Market Update 09/28/20

Overview

Energies are higher after spending much of the overnight session lower.

Prices may have been boosted this morning by comments from the Chinese central bank. They pledged to reduce loan rates and to expand opening up of their financial sector. They are looking to keep a balance between maintaining growth and preventing financial risks. (WSJ)

Also supporting prices may be the prospect for a possible strike by some Norwegian offshore oil workers. The strike could start in 2 days and might affect 900 MBPD of Norway's 4 MMBPD of output.This comes after an agreement was reached with a separate union last week. (Reuters) 

Support for oil prices may be coming from comments by Secretary General Barkindo, who said that oil inventories will drop below the 5 year average come the 2nd quarter 2021 and stay there for the remainder of 2021. (Platts)

Platts and Reuters reporting is making a slightly positive case for product prices and supplies. Platts says jet fuel/kerosene prices are seen rising in Asia due to some winter kerosene demand. 

The jet crack from front month cash Dubai crude has improved to -$1.03 from a value seen on September 11 of -$2.44. The Gasoil crack remains weak, weighed down by ample supplies. The crack was seen valued at $2.16. This is up from the 32 month low seen last Thursday of $2.01 . 

The article added that the Gasoil market is trending to balance, as refinery runs have been cut in the region. Reuters reports that U.S. refiners are reducing middle distillate inventories of jet fuel and fuel oil by reducing runs and maximizing gasoline output. Refiners last week produced 1.77 times as much gasoline as distillate fuel oil and jet fuel combined. This is one of the highest rates in the past 25 years. But on the plus side, refiners overall are processing 16% less crude than the 5 year average. Total products supplied last week were 10% below the 5 year average. Refiners are seen restraining output over the next 2-3 months, which will cut distillate supplies close to their seasonal average by the end of the year, and will put gasoline supplies well below normal seasonal levels, according to the Reuters' analyst. He went on to say that runs would likely pick up in early 2021, provided COVID-19 does not lead to a recession.

The oil rig count rose by 4 units as per Baker Hughes data issued Friday.

CFTC data issued Friday showed money managers raised their net length in WTI on ICE/CME combined by 17,574 contracts in the week ended Tueday 9/22. ULSD net shorts rose by 4,868 contracts in the same period, while RB net length rose by 2,21 contracts.

Technicals

Technically, the energies have a slightly better look than late last week as momentum is positive and the products have risen above some resistance and are at their best value in a week. 

November RB has support at 11770-76, which was prior resistance. Resistance lies at 12072-87 and then at 12142.

Support for November ULSD is seen at 11143-46 and resistance is seen at 11574-86. 

November support in WTI is seen at the double bottom from Friday/today at 3971-78. Below this, support lies at 3935-42. Resistance at 4075 has been tested with a high of 4077. Above this, resistance lies at 4122-27.

December Brent futures have support at 4168-74 and resistance at 4300-07, then at 4361-65.

Natural Gas

NG prices are down as weak demand weighs. The loss of demand was said to be due to the Cameron LNG facility still being down as per Platts reporting. Platts says that the average September HH cash price was $1.93, which is likely due to fall-like temperatures reducing residential demand. The low price of NG has led to some coal to gas switching according to Platts. The loss of overall demand though is reviving worries over a storage surplus as per a WSJ headline today. 

October futures expire today.

Friday's Baker Hughes NG rig count showed an increase of 2 units.

CFTC data issued Friday showed that money managers reduced their net length in futures/options on the CME by 21,782 contracts as they mostly added new shorts. The total net length on the CME stood at 99,766 contracts.

Technically, NG has positive momentum in the November futures, but it has clearly been rebuffed from pricing over $2.90, where the prior 2 sessions' highs lie. In fact, the November futures are slipping below the mid bollinger band on the daily chart. That value lies at about $2.76. Support  at 2.700-2.704 has been tested on the low. Below this, we see support at 2.676-2.680. Resistance above lies at 2.770-2.772 and then at 2.833-2.841. The overnight high is 2.823.

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