Energy Market Update 4-25-2023

Crude is down 79 cents??June RB is down 1 cent????June ULSD is down 2.25 cents

Overview

Energies are lower as the standoff resumes between upbeat Chinese demand expectations and concerns about an economic slowdown in Western countries.

The economic slowdown is seen reflected thru weak refining margins as per an analyst quoted in Bloomberg. Reuters details how margins have fallen dramatically in Europe and Asia recently. In Europe, high import volume and the return of French refiners are pressuring margins. Profit margins at European refineries using Brent crude have fallen by 71% since January. The margin is seen at $3.56. In Asia, the profit margin has fallen 57% to $2.54. In Asia, refiners are raising their gasoline output switching away from diesel/Gasoil. In Europe, gasoline margins are under pressure due to a fall off in West African demand as Russian supplies are headed there, crowding out European supplies.

Bloomberg reporting has the level of gasoline and gasoline blending components imported into NY rising this month to a 10 month high. At 259 MBPD, they are 3 times the amount seen in March. Cargoes are coming from the Mideast, Asia, Canada and Europe. European supplies are up as French refinery strikes have ended.

Yesterday, we cited Chinese jet travel as having picked up and we mentioned the Golden Week holidays. Reuters cited this demand as having helped the rally Monday but added the following: Bookings in China for trips abroad during the upcoming May Day holiday point to a continued recovery in travel to Asian countries, but the numbers remain far off pre-COVID levels with long-haul airfares soaring and not enough flights available.

A story we have seen, we believe has importance, although energy market accounts are not mentioning it. The MSCI China (equity) index fell for the 6th straight day today as foreign investors were net sellers of onshore China shares for a third straight session. “European investors that we met last week are frustrated with the sluggish performance of the China markets", according to BofA analysts. Some of the loss in the Chinese equity index is attributed to geopolitical tensions, notably the flare-up in Sudan and Chinese military exercises recently near Taiwan.

Technicals

Momentums are negative for the energies, but the price action of the past several days has made for clear boundaries on the up and downsides.

WTI spot futures have the double bottom from Friday/Monday at 76.72 and the highs of 3 of the past 4 sessions at 79.07-79.18. The 50 and 100 day moving averages lie at 76.32 and 76.88 respectively.

For July Brent the 50 and 100 day moving averages lie at 81.03 and 81.57 respectively. Support basis the chart is seen at 80.21-30 and resistance at 82.80-82.88.

ULSD for June sees support at 2.4608-14 and resistance at 3 of the past 4 sessions' highs at 2.5346-77 and above that at 2.5588-2.5603.

June RB has support at 2.5531-42 and resistance at 2.6366-75. The 50 day and 100 day moving averages intersect today at 2.6089 and 2.5660 respstecively.

Natural?Gas?-?June?NG?is?down?4.0?cents

NG is down as weather ameliorates and production remains strong. WSJ commentary cites the continued high storage surplus as impeding a rally, especially with summer cooling demand still a month or more away.

U.S. NG production hit a fresh record Sunday at 101.7 BCF/d, falling back Monday to 100.8 BCF/d, which is still greater than the monthly record of 100.4 BCF/d seen in January.

On Monday, Refinitiv forecast U.S. gas demand, including exports, would slide from 99.8 BCF/d this week to 94.5 BCF/d next week. Those forecasts were higher than Refinitiv's outlook on Friday of 96.6 BCF/d and 93.4 BCF/d.

As an addendum to our comment yesterday about the possibility of cargoes being cancelled come the summer, in 2020, at least 175 LNG shipments were canceled due to oversupply and weak demand.

Today is the last trading day for the May NG options with the $2.25 strike having a total of puts and calls outstanding of a little more than 29,000 contracts. The $2.00 put still has open interest of over 46,000 contracts on the CME as of the close of business Monday. The $2.10 puts have 10,627 contracts open.

Technically, June NG has negative momentum, but the chart has a more sideways looking pattern. Resistance comes in at the recent highs at 2.533-2.543, while support lies at 2.316-2.326.

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