LTD for May WTI.
- WTI prompt spread showing another strong move today signaling short covering.
- Baker Hughes reported US oil rigs rose by 5 to 511 last week which is a 7-month high.
- GDP on Thursday and PCE on Friday will be the macroeconomic reports in focus this week.
- As of 8:13 am CST: Brent crude oil down $0.94 to $86.35, US dollar index up $0.116 to 106.270 while the nearby e-mini S&P 500 futures contract is up 29.25 to 5033.00.
Diesel
- Nearby diesel futures closed below the 200-week moving average on Friday.
- Energy Aspects estimates global diesel demand will grow by 340,000 bpd while supply will rise 380,000 bpd.
- Energy Aspects expected global distillates to be at a 307,000 bpd deficit in Q2 before flipping to a 577,000 bpd and 378,000 bpd surplus for Q3 and Q4.
- A global surplus may allow the current contango structure to linger.
Gasoline
- RBOB futures are finding support on the lower Bollinger band near $2.6717.
- RBOB futures will likely face political headwinds this year ahead of the US election.
Propane
- Conway is trading at .7475 while Belvieu is trading at .7825.
- Conway Swap Oct24-Mar25 strip indicative midpoint ~.8175.
- Conway propane is trading at 38% to WTI.
Natural Gas
- Overnight weather runs removed 2 TDDs to the two-week forecast.
- Electricity consumption rose at Freeport LNG rose over the weekend which could hint toward a restart at the facility following two weeks of maintenance.
- Baker Hughes reported nat gas rigs fell by 3 to 106 last week.
Continuous Daily RBOB: RBOB is testing support at its lower Bollinger band today. A close below would be an indication of tipping oversold.
