Market Update 06/02/2020

Overview

Energies are higher, with WTI rising into the gap created in March. Energies are helped by hopes of economic recovery, but more so by the expectation for an extension of OPEC+ output cuts for another two months.

OPEC+ is seen extending their 9.7 mmbbl cut agreement until September 1st. The original deal was to have seen a reduction in the cuts to 7.7 mmbbls at the end of June. (Reuters)

The Saudis are seen raising their July OSPs to Asia by $2-5 with Reuters saying the rise in flagship A-Light crude will be $3.80. Tracking recent gains in Middle East benchmarks, the May Dubai contango has improved by $6.60 since April. Lighter crude grade OSPs are seen rising more than those for the heavier crudes as improvements in naphta and gasoline are supportive. (Reuters) Platts reporting interjected some concerns though; here is a quote from Platts: "Price hikes from Middle East producers on contracted term volumes could also discourage buyers from ramping up run rates too swiftly. 'Refining margins are currently challenging,' a China-based crude trader said." 

The Chinese are said to be taking a quarter of all of Russia's Urals June loadings from the Baltic due to Saudi cuts of similar crude grades. The purchases come even as the price of Urals has risen to record premiums vs. Dated Brent. (Reuters)

In Asia, gas-oil cash differentials swung to a premium for the first time in 11 weeks. Tuesday, it was assessed at +24 cents vs. Monday's -36 cents. The uptick was due to hopes for economic recovery as lockdowns ease. This is reflected somewhat in India's gasoline and gas-oil sales being up sharply in May from April's depressed level. (Reuters)

Technicals

WTI price action is seeing a fresh high for the recent move. WTI has resistance at 3635-51 (3635 is the high from March 11 and 3671 is today's high). Above that, we see resistance at 3938-44, which are weekly lows from 2009. Supprt for spot WTI futures lies at 3466-81.

Brent spot futures support lies at 3822-34 (tested with the low of 3826) and then at 3718. Resistance comes in at the March 11 high of 3970. Today's high is 3956.

July RB support is seen at 10660-80 (the low today is 10660). Resistance is at 11086 (today’s high) and then at 11170-11200. 

ULSD July futures support is seen at 10476-94 (today's low is 10338). Resistance comes in at 10930-35.

Natural Gas

NG is up slightly as the market wrestles with "questions surrounding production and export demand,” to quote NGI. WSJ/DJI reporting quotes Woods Mackenzie as seeing global LNG with its first seasonal demand contraction since 2012. They see a drop of 2.7% or 3 million metric tonnes.

The back end of the curve in NG futures is strong with December making a fresh high vs. October (79.2 cents), reflecting the market's underlying belief that production cuts will cause a rise in prices for next winter and for 2021. Raymond James analysis sees a "massive recovery" in NG prices in 2021 without a supply rebound between now and then. They say 2021 prices could average $3.50. (NGI)

Worries over LNG exports are reflected in analysts seeing feed-gas down within the last week. EBW Analytics said that, last week, feed-gas fell by 2 bcf while Genscape says that Monday saw feed-gas fall by 1.76 bcf vs. Friday. (NGI)

Technically, we see NG futures as still range bound. Today it is having an inside day. Support lies below at 1760-1763 (the low is 1758) and then support is at 1741 1743. Resistance is seen at 1811-15 and then 1848-1851. 

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