Outlook: Energies are trading higher this morning and looking for their largest gain in months on solid summer demand outlook. Brent and WTI futures contracts are both up over 4% this week, poised for their largest weekly gain in months. This would be the Brent contract’s largest weekly increase since February 9, and the WTI contract’s largest weekly gain since April 5. WTI futures are meeting heavy resistance at the 100-day and 200-day moving averages, as well as the key psychological level of $80. A settlement above these levels could start a new trend higher, but I expect crude to trade sideways until a new market catalyst can provide some direction. Bloomberg reported yesterday that BP’s Whiting refinery plans to conduct a turnaround in late July on the 255K bpd crude unit and the largest coker, which has a 95K bpd capacity. Crack spreads and basis valuations have rallied this week and should continue to firm up on the Whiting news with diesel seeing the largest gain. The heat crack spread has increased over $3 since the beginning of the week. Chicago gasoline basis increased 5 cents yesterday and is up 9 cents on the week, while diesel basis was up 7 cents yesterday and 18 cents on the week. Yesterday’s large jump can be largely attributed to the Whiting news. Conway and Belvieu rack prices settled at their highest level yesterday since April and indicative fall/winter Conway prices are back above 80 cents this morning. U.S. natural gas futures are trading flat this morning with the 9-day moving average lending support to prices at $2.8980.
Crude
- Russia pledged to meet its output obligations under their OPEC+ pact after exceeding its quota in May. (Reuters)
- Iraq likely overproduced in May by 230K bpd versus their quota and stated they are committed to the production level requirements in the agreement. (Reuters)
- The Trans Mountain pipeline is running at 80% capacity or 707K bpd, with 22 oil tankers scheduled to load this month in Vancouver. (Reuters)
- The dollar is trading at its highest level this morning since May 1.
- The 3:2:1 crack spread has gained $2 from the low on Wednesday.
- The CME FedWatch Tool is showing a 70% chance for a rate cut in September however, some analysts are now projecting the first cut won’t occur until December.
- U.S. crude inventory is 2.5% below the five-year seasonal average.
- As of 8:55 am CST: Brent crude oil up $0.54 to $83.29, US dollar index up $0.528 to 105.715 while the nearby e-mini S&P 500 futures contract is down 15.00 at 5423.00.
Diesel
- Diesel futures up 7.5% on the week, the largest weekly gain since early February.
- Heat crack spread up almost $4 for largest weekly increase since February.
- The 12-month calendar spread for diesel futures is backwardated five cents.
Gasoline
- Gasoline futures up 3% on the week, the largest weekly gain since early May.
- Gas crack is down $1 on the week as gasoline remains the weakest component of the energy complex.
- The 12-month calendar spread for gasoline futures is backwardated 11 cents.
Propane
- Conway is trading at .7625 while Belvieu is trading at .7900.
- Conway Swap Oct24-Mar25 strip indicative midpoint ~.8005.
- Conway propane is trading at 39% to WTI.
Natural Gas
- U.S. Natural gas is poised to end the week flat despite a great deal of volatility.
- Dutch natural gas is on track to end the week up over 6% on supply disruption concerns.
- Natural gas demand is forecast to average 98.2 Bcf/d over the next 7 days and 98.8 Bcf/d in the 8–14-day range. (Platts)
The top portion of the chart below shows the strong resistance levels for crude that consists of the 100-day moving average, 200-day moving average, and $80 threshold. The bottom portion of the chart is a stochastic oscillator, a technical indicator that shows crude is approaching overbought territory:
