Market Update 1-9-2023

Overview

Energies are much higher today as China reopened its international borders. A weaker U.S. dollar helped also.

China reopened its international borders for the first time since 2020. Chinese travellers began streaming across land and sea crossings from Hong Kong to mainland China on Sunday. Domestically, about 2 billion trips are expected during the Lunar New Year season, nearly double last year's and 70% of 2019 levels, Beijing says. (Quantum/Reuters)

China issued a second batch of 2023 crude import quotas, according to sources and documents reviewed by Reuters, raising the total for this year by 20% from the same time last year. (Reuters) As of this week, China has issued a combined 132 million tons of crude imports in two separate quotas for 2023. As of this time last year, the quota was 109 million tons. (Bloomberg)

On the back of Friday's jobs report, a slower pace of rate hikes by the Fed is expected to ease some pressure on the U.S. economy and support crude demand.?February's Fed rate hike is now seen as a 25 basis point rise. Hence the weaker dollar. Gold prices have risen to a 7 month high on the back of the expectation for a slowing of rate increases. (Investing.com)

News accounts we have seen today show the SPR oil release last week having fallen to 780,000 BBL. This corroborates a comment from famed oil trader Pierre Andurand : "the supply surge is behind us, and the demand surge is ahead of us, meaning much higher prices sometime this year. A complete China/Asia reopening would likely bring around 4 MMBPD of extra demand at some point in 2023.” (Quantum Commodities)

UBS says that Indian demand in December rose to a record level for the month. Diesel demand rose by 6.5% versus 2022 level and gasoline demand rose by 5.9% over year ago level.

The?Baker?Hughes?Oil?rig?count?seen?Friday?saw?a?decline?of?3?units.

Money managers shed 10,415 contracts in WTI on ICE/CME combined in the week ended Tuesday Jan. 3. They also sold 2,065 contracts from their net length in ULSD in the same period. RB positioning was basically unchanged.

Technicals

The rally today is recouping some of the 8% drop seen last week in crude prices. Momentum remains negative for the energies, although as suggested Friday the contracts have found support. The Crude oil and ULSD charts have stepladder up looks.

ULSD has resistance in the spot futures at 3.1712-32. Support comes in at 3.0400-15, then at the overnight low at 3.0054-72.

RB for February sees support at the overnight low at 2.2497-2.2510. Resistance lies at 2.3731-54.

WTI has support in the spot futures contract at 73.21-24 and resistance at 77.75-77.77.

Natural?Gas

NG is higher today on the back of a slightly cooler forecast seen over the weekend. Nat Gas Weather says : ""much of the weekend weather data is teasing a colder US pattern arriving Jan 23-27 to finally break the current exceptionally warm and bearish pattern." (WSJ)

Index fund rebalancing is set to start today, continuing over the next 4 days. The funds, based on data issued back in November, were expected to be net sellers of NG contracts as the price for NG had risen so much during 2022. But, the precipitous drop in NG prices over the past 2 months has caused these funds to now be net buyers of NG contracts so as to keep their net asset holdings in the natural gas sector at the proper percentage weighting to their overall portfolio.

In Asia last week, the LNG price fell $3 to $25/MMbtu. Spot cargo demand is seen as low as inventories are ample and weather demand has been weak with mild weather in the Northern Hemisphere. The Oil Price.com article quotes a trader who suggests that some South Asian LNG demand might surface if prices fall further. Some concern in Europe is that Asia will attract LNG now that prices in Asia are over those seen in Europe. European TTF pricing for February today is worth about $20.80/MMbtu ( 71.105 Euro/Mwh). JKM for February settled at $28.45/MMbtu on the CME platform.

We heard the following comments Friday from colleagues. One pointed out that we have seen on a few occasions over the past 2 decades where January has seen warm weather causing prices to drop to levels that became favorable for the coming months. Another colleague suggested that one should look at using options to enter into a long position looking at next winter's pricing. He was mentioning buying a call and selling a put so as to fund the call purchase.

CFTC data issued Friday showed money managers raised their net short position in NG futures/options on the CME by 11,374 contracts in the week ended Tuesday Jan. 3. This raised their net total short position to 74,840 contracts, which is the highest total seen since the first week in November.

The Baker Hughes rig count for NG saw a fall of 4 units in Friday's report.

Technically NG tested our first resistance at 3.900, with a high today of 3.919. A close over 3.90 would go aways to telling us that a low was in place. Momentum on the DC chart is trying to turn positive from oversold condition. Resistance over 3.90 lies at 4.175. Support comes in at the 3.670 area, then at Friday's low of 3.520.

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