Market Update 04/13/2020

Overview: 

ULSD, WTI and RB are higher but Brent is lower as the market reaction to the oil output cuts is muted and trading volumes are lighter due to markets overseas being closed for Easter Monday. 

OPEC+ agreed to cut output by 9.7 mmbpd for the next two months, after which they will reduce the amount cut to 8 mmbpd from July 1st to the end of the year. A 6 mmbpd cut for 16 months beginning in 2021 will then be reviewed. (ABC News) The Saudi Energy minister said that the cuts are effectively 12.5 mmbpd given current production levels. (Reuters)

Saudi Arabia issued its OSPs today and lowered them for Asian customers by much more than a Platts survey had forecast. The A-Light flagship crude oil price was cut by $4.30 to -$7.30 against the average of Dubai and Oman crude assessments over May. The Platt's survey of traders was looking for a cut of $2-3. The Medium, Heavy, and Sour grades were set at -$7.40, narrowing greatly the differential between light and heavy crudes, which we believe underscores the demand drop for the lighter end of the refining process (being jet fuel and gasoline). Saudi OSPs to Europe were basically unchanged while those to the U.S. were raised by $2.50-4.

Oil product demand in the Mideast region is seen dropping by a record 2.9% this year with jet fuel demand seen down 15% and gasoline demand down 6%. The region of 14 countries has seen oil demand growth in 27 of the last 29 years. (Platts)

In Asian trading, Dubai gained on Brent as the output cuts are seen helping sour grades more than sweet crude. June Dubai Brent was seen -$1.63–down 41 cents from Thursday. (Platts)

Reuters reports that the IEA is set to announce purchases of oil for storing in strategic reserves. The purchases are seen at up to 3 mmbpd over the next few months. 

In the next few days the market will be looking for the following reports: Wednesday from the IEA and Chinese trade data, Thursday from OPEC, and China's GDP information out Friday. This is in addition to earnings results from companies in the U.S. that are set to be released this week, starting with banks, giving insight into the effect the virus is having on economic activity.

Friday, Baker Hughes reported a drop of 58 units in US oil rigs, bringing the drop over the past 3 weeks to 179 units. The total working number of rigs is the lowest since December, 2016. (WSJ)

CFTC data issued Friday showed money managers shed length in RB by 28,348 contracts split between new shorts and length liquidation. ULSD shorts were reduced by 2825 in the period ended April 7th. Total combined WTI length was added on CME/ICE by 3.089 contracts.

Technicals:

Technically, the energies have a slight negative tinge as momentum for the crudes and ULSD point lower and momentum for RB is poised to rollover negative. The negative tone in the market is also reflected in the steep drop in June Brent vs. December Brent. The spread is down roughly 75 cents. The market is suggesting that the oil cuts will help in the future, but that the demand drop seen near term will overwhelm the cuts agreed to this weekend. 

WTI support lies at 2080-88. Resistance lies at 2516-24. 

Brent spot futures support lies at 3003. Resistance lies at 3418-24 (the overnight high is 3399). A slight negative to us is the double top on the weekly chart from the past two weeks at 3629-40.

ULSD May futures support lies at 9382-9400 (the latter is the low seen today). Resistance lies at 10229-48 (tested with a high of 10281). Above that, resistance is seen at 10441-61. 

RB May support lies at 6680-87 and then 6347-53. Resistance lies at 765-75 and then 7329-49 (7329 is the high so far today). 

Natural Gas

NG is higher as production cutbacks in oil benefit NG in the more immediate term due to the loss of associated gas. Also, a colder period in the U.S. East Coast this week is supportive near term. Analysts at Goldman Sachs state, "We now base-case that 1.5 mmbpd of oil shut-ins occur in the U.S. in April-May, impacting expected gas production by 4.6 bcf/d." (WSJ)

The NG rig count fell by 4 units in Baker Hughes’ latest report issued Friday.

CTC data showed money managers reduced their net short futures/options position on the CME by 28,348 with shorts reduced and longs added. 

Thursday's EIA storage data disappointed. The injection was 38 bcf—above +21/+24 forecasts. Storage was +324 bcf/+19.1% over the five year average and +876 bcf/+76.3% YOY. 

Data analytics company Enverus said natural gas prices will exceed $4/mmbtu and could reach $4.50/mmbtu as early as the coming winter. “Enverus expects dry gas production to decline by over 6 bcf/d by December 2020 compared to 2019. This will cause the gas market to go from being long during the summer months to being very short by the winter 2020-21 (oil price.com)

Technically, NG is steady and holding above the mid-DC bollinger band, which lies at about 1.725. Support lies at 1747-1750 and then at 1721-28, which is the double bottom from today/Thursday. Resistance lies at 1825-25. Momentum is trying to stay positive.

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