Market Update 05/27/21

Overview

Energies are lower as concerns over increased Iranian supply remain, while a stronger dollar in Asian trading hurt crude prices. WSJ cites profit taking for the fall today after a 4-day rally. 

However, the head of the Japanese Petroleum Association said that Japanese buyers would need at least 3 months to resume oil purchases after sanctions are lifted. (Reuters) 

The possible return of Iranian oil creates a bit of a problem for OPEC+ as they convene next week. Citibank suggests that the increase of 700 MBPD planned for June will still happen, but that the further rise of 840 MBPD planned for July “might be in question.” Still, any increase of supply from Iran would only be gradual, with JPMorgan estimating Iran could add 500 MBPD by the end of this year and a further 500 MBPD by August, 2022. (Reuters) 

Reuters cites concerns about demand from India and Japan due to Covid-19 infections as contributing to the softer energy pricing today. The EIA said they estimate that petroleum consumption in India declined by 400 MBPD (8%) to 4.7 MMBPD between March and April. 

A few items from Asian news are negative for crude pricing. Platts reports that the July physical trading cycle is ending and thus buying interest is waning. This is evidenced by the narrowing of the Cash to Futures Dubai spread. It fell by 38.5 cents from Tuesday to today in the Asian market. Also indicative of this is the widening of the Brent vs. Dubai spread. 

In China, several cities in a key province have asked industry to curb their power usage by suspending operations for hours or even days. High factory usage and hot weather are straining the region's power system. This comes on top of the recent surge in raw material prices that companies have endured. The Guangdong province saw electricity usage surge 22.6% in April from year ago levels. It was 7.6% over the 2019 level. (Reuters) 

The dollar rose Thursday in Asian trading as comments from Federal Reserve officials has some seeing the Fed tapering asset purchases, thus possibly causing interest rates to rise. (Platts) 

Yesterday's DOE data was supportive with gasoline demand rising to its best level since February, 2020. Gasoline demand rose by 255 MPBD to 9.479 MMBPD. Distillate demand also rose. It was up by 403 MBPD to 4.461 MBPD. Total product supplied, which is considered a proxy for demand, rose by 684 MBPD to 19.956 MMBPD. Refinery runs rose by 0.7%, which was above the expected rise of 0.2% as per WSJ survey. Product supplies fell by more than forecast. Gasoline supplies fell by 1.745 MMBBL, beating the best expected forecast we saw of -1.3 MMBBL. Gasoline supplies are 3.0% below the 5-year average for the period. Distillate supplies fell by 3.013 MMBBL, beating estimates of a fall of 1.5 to 1.9 MMBBL. Distillate supplies are now 8% below the 5-year average. 

Retail gasoline prices at the pump in the U.S. are at their highest level for Memorial Day since 2014. The average price is $3.04 as per the American Automobile Association (AAA). The AAA says that 34 million Americans will hit the roads this holiday weekend, which is 53% more than a year ago, but still 10% below the level seen in 2019. Apple Mobility data says that in its latest observation U.S. driving activity rose 3% to 146.5% of baseline levels, marking the highest level since the index was launched in January, 2020. GasBuddy says there are still 6,000 retail gas stations without gasoline supplies. (Platts/Reuters) 

Technicals

Momentum is positive for the energies, though they seem possibly stuck in ranges as we head to a long holiday weekend and the upcoming OPEC+ meeting next Tuesday. 

July WTI support lies at 6492-97 and its resistance is seen at 6661-67. 

July RB has a double top from yesterday/today at 2.1545-50, which provides resistance. Support comes in at 2.1100-25. 

July ULSD sees it support at 2.0178-80, then at 1.9956-60. Resistance lies at 2.0514-22. 

Natural Gas

NG prices are lower as the European weather model shed some demand overnight, as per NatGasWeather. (NGI) 

June NG futures expired on a firm tone by printing over $3.00 in the final half-hour of trading on Wednesday. 

The EIA storage number today is forecast to show a build of 101-107 BCF Last year saw a build of 105 BCF and the 5-year average is +91. The next several weeks' numbers are seen falling back to the mid-80 BCF level, as per Platts Analytics. 

Wood Mackenzie sees LNG demand growth slowing in 2022 due to the economic recovery stagnating and competing coal and nuclear usage rising in Japan and South Korea. However, Wood Mackenzie sees European NG prices staying supported through this summer due to restocking of inventory and "strong" coal to gas switching economics. As a result, Atlantic LNG prices are seen staying strong with European winter inventory levels starting out low, added to high seasonal Asian demand. (Reuters) 

Technically, the momentum on the spot DC NG chart has turned positive. July NG sees support at 2.983-87, then at 2.940-2.945. Resistance lies above at 3.045-47, then at 3.080-87. 

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.