Market Update 02/19/2020

Overview:

?Energies are higher, boosted by US sanctions levied against a trading arm of Rosneft and by the reduced number of new Coronavirus cases. (Reuters)

The sanctions against Rosneft are for its dealings with Venezuela. Rosneft is the world's largest listed oil company by output. (Reuters)

Platts reporting suggests that refinery runs in China are bottoming out. Independent Chinese refiners have been heard buying some barrels for delivery in April/May as the term structure of crude oil has weakened in recent weeks, making prices more attractive. Platts Analytics sees February Chinese demand down 9.8% but down only 0.8% in May.

The demand for Mideast sour crude remains weak, evidenced by the drop in the Cash vs. April Dubai spread to -31 cents Wednesday—down from -6 cents seen Tuesday. (Platts) The Gasoil and Jet cracks based off Dubai crude in Asia fell Wednesday as demand is weak. The Jet crack fell by $1.29 to $8.14—the weakest value seen since December 2009, according to Refinitiv data. The Gasoil crack fell by $1.12 to $10.41—the lowest value since January 27th. (Reuters)

Libyan output has fallen to 123,537 bpd—down 12,000 bpd from yesterday as tensions rise there. Offloading operations for fuel vessels in a port in Tripoli have been halted, Libya’s National Oil Corporation (NOC) announced on Tuesday. (Reuters) This, as military forces led by Khalifa Haftar were responsible for projectiles striking near a highly explosive LPG tanker as the battle for control of Tripoli continues.

The EIA said Tuesday that March US shale oil output would rise by 18,000 bpd, but the number of wells drilled in January fell to their lowest level since June 2017 and the drilled but uncompleted wells total fell to its lowest level since November 2018. (Reuters)

Refinery issues in the Gulf Coast and East Coast have supported RB over the past few sessions.

Over the weekend, the gasoline producing units in the Houston-area refineries operated by LyondellBasell Industries and Chevron Corp. were shut, according to refinery sources and Genscape. This is in addition to prior issues at the Phillips Bayway NJ refinery seen two weeks ago. Repairs there are expected to last until early to mid-March.

Also two octane boosting units in the Gulf at Shell 's Covent LA unit and at Marathon's Texas City unit were shut over the weekend.(Reuters)

Technicals:

Technically, RB has risen to its highest level in a month. Crude oil is the highest in 3 weeks, while ULSD lags.

RB's momentum is getting near overbought. It is testing resistance in the 1.6289-1.6307 area as we type. Above this, resistance lies at 1.6502-12. Support is seen at 16089-16100 (the latter is today's low). Below this, support is seen at 1.5960-62.

ULSD is below resistance at 17021-27 (the highs from Friday/Monday). Support lies at 1.6580-1.6600.

Brent will benefit more from any issues that may arise from Rosneft's ability to do business. April Brent futures have filled the DC rollover gap left by March (to 5794) and are exceeding that value. Support lies at that area—5794-99—and then at 5722-23 with resistance coming in at 5892-96 and then 5960-68.

April WTI futures support is seen at 5223-29 (the low overnight is 5216). Its resistance is at 5342-43 and then at 5415-25.

Natural Gas:

NG has pulled back about 2 cents from yesterday's settlement with a few indicators giving us some pause for the bullish scenario:

Firstly, yesterday's volume on the CME for NG futures was 900,167 contracts—a very heavy amount leading to a possible belief of a temporary top. Tops and bottoms are signaled by large volume.

Secondly, there is a double top currently at 1.978-1.983 from yesterday/today.

Thirdly, there are several spreads in the forward curve that have mean reversion set ups from yesterday's settlements. We see the April/August spread as an example, having settled over the upper bollinger band on the daily chart. Note, today the upper bollinger lies at about 16.9 cents. The spread settled at 16.7 cents. Upside resistance is seen in the 15.8-15.9 cents area with first support lying at 18.7-19.0 cents.

Technically, NG has positive momentum as it stays above the support area at 1938-1942. Below this, we see support at 1.903-1.908 (where the mid bollinger lies). There is a gap to fill on the DC chart to 1.994—above the double top mentioned above.

The EIA forecast Tuesday stated that US shale NG output would fall by 0.2 BCF in March—the third straight monthly decline. (Reuters)

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