Market Update 02/03/2020

Overview:

Energies are lower, but RB & WTI higher. Today, the market has been pulled both directions with the Coronavirus causing prices to fall to new lows for ULSD & crude oil, but rallying as OPEC has called a joint technical committee meeting for this week. Note, a possible further 0.5 mmbpd output cut is being mulled. ( WSJ)

OPEC could call a ministerial meeting for February 14/15. The technical committee is to meet tomorrow and Wednesday. However, Iran, Russia and Nigeria are said to be reluctant to organize an emergency meeting. (Reuters)

The possible 0.5 mmbpd cut is not likely enough to cover the demand loss seen from China. One analyst cited in a WSJ put the loss at 3 mmbpd.

Goldman Sachs has reduced their forecast for Chinese GDP for the first quarter by 1.6% to 4.0%. (WSJ)

The Chinese stock index fell by almost 8%, today, as the market reopened after the 10-day break for the Lunar New Year. (WSJ) Analysts cited in Reuters saw the decline in the stock market as expected and were cheered by the lack of selling: “There is no panic and no selloff of securities that are unrelated to the coronavirus." The Chinese Central Bank injected nearly $174B of liquidity into the markets and lowered the reverse repo rate by 10 basis points. 

Sinopec has issued orders to cut refinery runs by 600,00 bpd this month while independent refiners in one province are said to have reduced runs to 30% from the 50% level seen one week ago. (Reuters)

Demand concerns reflected themselves in the Asian Mideast crude oil market. Dubai cash to futures premium fell to a 7-month low. The April spread was seen at 88 cents. March's value ended January trading at $1.92. The March/April Dubai spread was seen Monday at 30 cents—down from Friday's 45 cents value. (Platts)

Fridays' EIA Monthly Drilling Report showed November US crude output rose to a record 12.9 mmbpd—up 203 mbpd from October. This corroborates the weekly data seen in the DOE reports. (Reuters)

Friday's Baker Hughes oil rig count dropped by 1 unit.

CFTC data issued Friday showed money managers dramatically reduced their length in crude oil & products in the week ended Tuesday, January 28th:

-WTI length fell by 56,317 contracts on ICE/CME combined. 

-Brent net length dropped by 26,633 contracts. (Reuters)

- RB length was reduced by 28,065 contracts.

-ULSD by 15,971 contracts

Technicals:

Technically, price action has yet to signal a definitive low in the energies, but a few indicators make us very leery to suggest pressing bearish trades. Notably, the RSI on the DC WTI chart is reading 24. Note, the last time it was this low (June, 2019), the market bottomed. Also stemming bearishness is the lower bollinger band on the weekly WTI chart, intersecting at about 5055-60 and tested with a low of 5042, today. We see support above that for WTI at 5097-99. WTI spot futures resistance lies at 5268-77.

ULSD DC RSI is 21. Support at 16044-68 was tested with a low of 16028 and below that we see next best support at 15780-90. Resistance comes in at 1.6556-79. The lower bollinger on the weekly chart lies at about 1.6280-85. 

RB support lies at 14800-05, then 14620. Resistance comes in at 15200-25, then 15345-55. Here, momentum on the DC chart is positive.

Natural Gas:

NG is up 1.5 cents, having seemingly stabilized after hitting a multi-year low on Friday. On Friday, NGI reported that the market managed to rise off the low as there were “indications of a tightening supply/demand balance."

Friday's Baker Hughes rig count showed a drop of 3 units.

CFTC data showed money managers reduced their net short position in options/futures on the CME/ICE by 11,361 contracts (Reuters)

The EIA, in its Monthly Drilling Report, stated that US NG output reached a new record in November of 107.3 bcf. Note, the rise was the 6th straight one, but the increase of 1 bcf was the slowest since July. (Reuters)

Technically, we see NG as steady. Support lies at 1812-1815—the lows from Thursday/Friday. Below that, we see support at 1787-1794 from 2016 weekly lows. Resistance above lies at 18883-1888 and then at 1938-1945.

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