Energy Market Update 12-01-2023

Crude is? up 6 cents????? RB is down 1.11 cents?? ULSD is down 3.96 cents

Overview

Energies are mixed today, RB and crude look as if they are treading water, while ULSD is down after yesterday's sharp fall in the energies off the highs due to the underwhelming nature of the OPEC+ agreement.

OPEC+ producers agreed to remove around 2.2 MMBPD in the first quarter of next year. The agreement was met with disappointment as the cuts announced look to be voluntary in nature, as well as investors' prior expectations of deeper cuts, as per Reuters commentary. The OPEC press release, after the agreement, made no mention of the additional cuts. Saudi Arabia, Russia, Kuwait, Kazakhstan and Algeria were among producers who said cuts would be unwound gradually after the first quarter, market conditions permitting.

FGE offered the following analysis re the OPEC+ agreement :" this looks like a paper cut of around 600-700 MBPD vs Q4 2023 planned levels." "It could at best be an actual cut of around 500 MBPD compared to Q4. This might be just enough to keep the market balanced in Q1, but it will be close." A Reuters analyst wrote how OPEC+ may have "played its final card." Firstly, the reduction of about 2.2 MMBPD for early next year should put to rest the idea that global demand growth for crude is strong. Secondly, it should beg the question whether the group can actually cut any more if the price of oil continues to soften. (Reuters/Yahoo Finance)

Bloomberg carries a story that says that Angola rejects its OPEC quota and vows to break it. Angola’s OPEC governor said in an interview on Thursday. : “It is not a matter of disobeying OPEC; we presented our position, and OPEC should take it into consideration.” Angola's OPEC governor added : "Angola, Africa’s second-largest crude producer, will pump 1.18 MMBPD from January, above the 1.11 MMBPD quota set out in the OPEC agreement on Thursday. “The question of whether Angola remains in the OPEC is a decision at the highest level of authority,” he said.

Brazil announced Thursday that it plans to join OPEC+ in January, but would not take part in the group's coordinated output caps, the chief executive of state-run oil firm Petrobras told Reuters. "We would never be part of an organization that imposes (production) quotas to Brazil, Petrobras is a publicly-traded company and we cannot have quotas." Brazil is the largest oil producer in South America, at 4.6 MMBPD of oil and gas, of which 3.7 MMBPD is crude.

Caixin's Chinese PMI, derived from a survey of private 430 industrial companies, unexpectedly expanded in November, underpinned by rising orders, although sluggish external demand continues to weigh on manufacturers. The Caixin/S&P Global PMI increased to 50.7 in November, up from a 49.5 reading in October. November's reading was a 3 month high. (Caixin Global)

The Eurozone PMI for November, compiled by S&P Global, rose to 44.2 in November from October's 43.1, above a preliminary estimate of 43.8. "Sure, almost all the sub-indices have perked up a bit. However, the improvements are mostly timid, lacking the dynamism needed to declare an upward trend," one economist said. Sub-indices covering demand, exports, backlogs of work did all rise but remained firmly below breakeven. Overall demand declined for a 19th month, albeit with the new orders index nudging up to 41.5 from 39.0, a six-month high. The survey suggested factory managers don't expect a big rebound as headcount was cut again.(Reuters)

The EIA said, in a report Thursday, that U.S. crude oil production in September hit a record 13.236 MMBPD, largely due to an increase in the Bakken region in North Dakota. August's output was 13.012 MMBPD.

Technicals

The energies are currently having inside trading days versus yesterday's ranges. Yesterday's volume in WTI was heavy at 1.35 million contracts traded on the CME, suggesting a short term peak was made. Open interest in WTI futures on the CME is said to have risen by over 65,000 contracts, which we see as more new shorts than longs in the January thru July strip. Product momentum basis the DC charts is negative, while that for crude oil remains positive.

WTI spot futures see support at 75.05-75.11 and then at 73.84-73.88. Resistance lies at 77.02-77.09 and then at 77.92-77.97.

ULSD has a rollover gap from 2.7497 to 2.7961 as the spot futures have lost the December premium. Resistance is seen into the gap at 2.7770-2.7780. Support lies at 2.6960-2.6980 and then at 2.6694-2.6713.

RB for January sees support at 2.1525-2.1550 and then at 2.1220-2.1224. Resistance lies at 2.2220-2.2225 and then at 2.2407-2.2423.

There is a rollover gap on the Brent DC chart from 81.27 to 82.58. resistance for the spot futures is seen at 82.16-82.20. Support lies at the overnight low at 80.09-80.13 and then at 79.13-79.17.

Natural Gas-- NG is down 2.5 cents

January NG is down as warmer weather is seen in the coming days.

The reaction to the bearish EIA number seen Thursday was muted with January futures settling basically unchanged on the day. The EIA storage data showed a 10 BCF build, which was contrary to the draw of 12-13 BCF that was forecast. Total storage rose to 3.836 TCF. This is +341/+9.8% versus last year and 303BCF/8.6% over the 5 year average. Some have attributed the weak EIA data to the Thanksgiving holiday period when demand tends to weaken.

The EIA in its Monthly Production report showed that NG output in the U.S. fell by 0.1 BCF to 116.3 BCF/d from August's record.

El Nino conditions over the central-eastern Pacific are still intensifying. Sea surface temperatures were +2.1°C above the long-term average in the week centered on November 22. The current El Ni?o episode is among the strongest in the last 40 years, which is likely to result in a significant cut in U.S. heating demand and gas consumption during winter 2023/24, as per Reuters reporting.

One colleague offered this assessment yesterday : " we are getting oversold and will either be a slow grind lower and consolidation or an abrupt move higher on any perceived change of extreme current bearish sentiment." He further suggested using call spreads as a means by which to play for the upside, versus trying to pick a bottom in futures.

Technically, NG still has positive momentum basis the DC chart. The past 3 sessions show lows between 2.754-2.761. Support below that lies at the 2.71 area. Resistance lies at 2.87. The January daily chart continues to show an RSI reading that signals an oversold condition as it is still below 30.

Disclaimer

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