Energy Market Update 5-3-2023

Crude is down $2.35???RB is down 5.25 cents????ULSD is?down 5.25 cents

Overview

Energies are sharply lower again today as the fear of a recession grips the oil market. A Fed rate hike is expected today. The drop in oil prices comes even as crude supplies drew more than forecast in the API data last night, and as a Reuters survey has OPEC output having fallen in April.

A Reuters survey says that OPEC's oil production fell in April by 190 MBPD to 28.62 MMBPD. OPEC oil output fell in April due to a halt in some of Iraq’s exports and delays to Nigerian shipments. Output is down more than 1 MMBPD from September. Output is set to drop further in May as a new round of voluntary cuts unveiled on April 2 takes effect.

API?????????? ??Forecast????????Actual

Crude?Oil?????-1.1/-1.2????????-3.939

Gasoline??????-1.0/-1.16????????+0.4

Distillate??? ?-0.7/-1.08?????? -1.0

Cushing?????????-0.05??????????? +0.7

Runs??????????+0.3/+0.4%??????unch

The Fed is expected to raise rates today by 25 basis points. Many analysts see this as the last rate hike for this cycle. "Cracks appearing on multiple fronts - jobs, lending, the banking system and debt ceiling - strongly suggest it will be the last of the cycle", as per a quote from Reuters.

Bloomberg quoted the Iranian Oil Minister as saying that they have raised their oil output to 3 MMBPD. Barron's had them producing 2.7 MMBPD in February. The low point for their production was 1.9 MMBPD in July 2020. The EIA in November of last year said that without sanctions Iran could produce 3.7 MMBPD. We question that number as decay of oil fields and a lack of investment may see that level as unattainable. (Bloomberg)

Morgan Stanley lowered its forecast for Brent prices to $75 a barrel by year-end from their prior estimate of $90. They say that Russian supplies remain high enough and that much of the demand boost from China’s reopening has likely already played out. They reduced their forecast for an oil supply deficit in the second half of the year to 0.3 MMBPD from 0.6 MMBPD as they see higher output from the U.S., Canada and China.??(Bloomberg/Marketnews)

Regional bank shares in the U.S. are down further this morning after being sold off quite a bit Tuesday. Bearish bets on regional banks have jumped appreciably in the last week, as per Bloomberg.?But, the broader U.S. equity indices are in the green at current.

Technicals

ULSD has fallen to its lowest value for spot futures seen since December 2021. RB spot futures filled a gap left over from late February from 2.3784 to 2.3780. CME data from yesterday's activity shows WTI open interest having risen quite bit in what we suspect is new short positions having been added. Momentums look neutral, with those for the products looking oversold. But, we must add that the oversold condition for the ULSD has been in place for the past 10 days already.

RB spot futures have support below the aforementioned gap at 2.3200-05. Resistance lies above at 2.4470-75.

ULSD support comes in at 2.1859-77 from weekly data from 2021. Resistance lies at 2.2962-79, which is the overnight high.?Above that resistance comes in at 2.3320-51.

WTI spot futures see support at 69.13-14, then at 66.77-82. Resistance lies at 72.19-30.

Natural?Gas?-?NG?is?down?3.2?cents

NG is lower as weather demand is not seen as strong in the near term and recently U.S. production has been strong, while feed gas demand has fallen a bit on spring maintenance.

Refinitiv said average gas output in the U.S. Lower 48 states rose to 101.7 BCF/d so far in May, up from a record 101.4 BCF/d in April. Feedgas demand has slid to an average of 13.5 BCF/d so far in May, down from a record 14.0 BCF/d in April. The decline this week was due to small reductions at Cheniere Energy Inc's Sabine Pass and Venture Global LNG's Calcasieu Pass in Louisiana. Refinitiv forecast U.S. gas demand, including exports, would slide from 95.4 BCF/d this week to 91.1 BCF/d next week as weather demand falls.

European natural gas extended its decline today, trading at a fresh 21-month low amid record LNG imports and rising stockpiles. Western Europe’s LNG imports jumped to a record 10.6 million metric tons in April, driven by shipments into France, Belgium and the Netherlands, data compiled by Bloomberg show. The US supplied about 50% of the fuel, while Russian cargoes accounted for roughly 10%. Europe’s gas inventories are about 60% full on average, well above normal for this time of year, data from Gas Infrastructure Europe show. The price for the spot TTF futures today has fallen to as low as 36.55 Euros/Mwh, which equates to $10.71/ MMbtu.

Back on April 4th we wrote : "A colleague had suggested weeks ago that the market would find support when Texas temperatures rose to 90 degrees, sparking A/C load." Dallas will hit over 90 degrees this Friday & Saturday, but other than that there are no highs in the 90's in the 15 day forecast, underscoring a lack of heat in a key demand area (Texas) and thus not giving the market the upside driver it needs.

Technically, we had spoken on April 10 of a seasonal range from $2-$3 that has been seen in recent years, thus suggesting a similar pattern might be setting up this year as well. From our update of April 10 : ""As colleagues point out, outsized price moves are unlikely as we enter the shoulder season, as an analyst points to recent years where the futures price wavered between $2 and $3." (see the attached weekly chart of 2016-2021) This range theory has been echoed today by a technical analyst whom we revere. His latest comment re the technical picture for NG reads as follows :?"The takeaway from the technical elements in prices for various contract months is that the easy, downtrending money is likely behind us, giving way to a much more volatile and challenging environment with greater odds of aimless whipsaw risk that warrants a more conservative approach to directional risk assumption."

CME data for NG open interest from Tuesday's trading shows a large increase. It seems to us that new shorts were added in the June through October strip. Momentum is neutral for the NG spot futures on the DC chart basis. Support is seen at 2.130-2.140 and then at 2.074-2.076. Resistance comes in at 2.271-2.274 and then at 2.312-2.314.

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