Market Update 06/05/2020

Overview

Energies are higher with Crude oil and RB making fresh 3-month highs, as OPEC has scheduled a meeting for Saturday to try to finalize an agreement. The meeting will proceed now that Iraq and some other laggards in cutting output have agreed to step up their compliance. Reuters reports that the laggards who overproduced in May and June will compensate by producing less in July, August and September.

Lukoil has indicated that they back the Saudi idea of extending the current cuts by 2 months. (Reuters)

China's teapot refiners raised their crude imports in May to a record high. Their imports were up 71.1% YOY in May. Their run rate has increased as demand has risen. Margins are seen as good even as crude prices have risen. Domestic oil product demand is okay with jet fuel demand seen recovering. In the key Chinese oil province, runs are seen at a record of 75% of capacity. (Platts) However, Japan's demand picture is not as rosy. There, runs in the week of May 22-29 fell by 7.7% to 1.82 mmbpd. April motor fuel demand in Japan was at a 33-year low. Jet fuel demand was at a 48-year low. (Platts)

The Asian jet fuel cash differential fell Friday by 10 cents from the day prior due to lower physical buying interest, as per Reuters reporting. “'A lingering concern that resumption of domestic flights will not be enough to strengthen the market continues to weigh on sentiments,' traders said. Brimming diesel inventories and stronger oil prices are driving down refining profits, stifling incentives to hike production even as fuel demand recovers from the coronavirus hammering." (Reuters)

Reuters cites a ship broker who says that crude oil in floating storage has dropped to 200 mmbbls from 290 mmbbls at the start of May. In the same period, oil products stored at sea have fallen to 73.9 mmbbls from over 100 mmbbls.

Some oil platforms have been evacuated and some production shut in in the Gulf of Mexico due to the storm named Cristobal, which is seen making landfall into Louisiana late Sunday. The storm is seen bringing high surf and heavy rains to the Gulf. (Weather Channel)

The U.S. Non-Farm Payroll data out today surprised with 2,509 new jobs created. This is completely different from the forecasts we saw for job losses of 8.0/8.33 million.

Technicals

Technically, WTI and RB are overbought. RB is attacking its upper DC Bollinger with WTI and Brent close to doing so as well, which may limit some further upside. RB resistance is seen at 1.2072 (tested with a high of 1.2080) then resistance lies at 12324-48. The upper DC Bollinger lies at about 1.1920. Support below is seen at 1.1517; the overnight low is 1.1417.

WTI sees its resistance at 4014-15 from weekly high/low from 2015. Above this, resistance is seen at the filling of the DC gap at 4105. Support lies at 3762 then at 3705-14 via pivots and the low of the overnight.

Brent spot futures support is seen at 4053 then at 3970-75 (the low overnight is 3972). Resistance comes in at 4357 from weekly lows. The upper DC Bollinger is at the 4270 area.

ULSD sees resistance at 11384 (tested with a high of 11413) then resistance lies at 11777. Support is seen at 10777-85. The overnight low is 10711.

Natural Gas

NG is up 3 cents as it gains from the strong moves in the energies and equities. Yesterday's slightly bullish EIA did not elicit a strong move in NG prices. The build of 102 bcf was below the survey estimates we saw of +110/+111. Storage remains 762 bcf YOY and +422 over the 5-year average.

NGI reported that feedgas supplied to the US Gulf rose by 0.6 bcf Wednesday to 4.5 bcf.

Technically, we see NG as overall range bound as momentum on the DC chart looks set to turn negative. For now we see spot futures with resistance at 1861-1865; this level has been tested with a high of 1864. Above this, resistance comes in at 1886-1890. Support lies at 1811-1815 then 1771.The overnight low is 1815.

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