Market Update 05/25/21

Overview

Energy prices are down a bit as nuclear talks with Iran seem to be in flux, although most seem to believe that a deal will ultimately be reached, which would add barrels to the market. Some attribute today's fall in prices to profit taking after a strong 2 day rise off the lows seen late last week. (WSJ) 

"We’re optimistic that differences over some small details and operational affairs will be resolved in the not so distant days ahead,” a spokesman for the Iranian government said Tuesday in Tehran. (Bloomberg) Optimism for a deal rose as Iran gave a 1 month extension to the International Atomic Energy Agency to monitor Iran's nuclear activities. Kpler says that Iran has doubled the amount of oil and condensate in floating storage. The belief is that sanctions will be lifted piecemeal, thus avoiding a sudden glut. (Platts) Analysts believe that the market will be able to absorb extra oil as demand is seen rising. Iranian crude production is already 600 MBPD higher than during the lows of last year, says RBC Capital Markets's Michael Tran. Despite worries over how well the market will absorb returning Iranian barrels, those already in the market "have been absorbed with ease," he adds. "While we see a further million barrels a day online later this year, we anticipate that further demand recovery should lead to relatively robust absorption rates.” (WSJ) 

Asian refiners are eagerly awaiting access to Iranian condensate/extra light crude supply due to the deep discount that it will offer versus the current suppliers, thus boosting refiner margins. (Platts) 

Data from Germany today took some luster off the belief that demand is picking up in Europe and the U.S. as vaccinations proceed. Germany's GDP shrank slightly more than expected in the period from January to March this year, contracting by 1.8%, the government said on Tuesday. The hardest-hit economic sector was private consumption, with households spending 5.4% less on goods and services. Householders put more money than ever into savings The government said this was a clear result of coronavirus restrictions. (Reuters/DW.com) 

China will strengthen price controls on iron ore, copper, corn and other major commodities in its 14th five-year plan for 2021 to 2025 to address abnormal fluctuations in prices, the state planner said on Tuesday. The country will also step up monitoring and analysis of commodity prices such as crude oil and natural gas, among other commodities. (Reuters) 

The dollar hit 4.5 month lows against a basket of peers on Tuesday, as insistence from the U.S. Federal Reserve that policy would stay put calmed fears about inflation forcing rates higher. (Reuters) 

Technicals 

Momentum for the crude oils has turned positive on the DC chart basis, while product momentums are still negative. 

July RB almost touched resistance in the 2.1355-60 area with a high today of 2.1349. Support is seen at 2.0830-40. 

July ULSD has resistance at 2.0514-22, which is the high seen today. Support lies at 2.0147-60. 

WTI spot futures have support at 6492-97 and resistance at 6661-67. 

Spot Brent futures support is seen at 6737-41, while resistance above lies at 6889-94, which was tested with a high of 6890. We note the steep rise in the value of WTI versus Brent for July. The spread has positive momentum for WTI still, but is trading over the upper bollinger on the daily chart and is coming into some support near $2.25. This thus tempers the enthusiasm for buying WTI against Brent presently. 

Natural Gas

NG is higher in what WSJ reporting suggests is that the sell-off is exhausted. 

The June options expire today and the June spot futures expire tomorrow 

NG has been hurt by overall weak near term weather demand and the prospect for the next few weeks' storage data to show triple digit builds. NGI modeling sees a build of 107 BCF in this week's data. Bespoke Weather expects a storage build of 106 BCF. This compares to last year's build of 105 BCF and the 5 year average build of 91 BCF. 

Also, a report seen Monday from the EIA showed that NG fired electrical generation in the first 4 months of the year suffered its first decline in 4 years. The NG generation rate was down 7% from year ago levels. The drop was due to higher prices for NG and due to competition from renewable fuels. Wind and solar capacity saw a 15% increase between May, 2020 and February, 2021. The EIA sees much more similar capacity being added the rest of this year. (EIA.gov) WSJ reporting has added to this storyline, saying that in recent weeks power plants have been leaning more on wind farms that usually perform well during the spring. 

On the other hand, LNG imports into Asia remain robust. May imports are seen measuring 22.37 MMTonnes, up from 20.78 MMTonnes in April. Imports may fall some in June as India is heard trying to defer some cargoes. China is effectively driving the spot market for LNG in Asia this year. They are seen overtaking Japan as the biggest importer of LNG. Summer pricing has remained firm for the JKM marker as buyers have sought to lock in cargoes. The LNG market in Asia remains fairly tight, with the spot price expected to hold around the $10 per MMBtu mark for a run of several months, which would be the strongest performance for this time of year since 2014. (Reuters) U.S. LNG exports are seen remaining strong on as the economics of U.S. exports even with shipping costs could be below domestic prices for Europe and Asia for the remainder of 2021. (NGI) 

Technically, we see merit to the comment made in WSJ reporting today. Momentum is still negative, but waning to the downside. Also, the price drop yesterday fell into some decent support in the low $2.80's in the spot contract. For today, we see support for July NG at 2.948-2.954 ,then at 2.927-2.928. Resistance lies at 3.013-3.015. 

Disclaimer 

Commodity trading involves risks, and you should fully understand those risks prior to trading. Liquidity Energy LLC, and its affiliates assume no liability for the use of any information contained herein. Neither the information, nor any opinion expressed shall be construed as an offer to buy or sell any futures or options on futures contracts. Information contained herein was obtained from sources believed to be reliable, but is not guaranteed as to its accuracy. Any opinions expressed herein are subject to change without notice, are that of the individual, and not necessarily the opinion of Liquidity Energy.