Market Update 1-10-2023

Overview

Energies are higher versus settlement as the prospect of China reopening outweighs overall economic concerns and the loss of demand due to warmer weather. Energies are also be helped by the expectation of slower Fed rate hikes.

Goldman Sachs sees a fast reopening of China adding a possible $5 to its bullish Brent oil forecast, outweighing the loss of around 1.5 MMBPD of oil demand because of mild winter weather. Goldman sees the oil price above $100 this year, maybe hitting $105 in the 4th quarter. They see demand rising by 2.7 MMBPD. The market may turn to a supply deficit in the 2nd half of the year. OPEC may thus be able to unwind their production cuts, or even cut further. Goldman says that this "OPEC put" limits the downside to its price forecast. (Oil Price.com/Quantum)

In China, nearly 35 million trips within the country were made on the first official day of the Lunar travel rush, according to the Ministry of Transport, more than 40% above comparable day in 2022. (Quantum)

On Monday, two Fed presidents raised the prospect of a slower pace of rate hikes. The February hike is seen as a 25 basis point rise. But, both Fed presidents say they see the need for rates to rise to 5-5.25%, up from the current rate of 4.25-4.50%. The Fed presidents want to see the inflation data due out Thursday to determine the next course of action. (Reuters/Quantum)

Technicals

Momentum remains negative for the energies, although that for ULSD looks poised to turn positive in a day or 2.

WTI spot futures see support at 73.24-33. Resistance lies at 76.74-79.

February RB has support at 2.2510-2.2554. Resistance is seen at 2.3384-2.3435, then at 2.3731-54.

ULSD support in February is seen at 2.9949-84. Resistance lies at 3.1069-85.?

?Natural Gas

NG has fallen under the weight of warmer weather, dipping back below the 3.90 support area, which we thought yesterday would suggest NG was in good shape. January is setting up to be the mildest in nearly 2 decades. (NGI) Next day cash Henry Hub pricing has fallen below $3.50.

German gas storage operators expressed optimism on Tuesday that there will not be supply problems next winter due to declining consumption and said there is no chance of shortage this winter. At present, storage facilities are still more than 90% full. By the beginning of February, they are legally required to be 40% full. (Reuters)

This week's EIA NG data is seen reducing the storage deficit considerably. Genscape is even forecasting a build this week of 2 BCF. Reuters' estimate is calling for a draw of 31 BCF. NGI's model is calling for -14 BCF. These estimates compare to last year's draw of 179 BCf and the 5 year average draw of 157 BCF.?

The notion of shortcovering having boosted NG prices Monday was invoked by several news wire accounts yesterday.

NG is attacking the 200 period moving average on the weekly chart again. That value lies at 3.756. Support via the DC chart comes in at the lows seen late last week at 3.651 and 3.520. Resistance above 3.90 lies at yesterday's high at 4.128.

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