Morning Highlights
Morning Highlights

11-7-24 Energies lower on bearish China fundamentals...


Riley Schwieger

Nov 7, 2024

Outlook: Energies are finding marginal losses this morning despite the US dollar pausing its rally and trading down over 500 points on the day. Negative fundamental data out of China this morning may be providing bearish pressure with demand in focus. Six consecutive monthly year-over-year decline in oil imports is a trend that deserves concern but also raises the question if further stimulus may be ahead. A shift southwest in Hurricane Rafael’s path is also friendly to offshore crude production in the Gulf which was preparing for a direct hit. 304,000 bpd of crude production was reportedly shut in as of yesterday and the new path should limit that number from growing substantially as the storm passes. Traders will shift gears to watch the Fed’s rate decision later today with expectations for a 25 basis point cut. The rate cut forecast overall has shifted slightly hawkish following the election and further commentary regarding any shift in the Fed’s view could provide volatility.

Crude

  • China’s oil imports fell to 44.7 million tons in October which is the sixth consecutive monthly y/y decline according to customs data. That is 2% below September and 9% lower y/y. (BBG)
  • Hurricane Rafael has shifted southwest and is now expected to work toward eastern Mexico. (NOAA)
  • 304,000 bpd of offshore crude production was shut in yesterday due to the hurricane. (BSEE)
  • The WTI-Brent spread narrowed to the smallest since September yesterday.
  • The EIA reported crude stocks rose 2.1 million barrels last week vs 1.1 mb est.
  • US crude export exports fell 1.4 mbpd to 2.85 mbpd last week.
  • The Fed meets today at 1:00 pm and is expected to cut interest rates by 25 bps. Confidence for another cut in December has slipped following the election.  
  • As of 8:45 am CST: Brent crude oil down $0.30 to $74.62, US dollar index down $0.605 to 104.483 while the nearby e-mini S&P 500 futures contract is up 19.25 to 5977.00.

Diesel

  • The EIA reported a surprise build of 2.9 million barrels last week. Diesel stocks now sit just 7 million barrels below 5-year average levels.
  • Nearby support for HO may be found at the 50 DMA near $2.1988 which a breach opening the door to the October low near $2.10.
  • Group diesel basis values continue to decline but remain in contango through December. We will roll out an inventory hedge recommendation when we see the right opportunity.
  • Forward basis values may look favorable for those looking to establish basis length ahead of end user contracting interest.

Gasoline

  • The EIA reported a surprise build of 412,000 barrels last week.
  • Continuous RBOB has trendline support near $1.9350.
  • Open interest in Nymex gasoline has risen to its highest level since August.

Propane

  • Conway futures are trading at .7475 while Belvieu is trading at .8075.
  • Conway Swap Q4-Q1 25/26 strip indicative midpoint ~.7700.
  • Conway propane is trading at 42% to WTI.
  • The EIA reported propane stocks fell 1 million barrels last week.
  • Propane exports posted their second-highest level on record at 2.289 mbpd last week.

Natural Gas

  • Overnight weather runs removed 1 HDDs for the two-week forecast.
  • Reuters estimates nat gas stocks rose between 38-76 Bcf last week.
  • Hurricane Rafael has shifted southwest and is not expected to make landfall on key export facilities.
  • 7% of total production was shut in yesterday due to the Hurricane.    

Iranian Oil Exports: With Donald Trump returning to office, Iranian oil exports may again be an area of focus. Iran has greatly expanded its dark fleet to avoid sanctions and as a result exports have steadily risen since 2020. China remains a key buyer of Iranian crude.