Outlook: Energy prices are trading higher this morning as China, the world’s largest crude importer, appears to be doing more to boost growth. According to Bloomberg, poor Chinese credit and inflation data has prompted authorities to plan a series of long-term bond sales to aid growth and support energy consumption. It’s a big week for economic data as the U.S. Producer Price Index (PPI) for April will be released on Tuesday, followed by Consumer Price Index (CPI) data on Wednesday. Traders will be looking for any indication of the Fed’s monetary policy moving forward after the data is released. Currently, analysts are expecting the central bank to maintain its policy rate unchanged for a longer period of time in the U.S. This could continue to support the dollar and help cap energy prices in the near term. There have been rumblings that lower rates in the UK and the rest of Europe are a possibility in the near future. Hedge fund managers remain very pessimistic on energies as last week saw the largest reduction in net-longs for Brent, WTI, and the three main fuel contracts in a year, with only the diesel contract adding length. Even though diesel inventory is 13% below the prior ten-year season average, diesel prices continue to be the most bearish of the energy complex. Some of this can be attributed to the shift of renewable fuel oils, and the additional 11 million barrels of biodiesel and renewable fuel oil stocks. When combining inventories of petroleum and renewable distillates, inventory levels are only 10% below the ten-year seasonal average, and the production-consumption balance is only modestly tighter than normal.
Crude
- China’s consumer prices rose for a third straight month in April, while producer prices extended declines, signaling an improvement in domestic demand.
- Israel/Hamas peace talks are back to square one and the international community is having difficulty keeping the discussion alive.
- Israel and Hamas are fortifying positions around Rafah, with fighting likely to intensify.
- Continuous lead month WTI futures settled below the 100-day moving average on Friday but are now trading back between the 100-day and 200-day floor and ceiling.
- Analysts are expecting OPEC+ to extend their production cut quota past June.
- Iraq, the second-largest OPEC producer said they are committed to voluntary oil production cuts agreed to by OPEC after being called out for pumping more than its output quota the first quarter of 2024.
- U.S. PPI data will be reported on Tuesday, followed by U.S. CPI data on Wednesday.
- CME FedWatch showing a 91% probability of no interest rate change in June.
- Baker Hughes reported oil rig counts fell by three to 496 this week, the lowest level since November.
- As of 9:00 am CST: Brent crude oil up $0.75 to $83.54, US dollar index down $0.022 to 104.995 while the nearby e-mini S&P 500 futures contract is up 7.00 to 5253.25.
Diesel
- The diesel curve remains in Contango through the November contract.
- Heating Oil Managed Money traders went from a net short to a net long position of 3,079 contracts after net buying 4,720 contracts.
- Hedge fund and other money managers have reduced their combined position in U.S. diesel and European gas oil in eight of the most recent 11 weeks to the 34th percentile for all weeks dating back to 2013.
Gasoline
- Gasoline futures remain backwardated through the April 2025 contract.
- Gasoline Managed Money traders reduced their net long position by 18,909 contracts to a net long 48,877 contracts.
- Gasoline demand remains above the 5-year average heading into summer driving season.
Propane
- Conway is trading at .6675 while Belvieu is trading at .6925.
- Conway Swap Oct24-Mar25 strip indicative midpoint ~.7425.
- Conway propane is trading at 36% to WTI.
Natural Gas
- Natural gas prices trading near the highest level since January.
- Natural gas prices are trading between the 100- and 200-day moving averages.
- The surplus to the 5-year average inventory level remains high at 33%
U.S. Gasoline Demand vs five-year average:
