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Energy Brief for June 17.24

by market analysts Stephen Platt and Mike McElroy

Price Overview

Crude oil recovered from early losses to close higher on heightened geopolitical concerns in the Middle East. The July contract settled $1.88 higher at 80.33. The intensification of artillery fire from Lebanon’s Hezbollah into Israel raised fears that a wider escalation might occur. The reported dismissal of Israel’s War cabinet lead to additional uncertainty as hopes for a cease-fire in Gaza diminished. Early selling was linked to reports of China’s May Industrial output falling to 5.6 percent and short of expectations, along with continued weakness in the property sector.

The IEA report released Friday showed challenges for the petroleum markets given the slowing in demand growth, now projected at 960 tb/d, 100 tb/d below last month’s forecast, with subpar growth expectations for 2025 of 1 mb/d due to a muted economy and accelerating clean energy technology deployment. Global oil supply is also set to expand by 690 tb/d led by non-OPEC+ gains of 1.4 mb/d and if voluntary supply cuts are maintained. Weakness in refining margins will keep oil inventories adequate following recent builds, which saw OECD industry stocks rising by 32.1 mb in April, its first monthly increase since October. A further increase of 48.2 mb is expected in May.

Given the increase in global inventories, price increases will be contingent upon whether demand strengthens more than currently expected, along with the level of tension in the Middle East. In addition, commitments by Russia and Iraq to reduce output levels to compensate for previous overproduction will be watched. Given recent tensions in the Middle East and the potential for inventories to be balanced in the second half of the year, values could reach up toward the 81.00 level basis prompt crude.

DTN July Crude Oil chart on 6.17.24
DTN July Nat Gas chart on 6.17.24

A key consideration will be the DOE report postponed until Thursday due to the Juneteenth Holiday on Wednesday. Estimates point to crude oil inventories falling 2.3 mb, distillate down .3 and gasoline up 1.5 mb. Refinery utilization is expected to be unchanged at 95 percent.

Natural Gas

Since our last report the market rallied back to the late May highs and then gave back a poriton of those  gains late last week. Extreme heat was the upside driving force as June is shaping up to be one of the hottest on record. Production remained steady in the face of the increased demand to further support values. Prices kicked off this week with a gap down on the charts, with the July trading to a low at 2.759 before settling with a loss of 9.3 cents at 2.788. An improvement in production to the 99 bcf/d area over the weekend gave trade hope that output was beginning to rebound, and forecast revisions decreased demand expectations enough to flush out additional selling interest. Despite the easing forecast, temperatures are expected to remain well above normal into the end of the month. A recent increase and coal and wind generation has helped reduce the gas share of power burn, and will need to be watched as we work through the current heat regime. Today’s move achieved a 62 percent retracement of the June rally, with the settlement just below the 200-day moving average at 2.79. The low near 2.76 is a key support area, with a settlement below there likely leading to a flush back down toward 2.50. A recovery in values will levitate toward the overnight gap at 2.87, with the 9-day moving average at 2.915 the next resistance beyond there. A settlement above the 9-day would suggest a test of the double top near 3.16. This weeks storage report will be delayed until Friday due to the Juneteenth Holiday. Early estimates point to a 69 bcf build compared to the 5-year average increase of 83.

 

The authors of this piece do not currently maintain positions in the commodities mentioned within this report.

Charts Courtesy of DTN Prophet X, EIA, Reuters

>>Learn more about Stephen Platt here

>>Learn more about Mike McElroy here

Futures and options trading involve significant risk of loss and may not be suitable for everyone.  Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.  The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM.  The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared.  The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.

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