Market Update 05/05/20

Overview

Energies are higher as most fear that the worst for the supply/demand imbalance is over with a forecast for a smaller build for crude supplies in this week's U.S. oil data reenforcing that belief.

Crude supplies are seen rising by 7.1 mmbbls as per Platt's survey. Gasoline supplies are seen falling by 400 mbbls but distillate supplies are forecast to rise by 3.5 mmbbls. Refinery runs are seen rising by 0.6%. Genscape reported Monday that Cushing supplies rose by 1.8 mmbbls in the latest period. (Bloomberg via worldoil.com)

Goldman Sachs, Morgan Stanley and UBS all offered brighter forecasts for the oil market. Goldman raised their 2021 Brent forecast to $55.63 from a prior estimate of $52.50. WTI was raised to $51.38 from $48.50. Morgan Stanley sees the oversupply having peaked and the storage crunch abating. UBS sees the market in balance in the third quarter and possibly undersupplied in the fourth quarter. UBS sees Brent pricing at $43 by the end of the year and up to $55 by mid-2021. (Reuters)

Total, today, said that they would cut their CapEx by a further 5% from prior numbers seen in March. Their refinery rates and sales have been running 50% below normal since mid-March. They see their runs at 70-75% this year vs. 84% in 2019. (Platts)

Western Select Canadian crude rallied on Monday to its best value vs. WTI futures since 2009 as Enbridge said that they would allow oil to be stored on their Mainline pipeline. The figure offered for temporary storage is 910,000 as of June 1. Western Canada Select (WCS) heavy blend crude for June delivery in Hardisty, Alberta, traded at $3.70 per barrel below WTI, according to NE2 Canada Inc., narrower than Friday's settle of $5.35 under. (Reuters/worldoil.com)

“Canada Oil, Natural Gas Drilling Seen Plunging to 49-Year Low Amid Pandemic, Demand Rout.” This headline was seen on NGI.

The Texas Railroad Commission regulator who had been seeking possible oil production cuts there dropped his plan as it seems the free marketplace has done so already, according to an oil producing agency official who stated that oil output cuts in Texas will likely reach 20% by the end of May. (Reuters)

On a negative note, in Asia, Gasoil and Jet Fuel cracks against Dubai crude fell to new record lows. The Jet crack was assessed at -$7.23 vs. -$3.16 seen Monday. Gasoil margin vs. Dubai fell to $1.77 from $4.56 Monday. (Reuters) Several notes regarding air travel that we saw today say that air travel has fallen by up to 90-95%.

Technicals

Technically, the energies have positive momentum as WTI and RB have reached their highest levels in weeks.

RB spot futures have not been this high since March 16. Resistance is seen at 9182. The high today is 8893. The upper Bollinger is being tested at about 8835. RB support is seen at 8030.

June ULSD has its support at 8144, below the 8204 low seen today. Resistance is seen at 8976.

WTI June futures have hit their highest level since April 13. Resistance here is seen at 2352-54. Support is seen at 2048-53.

Natural Gas

NG has surged over $2, propelled by rising crude prices and cold weather as per one WSJ headline. Though, they fail to cite an explosion on a section of Texas Eastern's pipe in Kentucky reported last night. Last night's explosion occurred 2 hours away from a similar incident seen last August when prices spurted up, only to fall back within a day or so.  

Technically, NG is firm but it is attacking the upper DC Bollinger, which may limit some of the upside. That band intersects at about 2.088. We see resistance in June futures today at 2137-2138 (the overnight high is 2.150). We see support for spot futures at 2018-2025 (the overnight low is 1981). Momentum remains favorable. 

Also favorable is the jump up in the June/December spread where there is a gap from 973 to 997 with upside resistance seen near 92 cents. Current value is about 94.5 cents. 

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