Market Update 1-26-2023

Overview

Energies are higher on the back of the DOE data seen yesterday. Energies are seen being helped also by Russia vowing a response after the US & Germany said that they would send tanks to Ukraine.

The DOE data was supportive for crude oil, but not so for distillate. Crude supplies rose by 0.533 MMBBL, which was much less than the 3+ MMBBL rise seen in the API data and beat some forecasts. SPR releases have ceased. Net crude imports fell to a very low 1.198 MMBPD as crude exports rose and imports fell. But some of the positive feel from the crude stats might be dialed back by the fact that US crude inventories rose for a fifth week to the highest level since June 2021. (Bloomberg) On the product side, distillate demand fell by 146 MBPD to 3.878 MMBPD. This trails the prior 2 years' figures of 4.754 and 4.300 MMBPD. Gasoline demand rose on the week by 88 MBPD to 8.142 MMBPD, which is less than last year's 8.505 MMBPD figure, but better than 2021's demand of 7.833 MMBPD. The crack spreads lost significant value Wednesday on the back of this DOE data. The HO/CL crack for March fell by $2.79, while the RB/CL crack for March shed $2.30. We wonder if refiners were also behind the drop in the cracks attempting to lock in the strong margins.

Bloomberg cites a weakish U.S. dollar as supportive for commodities. The dollar is near the lowest value seen since April versus the Euro. Bloomberg also cites Chinese demand highlighted by news that the number of virus-related deaths and severe cases from Covid at hospitals in China is now 70% lower than peak levels in early January, authorities said late Wednesday.

Some of the bullish sentiment in the energies may be dialed back by worries regarding overall global economic growth.?A Reuters poll of economists found global growth is forecast to barely move above 2% in 2023, with consensus pivoting towards a further downgrade. A fresh two-and-a-half-year low for the Baltic Index also weighed on sentiment for a trade-led economic recovery in 2023. (Quantum) The index provides a benchmark for the price of moving the major raw materials by sea.

Technicals

Momentum?remains?negative?for?the?March?products.

March ULSD sees support at 3.2536-63, then at 3.2224-34. These are both above the overnight low of 3.2170. Resistance comes in at 3.3240-70, almost tested with a high of 3.3225. Above here, the next resistance is at 3.3480-3.3505.

March RB support lies at the 2.6050 area, then at 2.5819-35. Resistance is seen at 2.6730-35, then at 2.7012-32. In Rb's favor is the continued rise in gasoline prices at the pump in the U.S. The AAA says that the national gas average price today is $3.502, up from $3.102 just one month ago.

Spot WTI futures have support at the overnight low at 79.92. The lows seen in 4 of the past 5 sessions for WTI lie below $80, yet settlements on those days has been above $80. Has the market carved out support below $80, thus allowing for a move in the mid-80's? Resistance for now comes in at 82.64 then at 83.34.

Natural?Gas

NG has fallen to a fresh low since late April 2021 on the DC basis with the following quote summing things up : Relief isn’t on the horizon yet for bulls in natural gas. The EIA storage number today is not seen providing relief. Next day cash pricing is not supportive today either having fallen under $3. HH next day prices are seen near $2.75.

The EIA NG storage data is forecast to show a draw of 82/84 BCF as per news wire surveys. This is well below last year's 217 BCF draw and below the 5 year average draw of 185 BCF. The deficit to last year's inventory level will turn to a surplus with this week's data.

The culprits for the fall in NG pricing seem to still be in place : ample storage, strong production over 100 BCF of late and the continued outage at Freeport's LNG facility robbing the demand side of the equation of 2 BCF/d. The cold front expected in early February has not supported prices and neither has the expectation for a restart at the Freeport NG facility in the next month or so "with traders estimating that it could take weeks for LNG shipments to leave the terminal.", as per Investing.com reporting. "If Freeport actually does manage to come online in February, thus tightening the supply/demand imbalances, then it could set the stage for a move back above $4.00/mmBtu within the next few weeks,” Gelber analysts said. We wish to add that producers cutting output when it happens will boost prices.

Europe is seen getting through this winter with ample supply of NG to the point that now analysts think the continent should also get through the next winter with few issues. Efforts to stockpile gas have been so successful that some are now discussing the risk of a glut of gas later this year, as per WSJ reporting.

NG options for February expire today with the $2.75 puts in the CME showing open interest of 12,349 contracts in preliminary data from Wednesday. The $3.00 puts have open interest on the CME of 10,583 contracts and the $3.00 calls have 5,640 contracts open.

Technically we note the very large open interest in the March NG futures contract on the CME. Preliminary data from Wednesday's activity sees that open interest figure at about 275,000 contracts. This would make March, when it becomes spot in 2 days, the highest front month open interest in over one year. Does that cause some shortcovering as margin requirements will rise when the March contract becomes the spot futures month? A colleague suggested that some of the open interest in the March futures may be hedges against options positioning in the March/April spread.

March NG futures have support at the 2.650 area, then at the 2.62 area basis DC chart points going back to April 2021. Resistance lies above at 2.985-2.992 which are the lows from recent. Momentum is neutral, but the RSI indicator signals an oversold condition, with a reading below 30.

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