Market Update 07/14/21

Overview

RB, ULSD and Brent are higher as the IEA sees a tight market.

The IEA says that oil storage levels in most developed countries are well below historical averages and in the third quarter draws on oil stocks are set to be the largest in at least a decade. This positive narrative is in jeopardy, though, due to a possible price war from OPEC. The IEA added that volatility will remain until a clear policy is offered by OPEC and the IEA says that "volatility doesn't help an orderly & secure energy transition.” (Reuters) The IEA added that the group’s impasse threatens to inflict a “deepening supply deficit,” with “the potential for high fuel prices to stoke inflation and damage a fragile economic recovery.” The 23-nation group pumped 40.9 MMBPD in June, the IEA estimates. Even if OPEC+ proceeds with increases planned for this month, its output will still be significantly below the 43.45 MMBPD that the IEA projects will be required from the cartel in the second half of the year. (Bloomberg)

Platts details how there is little overall spare capacity within OPEC+. The spare capacity is 6.35 MMBPD, which is only 590 MBPD above their collective current output cuts. Three countries hold three quarters of the spare capacity. They are Russia, Saudi Arabia and the UAE. This puts the current impasse within OPEC into greater focus. At present, output from OPEC+ will remain at July's level. This has seen the September/October Dubai spread widen quite a bit in recent days. On July 9, that spread stood at $1.53, up from 73 cents at the end of June. "Significant" buying, as Platts put it, from India lifted prices for prompt barrels.

The overall narrative is supply is tight, but Covid-19 concerns are putting demand in jeopardy. "This pandemic once again feels far from over and that is dragging down optimism for a robust crude demand story going forward." That quote from one analyst was seen in Reuters. Japan, South Korea and Vietnam have all recently introduced measures to try and curb the spread of the Delta variant. England's plans to exit restrictions next week, despite a rise in Covid-19 cases there. The World Health Organization warned the Delta variant was becoming dominant and many countries had yet to receive enough doses of vaccine to secure their health workers.

U.S. crude inventories are expected to fall for an eighth consecutive week, while gasoline stocks are also seen declining. This has supported prices today. Platts survey sees crude supplies falling by 4.9 MMBBL this week. Reuters survey is calling for a 4.3 MMBBL fall. The crude supply drop would be the 8th in a row. Stockpiles last week dropped to their lowest level since February 2020. Reuters survey is looking for gasoline supplies to fall by 1.7 MMBBL, but distillate supplies are seen rising by 1.3 MMBBL.

Chinese data shows that crude imports for the first 6 months this year declined from year ago levels. This is the first tme since 2013 that there has been such a decline. Year-on-year imports fell by 3%. Tighter crude import quotas and ongoing maintenance season was cited for the drop in imports seen of late, but more so the drop may have been due to the buying binge that China was on one year ago when crude prices collapsed in the 2nd quarter. (Reuters)

China's exports grew much faster than expected in June, as solid global demand—led by easing lockdown measures and vaccination drives worldwide—eclipsed virus outbreaks and port delays. Chinese exports in June rose by 32.2% year-on-year, surpassing the Reuters forecast of +23.1%. Imports into China rose in June by 36.7% from year ago levels. This also beat the forecast, which was +30%. However, overall trade growth in China may slow in the second half of 2021, a customs official warned on Tuesday, due to the pandemic. Also, China's trade performance has seen some pressure in recent months, mainly due to a global semiconductor shortage, logistics bottlenecks, and higher raw material and freight costs. (Reuters)

Technicals

Momentum on the DC charts for the products have turned positive today, while those for crude still point lower.

ULSD has risen over resistance near 2.1580. The next level resistance lies at 2.1750-55. Support is seen at 2.1400-20.

RB support lies at 2.2500-20. Resistance comes in at 2.2971-84, then at 2.3070-75.

WTI sees resistance at 7486-93 and support at 7282-85.

Brent has the past 3 sessions's highs at 7580-84, which is forming a bit of a wall. Support lies at 7450-51

Natural Gas

NG is down today even as gas demand nationwide is expected to be high over the next seven days, according to NatGasWeather.com. (WSJ) NGI’s Spot Gas National Average advanced 15.5 cents on Monday to $3.720. WSJ reporting attributes today's price drop to profit taking. This narrative is supported by an analyst's comment seen on NGI that suggest there may be some resistance for January 2022 prices as they reach near $4.

Higher coal and carbon emission costs are adding to gas demand in Europe, Goldman Sachs analysts said in a note Monday. Asian demand is expected to accelerate even further next winter—outstripping local supplies — “driven by demand seasonality and a continued recovery from Covid,” the Goldman analysts said. Bank of America Corp. analysts noted that pipeline exports to Mexico are also strong. These factors are seen supporting U.S. LNG exports over the coming months. (NGI)

China's imports of LNG in the first 6 months were up 23.8% from year ago levels. (Reuters)

Technically, NG has momentum that is trying to stay positive. Support for the spot futures comes in at 3.657-59. Resistance is seen at the doube top of yesterday/today at 3.763-3.769.

Disclaimer

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