The energy complex is trading higher this morning as global supply disruptions continue to add strength to the market. Libyan crude exports reached 550k bpd to end last week, an increase of 356K from the prior week but well below their typical level of 1.1 million bpd. Rival political factions were expected to agree on their issues a week or two ago so the prolonged export reduction is helping strengthen the market. Diminished production in the U.S. is not helping the cause as 213K bpd of crude production is still offline due to Hurricane Francine. Last, Russia launched missiles at energy infrastructure in Ukraine, cutting power in some districts and forcing authorities to resort to backup power systems. WTI crude settled above $70 yesterday for the first time since September 3, which could be technically supportive for prices.
All eyes will be on the Fed this week and how deep of a rate cut they announce on Wednesday. As of this morning, the CME FedWatch Tool is showing a 67% probability of a 50bps cut, and a 33% probability of a 25bps cut. Initially, economists were concerned that a larger cut would lead to market panic. Now, several economists are arguing that since a 50-point cut is currently priced in, a 25-point cut would surprise the market and lead to tighter market conditions, pushing rates higher. Many believe tighter financial conditions should be avoided when the balance of risk between growth and inflation has shifted and the downside risks for employment outweigh the upside risks for inflation.
A LNG pipeline explosion occurred in a Houston suburb after a vehicle struck an above-ground valve. Nearly 1,000 homes had to be evacuated and over 20 miles of natural gas had to burn off before the fire would stop. No timetable has been released for when the pipeline will be fully operational.
Crude
- Reuters forecasts a 200k barrel crude draw for the week ended 9/13.
- Refiners in Europe are cutting crude processing, with Italian and Spanish refiners lowering processing due to weak margins. (BBG)
- Total Indian crude consumption year-to-date was 160 million tons, higher than the 154 million tons for the same period in 2023. (BBG)
- The restart of a crude pipeline in Iraq that has been offline for a year is being delayed further by payment disagreements with international oil companies.
- Iraq produced 4.32 million bpd of crude in August, above their OPEC production target of 4 million bpd.
- As of 9:00 am CST: Brent crude oil up $0.56 to $73.31, US dollar index up $0.100 to 100.535 while the nearby e-mini S&P 500 futures contract is up 15.00 at 5653.00.
Diesel
- Reuters forecasts no change to distillate inventory for the week ended 9/13.
- ULSD futures showing 4 cent carry through the February 2025 contract.
- The heat crack of 17.78 remains at the lowest level since August 2021.
Gasoline
- Reuters forecasts a 400k barrel gasoline build for the week ended 9/13.
- RBOB futures backwardated 4 cents through March 25 contract.
- The gasoline crack of 12.23 remains near the lowest level since November 2023.
Propane
- Conway is trading at .6750 while Belvieu is trading at .6625.
- Conway Swap Oct24-Mar25 strip indicative midpoint ~.7097.
- Conway propane is trading at 40% to WTI.
Natural Gas
- Dutch natural gas is up almost 2.5% this morning reversing some of yesterday’s losses after trading down to a seven-week low yesterday.
- 16% of U.S. Gulf of Mexico natural gas production is still offline due to Hurricane Francine. (Reuters)
- U.S. natural gas futures are trading at the highest level since July 9.
