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Energy Brief for May 20.24

by market analysts Stephen Platt and Mike McElroy

Price Overview

Crude oil settled modestly lower at 79.30 basis July despite early strength linked to the death of the Iranian President in a helicopter crash. The realization that the crash was linked to poor weather conditions quelled concerns that it would lead to a ramping up of tension in the Middle East. Selling developed on reports of soft refinery throughput levels in China during April, leading to an increase in storage levels that could slow the pace of purchases in the months ahead. It was reported that total crude available to refiners in China during April was 15.13 mb/d, consisting of imports totaling 10.88 and domestic production of 4.25 mb/d, with the volume of crude processed by totaling 14.3 mb/d, leaving a surplus of 830 tb/d. Additional selling was attracted by reports Russia had lifted their export ban on gasoline as domestic supplies increased.

Despite the slowing activity in April, throughput will likely have a recovery in May as refineries ramp up for peak summer demand. With signs of improved industrial activity in China and stimulus being provided to the construction sector, a recovery is expected. Wildfires in Canada have been pushed into the background following recent rains. In addition, reports that Chinese refinery output fell by 3.3 percent in April from a year earlier due to thin profit margins for small refiners and seasonal maintenance encouraged selling.

DTN June Natural Gas chart on 5.20.24
DTN June Natural Gas chart on 5.20.24

Refinery throughput and associated demand will be a key consideration not only in China but also the US. Expect prices to work up to the 81.00 level basis July. Interest rates and the dollar will continue to be monitored, and the delicately balanced stock situation could provide support if demand shows signs of improving. Caution is likely ahead of the OPEC meeting on June 1st, with expectations for voluntary production cuts of 2.2 mb/d to be rolled over into the second half of the year which should keep stocks balanced in the absence of a strong Chinese recovery.

Natural Gas

Prices continued to rally today as weather reports saw an  increase in Cooling Degree Day expectations compared to Friday’s forecasts. Although the revisions did not significantly increase overall demand estimates, the early heat continued to boost the resolve of the bulls and their hopes for a hot summer, which has precipitated an exit of short positions by the funds. The slow erosion of the supply overhang is expected to continue in the coming weeks, adding underlying support along with production, which remained steady over the weekend near 97.5 bcf/d. Output levels will need to be watched closely with improving prices for the point where the begin to recover and put a damper on the rally. The 200-day moving average and the chart gap were both easily taken out today, with the June adding 12 ½ cents to settle at 2.751. The strong close points to a near term test of the January high at 2.891 and possibly a run at the psychological 3 dollar level. The elevated RSI makes a retrenchment possible at any time, with the 200-day moving average at 2.66 becoming initial support without much below there until the 2.42 area.

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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