Energy Market Update 12-11-2023

Crude is? down 19 cents??? RB is down 59 points??? ULSD is up 1.94 cents

Overview

Crude oil is lower now after attempting to rally overnight. The rally was said to be due to the stronger than expected payroll data seen Friday and by the U.S. government's pledge to refill the SPR. But, poor Chinese CPI data and the news of net length in the crude oils being at its lowest in 10 years dragged prices into negative territory.

Chinese CPI in November fell by 0.5% year on year, which was the steepest drop since November 2020. The drop was said to be due to weak domestic demand. The forecast was for a decline of 0.1% in a Reuters survey. The PPI fell by 3.0% year on year. This is the 14th straight month of declines. On Friday, the ruling Politburo spoke of "spurring domestic demand and enhance economic recovery in 2024. " (Reuters) The Chinese CPI data falls on the heels of last week's slower Chinese crude import data.

CFTC data seen Friday showed money managers reduced net length in WTI and ULSD, while basically keeping their RB position unchanged. The data for the week ended Tuesday 12/5 saw WTI length on ICE/CME combined fall by 14,372 contracts. Brent net length fell by 26,000 contracts as money managers bought the largest amount of short contracts since the middle of May at just under 19k, as per Quantum Commodities reporting. Net Brent length thus fell to a 7 month low.? ULSD length fell by 7,203 contracts.

This week will see the U.S. CPI reading for November issued on Tuesday. It is forecast to show inflation running at 3.1% year on year, in line with October's figure. Then on Wednesday, the Fed meets with most seeing rates staying unchanged, but a feeling that the Fed will signal that rates will stay higher for longer.

This week will also see the monthly oil reports from the IEA, OPEC and the EIA. The STEO outlook from the EIA is due out tomorrow. Then on Wednesday OPEC issues its report. The IEA report is due out Thursday.

We saw a few analyses regarding prices and supply for next year from banks. RBC expects stock draws of 700 MBPD in the first half of 2024, but only 140 MBPD for the full year. ING Bank sees Brent trading in the low $80's next year with an average of $91 in the second half of the year when supply will turn to a deficit again they say.

In the longer term for crude, U.N. Secretary-General Antonio Guterres on Monday said that one key to success of the COP28 climate summit was for nations to reach agreement on the need to phase out fossil fuels, though his comments met with resistance from OPEC. (Reuters)

The Baker Hughes oil rig count fell by 2 units in Friday's report.

Technicals

The momentum on the WTI DC chart has turned positive from an oversold condition.

WTI spot futures have support at the prior 2 sessions' lows at 69.50 and then 68.80. Resistance lies at 72.60-72.65.

RB spot futures have what looks like a stepladder up look on the DC chart. Spot futures have support at the Thursday low at 1.9980. Resistance is seen at the 2.09 area. The national gasoline average price in the U.S. continues to slide. Today that price fell to $3.153. A month ago that price was $3.376.

ULSD for January has support at the lows from last Wednesday and today at 2.5611-2.5618. Resistance is seen at 2.6332-2.6349.

Natural Gas--NG is down 22.7 cents

NG has gapped lower over the weekend as no cold weather is foreseen through Christmas. Spot futures have fallen to their lowest value since June 15th. As a colleague said :"It remains hard to see natgas prices rallying in this environment." Celsius Energy has the 2 weeks either side of Christmas adding 246 BCF to the surplus versus last year to NG storage.

Money managers added 17,516 contracts to their net short position in NG futures/options on the CME in the week ended Tuesday 12/5, bringing their net total short position to 121,576 contracts. This the largest net short positioning since March of 2020 as per Celsius Energy reporting.

TTF prices have also gapped lower over the weekend as weather forecasts are pointing to mild temperatures in the coming two weeks in Europe as well. There is very little to almost no chance the EU will run out of Gas for this winter season, as per FX Street commentary. The gap in the spot TTF futures goes from 38.540 Euros to 38.105 Euros.

The NG rig count rose by 3 units in the Baker Hughes data seen Friday.

The gap created over the weekend in NG futures runs from 2.490 to 2.538. Resistance lies at the bottom of the gap at 2.484-2.489. Support is seen at 2.315-2.318. The RSI reading on the DC chart signals an oversold condition with a reading below 30 at 27. The stochastic momentum indicator is showing an oversold condition. Will the physical fundamental pattern of warm weather be overwhelmed by the technically oversold condition allowing prices to rally some?

Disclaimer

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