Market Update 07/07/2020

Overview

Energies are mixed with RB up, but ULSD and crude oil are down.

The drop in crude oil is seen due to worries over a resurgence of virus cases, primarily in the U.S. Sixteen U.S. states have reported record increases in new COVID-19 cases for the first five days of July, according to a Reuters tally.

The Gasoil crack in Asia suffered from the same concern for an uptick in cases in China and South Korea, Reuters reported. The crack from Dubai crude fell $0.30 Tuesday to $6.69.

India is delaying the restart of international flights to July 31 from July 15. Indian refiners are seen maximizing Gasoil output vs. making jet fuel; Gasoil has many more uses in different sectors, such as transportation, construction, industry, power generation, and agriculture. (Platts)

Iran's oil output has fallen to its lowest level since 1981 as storage fills and refineries process less due to the pandemic. Crude exports have fallen leading to oil being stored. (Reuters)

ENI has lowered their long term (2023) Brent price forecast to $60 from a previous $70. They also lowered their forecasts for 2020-2022. This year they see Brent averaging $40, which is down from their prior estimate of $45; next year they see a price average of $48 vs. the prior $55 estimate. In 2022, they see Brent at $55, which is down $15 from their last forecast. (ENI.com)

Data from the CFTC yesterday showed money managers barely changed their net position in WTI on ICE/CME combined in the week ended Tuesday June 30. Net length rose by 251 contracts. ULSD shorts totaling 543 contracts were added. RB net length fell by 1,159 contracts.

Yesterday, a judge ruled in a case that will shut the Dakota Access Pipeline. This will affect a flow of 570 MBPD of mostly Bakken crude headed to the U.S. Gulf Coast. A pickup in rail transportation of oil is expected. The ruling led to Gulf Coast crude moving to a premium relative to Cushing as the flow of oil south is bring disrupted. Also, the Brent premium over Bakken crude is seen rising to $20-25 from the $15-20 value seen this past year as increased cost of transportation will make the Bakken crude less attractive. (Platts)

Technicals

WTI tested resistance in the 4070-74 area with a high today of 4079. Above this, we see resistance at 4163. Support below lies at 3905-10.

RB support lies at 1217-85. Resistance is seen at 12620-25 and then at 12782-92.

Brent tested resistance at 4318-23 with a high today of 4319. Above this 4371 provides resistance. Support is seen at 4195-99.

ULSD support lies at 12090-12100 and then at 11970-80. Resistance comes in at 12583. The upper Bollinger Band lies below that at about 12470.

Natural Gas

NG is up 7 cents today as the heat persists, which is underpinning prices. Also helping was the decision over the weekend by Duke and Dominion Energies to cancel their Atlantic Coast Pipeline, which will keep some of the flow in the future from coming from the Midlantic. Also helping NG prices was the purchase of some of Dominion's assets by Warren Buffet's company, which is taken as a sign that NG prices have bottomed and that a large investor sees value in NG. (WSJ)

CFTC data out yesterday showed money managers reduced their net NG short position by 24,244 contracts in CME options and futures. That put them near neutral overall on the CME with a net short position of 6,107 contracts as of last Tuesday.

Technically, NG looks firm as it has gained a foothold over 1.80. Momentum is positive and the forward curve has seen bullish movement, particularly in the Oct/Dec spread. Here, the spread is bumping against its upper Bollinger Band on the daily chart and a gap was filled today from $0.674 to $0.670. The upper Bollinger lies at about $0.695.

Spot NG futures have resistance overhead at 1923-1927. Support below lies at 1829-1833. The low overnight is 1829.  

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