Market Update 06/03/2020

Overview

Energies are now lower, falling from 3 month highs seen overnight.

The retreat in prices is said to be due to disappointment that OPEC+’s proposed meeting for tomorrow has been cancelled. This makes it unclear as to when the deal will be finalized between Russia and Saudi Arabia to extend oil output cuts for one month. Reuters reports that the deal includes stepping up pressure on those members that have lagged in their output cut compliance.

Some U.S. oil producers have brought production from shut-in wells back online. Parsley Energy and EOG Resources are bringing back some output, though one oil services firm's CEO says that the pickup in activity may not be profitable activity. Rystad Energy consultants have reduced their June U.S. crude oil shut in amount to 1.3-1.35 mmbpd. This is down from their prior forecast for cuts of 1.65 mmbpd. (Reuters)

Economic and financial news from overseas was positive today. The IHS Markit Chinese services sector reading for May was 55.0. This is up from 44.4 in April and is the best reading since October 2010. The Nikkei hit a 3-month high, as did the MSCI world equity index. (Yahoo Finance/Reuters) 

API                  Forecast            Actual 

Crude oil           +2.8                 -0.5

Distillate            +3.0                +5.9

Gasoline            -0.2                 +1.7

Runs                 +0.8%              n/av

Cushing              n/av                -2.2

The API data was met positively late yesterday due to the fall in crude supplies vs. the expectation for a build.

Chinese oil demand is said to be back to 90% of pre-virus levels. Gasoline and diesel use are seen rising as "more people and businesses boost movement." ( direct Reuters quote) Traffic congestion in Beijing is said to be back to normal, Reuters reports.

Yet, Platts reports that oil product stocks in the key Middle East hub of Fujairah have hit a new record. Middle distillate stocks (such as jet fuel) are up for the 10th week in a row. They are up 61% this year while light distillate (such as gasoline) stocks are up 79% this year. The article quotes a source as saying: "The real demand is not there as of yet."

20 VLCCs are lined up outside a key Chinese port ready to offload, but high inventory levels are backing them up. 19 more VLCCs are said to be arriving there next week. In the U.S. Gulf an "armada "of VLCCs loaded with Saudi oil are slated to have arrived at the end of May/beginning June. This all is seen helping the VLCC market even as refinery rates have dropped and oil inventory levels are high. (Platts)

Technicals

Technically, the energies have hit fresh highs for the recent rally, but the sharp fallback off those highs and the outside possibility of key reversals in crude oil make us a bit leery of being overly bullish here. WTI has resistance at the highs of yesterday and today at 3708/3818. Support lies at 3577-90, which has been tested with a low of 3588. Below this, support lies at 3466-81. Yesterday's low is 3528.

RB futures support is seen at 1.0888-98. Resistance is seen at 1.1206 and then at 1.1352. These are yesterday and today's highs.

ULSD July futures support is seen at 1.0476-94. Its resistance lies at the highs of yesterday and today at 1.0945 and 1.1080.

Brent August futures support lies at 3822-34. Resistance is seen at 3975 and then 4053. These are the highs from yesterday and today.

NG is up 7 cents in what WSJ/DJI news wire says is an atmosphere of risk-on, as equities have risen and lockdowns ease, which will help increase NG demand.

This rally comes despite worries over U.S. feed-gas supply for LNG exports this summer. Platts describes a weak LNG export market. They cite operators pulling maintenance forward with some shutting units. The world's key benchmarks when factoring in shipping costs make exports from the U.S. economically negative into October when a sharp recovery in Asian prices is expected. The JKM/Asian benchmark for July settled at $2.105 on the CME yesterday, while the NW European TTF market settled at $1.592, as per CME data. Shipping costs to Asia are said to be 75 cents and 30 cents to Europe. 

Platts says that total feed-gas flows to the six major U.S. liquefaction facilities on June 2 were 3.57 bcf/d, or the lowest level in almost 14 months. Utilization stood at approximately 35%, according to S&P Global Platts Analytics data. In late March, they were almost 10 bcf. 

Technically, NG has positive momentum as it remains range bound in our view. Support for the spot futures comes in at 1801-1803. Resistance lies at 1.886-1.890. December has peaked vs. October, having established a double bottom at 79.8-79.9 cents and with momentum having turned favor of October. Resistance above lies at 72.8-73.0 cents. 

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