Market Update 09/29/20

Overview

Energies have retreated as fears of COVID-19 remain high. (WSJ) Also, the increase in Libyan oil production is a negative, as their production has risen to near 250-260 MBPD as was forecast one week ago. (oilprice.com)

The heads of Gunvor, Mercuria and Vitol spoke at the FT Commodities summit today. They all see oil prices as range bound over the coming months or years due to the Coronavirus. (Reuters) Gunvor's chief sees prices in the mid to high 40 dollar area until mid-2021. Mercuria's chief sees oil at 45 dollars per barrel for the next 6 months. Demand is not seen improving yet, they agree.

A Reuters survey for oil data in the U.S. this week sees crude supplies rising by 1.4 MMBBL. Gasoline and distillate stocks are seen drawing by 1.6 and 0.8 MMBBL respectively.  

Reuters reporting has a slightly upbeat tone for Gasoline and Jet fuel in Asia. The gasoline crack margin rose to a 6-month high Monday of $5.84 as supplies are seen tightening and demand has improved somewhat. In India, gasoline demand in September rose to equal year ago levels as more people are using personal vehicles for commuting than public transportation due to the Coronavirus. Diesel demand, though, is down 8-9% as per one refiner in India. This has casused them to reduce refinery runs to avoid excess supplies of the key fuel.

The Jet fuel cash differential in Singapore was at its strongest in a month as global flight schedules have risen to their best level since March 30th as per one aviation data firm. The Chinese flight total was said to be up 1.1% versus year ago levels for the week ended September 28. 

Platts says that U.S. refiners will raise their refinery usage in October from September. In October, the amount of capacity offline is seen falling to 4.352 MMBD from September's 5.066 MMBD.

This is contrary to the reports about Chinese refinery usage, which has seen several refiners reduce them by 4% in September, due to high domestic stockpiles of product and weak export markets. Chinese refiners saw their crack margin from Saudi A-Light crude oil fall to -$3.50 from -$3.39 the week before. Refinery runs though are seen rising into year end as demand and exports are expected to improve. (Platts)

Technicals

Technically, we agree with a comment we saw yesterday from the UBS analyst: "The market is stuck." This is in-line with the comments from the major oil traders we wrote about above.

Momentum is positive for the energies, but it is believed that the recent rally in crude oil in particular was caused by short covering. Was the short covering precipitated by the comment from the Saudi Minister heard last week: "Go ahead make my day,” thus threatening to punish short sellers.

The range bound nature of prices is exemplified by the low volume seen for WTI trading on Globex yesterday of just over 400,000 contracts.

For today, November WTI futures have support at 3971-78 tested with a low of 3976, then support lies at 3935-42. Resistance lies at 4075-80, then at 4122-27.

December Brent futures support lies at 4168-74. Resistance lies at 4300-07, then at 4361-65.

November RB support comes in at 11881-91, tested with a low of 1.1882. Then support is seen at 11775-85. Resistance lies at the double top from yesterday/today at 12180-86, then at 12290-12310. 

ULSD for November has support at 11285-95 then at 11143-46. Resistance comes in at 11574-86. 

Natural Gas 

November NG is down 18 cents as it becomes the spot contract. Normal fall weather is weighing on the contract. There is a large rollover gap from the October contract's expiration. That gap goes all the way down to 2.176. Normal weather is not good enough in our view to supply prices with a 60+ cent bump in the near term is what the market is telling us.

Platts reports that Haynesville NG production has risen somewhat as feedgas volumes in that Texas/Louisiana area have risen, as have NG prices. This makes raising production attractive. Output is up 0.2 BCF in September from August. 

Refinitiv forecasts that this week's EIA NG storage data will show a build of 85 BCF. This compares to last year's +109 BCF buld and the 5 year average build of 78 BCF. (Reuters)

Technically, November futures have pierced support at 2.629-2.635. Next support lies at 2.559-2.561. Resistance comes in at 2.733-34. The overnight high is 2.789.

Momentum is positive, but the price action of the past 3 sessions is not.

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