Market Update 06/24/21

Overview

Energies are lower, led by distillates. Some cite profit taking for the pullback. Murmurs are growing louder of more supply coming from OPEC+ in August. The down move comes despite good data seen the past 24 hours.?

Further stoking expectations of a European fuel demand recovery, data from Germany showed the largest upward leap in retail conditions since German reunification more than three decades ago. (Reuters)?

The DOE data seen Wednesday was overall supportive. U.S. crude inventories dropped to their lowest since March 2020, official data showed. U.S. gasoline stocks also posted a surprise draw. The gasoline draw was concentrated in the Gulf Coast region, where stocks declined 4.28 MMBBL. Th DOE reported a total draw of 2.93 MMBBL. The U.S. Atlantic Coast saw a counter seasonal 55 MBBL gasoline build, pushing stocks to the highest level since late February at 68.89 MMBBL and padding the surplus to the five-year average to 1.4%. Midwest stocks climbed 980 MBBL to 49.61 MMBBL, an 11-week high. Crude drew by 7.614 MMBBL, beating expectations. U.S. crude output fell by 100 MBPD to a total 11.1 MMBPD. Gasoline demand rose by 80 MBPD to 9.44 MMBPD, which is the 2nd best reading in the past 15 months. Two years ago, gasoline demand for the period was 9.466 MMBPD. Total Product Supplied this week rose to 20.751 MMBPD. This compares to the level two years ago of 20.880 MMBPD. One negative from the stats may be the high level of gasoline production. Gasoline supplied rose over 10 MMBPD for the first time since December 2019 and was said to be the best since September 2019, as per Platts reporting.?

Cushing supplies fell to their lowest level since March 2020. Bloomberg cited analysts that see Cushing supplies falling to historically low levels by the end of September. Cushing stocks now total 41.7 MMBBL. They may fall to near 30 MMBBL by the end of September, given that supply has not risen nearly as fast as the increase seen in refinery runs in recent weeks.?

All but two of 15 analysts, traders and refiners in a global survey by Bloomberg News predicted that OPEC+ will tap its sizable spare production capacity. Yet the average increase they forecast for August was about 510 MBPD, which is barely a quarter of the global supply deficit that OPEC+ itself anticipates during that month.?

The Dallas Federal Reserve in their quarterly Energy survey noted that oilfield services costs are rising. Among oilfield services firms, the index for input costs rose notably, from 36.0 to 56.0—a record high and suggestive of significant cost pressures.The index for capital expenditures increased from 31.0 to 42.4, indicating an acceleration in capital spending among E&P firms. Additionally, the index for the expected level of capital expenditures next year came in at 53.0, up from 49.5 in the first quarter (Dallasfed.org)?

Technicals

We lean to the market having peaked yesterday for the near term. The RSI momentum on the weekly continuation charts for the energies all show readings over 70, which is considered the tipping point for an overbought market. RB has a mean reversion set up that wil be confirmed with a close today below 2.2550. This suggests further pullback may be in order. We also note the drop in the 6 month WTI spread settlement basis yesterday. The August 21/February 22 spread shed 17 cents to settle at $4.59. It tested over $5.30 on Monday.?

RB yesterday almost touched the major high of 2.2855 seen in May 2018. Yesterday's high was 2.2820. Support for August RB is seen at 2.2220-35. Resistance lies at 2.2725-30.?

USLD for August shows resistance at 2.1585-2.1605. The overnight high is 2.1645. Support is seen at 2.1315-30, then at 2.1185. The weekly uppper bollinger intersects at about 2.1590.?

Brent for August has support at 7432-33, then at 7373-78. Resistance lies at 7558-66. The weekly upper bollinger intersects at about 7390.?

WTI has support at 7203-10, then at 7111-18. Resistance is seen at 7294-99, then at 7395-96. The weekly upper bollinger is seen at 7186.?

Natural Gas

NG is down slightly as cooler temperatures have entered the forecast. We hear mixed views about where prices should be going. The negative camp cites increasing production. The positive camp cites demand, notably feedgas.?

Today's stats are seen as being overall supportive. News wires surveys are calling for a build of 65 to 68 BCF. This is better than the five year average build of 83 BCF and the +115 BCF figure seen last year for the period.?

As for feedgas, Wednesday's volume to the 6 major liquification plants was seen having risen to 11.04 BCF. That was up 1.6 BCFD from June 22 and the highest level since June 1, Platts Analytics data showed. Maintenance at various plants seems to have been completed. The article pointed to a further LNG feedgas volume increase coming by year end as 2 new plants will come on stream. Feedgas is seen staying strong through the summer as netbacks globally for U.S. LNG exports remain strong. The dynamics have been fueled in part by persistent Chinese import strength, strong power-sector driven LNG demand in South Korea, and flat Asian LNG supply year on year. Latin American demand was also cited, as Brazil deals with drought conditions and Argentina has a poor upstream recovery. (Platts)?

Technically, NG has positive momentum. August's ability to hold support in the 3.286-3.292 area should see it rebound to test resistance in the 3.378-3.385 area. One colleague says that he has a target of 3.52.?

Options for the July NG contract expire tomorrow. There are only 2 strike prices on the CME we see that have enough open interest to warrant monitoring. The $3.25 call has open interest of 15,761 contracts. The $3.50 call has open interest of 19,210 contracts. All other strike prices we looked at, for both puts and calls, had open interest well below 10,000 contracts.?

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.?