Market Update 10-11-2022

Overview

Energies are continuing their down move today, led by ULSD. A strong dollar, Chinese lockdowns and global demand concerns are weighing.

ULSD is likely being hit due to the following news : (Reuters) - The French government said on Tuesday it stood ready to intervene to end a weeks-long oil refineries strike that has left a third of the country's fuel stations running low and exacerbated a global shortage of distillates. The ULSD/WTI crack has fallen by over $4 today after hitting record levels Monday.

In China, authorities are signaling that there’ll be no let up in the nation’s Covid Zero policy. Chinese cities are imposing fresh lockdowns and travel restrictions after the number of new daily COVID-19 cases tripled during a weeklong holiday, ahead of a major Communist Party meeting in Beijing next week. (ABC News)

The fear of recession outweighed that for inflation in Monday's steep selloff in energies. Interest rate hikes will continue, it seems. The Chicago Fed President said there is a consensus to raise rates to 4.5% by March. The current range for Fed Funds is 3.0-3.25%. This affirms what was said at the last rate hike 3 weeks ago. (Reuters) Fed fund futures are now pricing in a 92% chance of a 75-basis-point hike at the next Fed meeting. (CNBC)

Reuters carried an article Monday suggesting that the rally seen late last week, after OPEC+'s announcement of a producton cut, spurred an increase in put option buying on the CME. Trading volumes for U.S. crude puts and calls for November delivery gained over 40% last Wednesday, the day of the OPEC+ meeting, from Tuesday, data from CME Group showed. Volume in puts rose to 25,615 contracts for the U.S. crude November contract on Wednesday, 10,922 more than the during the previous session, CME Group said. By contrast, there were 19,473 call options - bets on a higher price - purchased that day. Thursday again saw put volume greater than that for calls on the CME.

Iraq can't afford to reduce its oil production as part of a move by OPEC+ to slash output, according to the top candidate for the Iraqi prime minister's post, who said the country needs the money to bolster its floundering economy. (WSJ)

Technicals

RB suffered a key reversal down Monday, having made a fresh high for the move, even if only by 10 points over Friday's high, then closing Monday below the low seen Friday. Basically implying fresh buyers were absent as sellers appeared.

Momentum?for?the?energies?has?turned?negative.

RB spot futures have support from the DC chart at 2.5283-99. Resistance lies at 2.6645-61.

ULSD for November sees support at 3.7030-50, then at 3.6620-50. The overnight low is 3.6941. Resistance comes in at 3.8400-25, then at 3.8883-3.8900.

WTI spot futures see support at 88.00 then at 86.59-68. Resistance comes in at 92.65-73.

Natural?Gas

NG is up with the TTF contract as cold weather in Europe and the US will boost near term demand. Sizable injections in the coming weeks and some hiccups in feedgas demand likely weighed on NG overnight.

TTF prices are also likely getting some lift from Russian attacks on Ukrainian energy infrastructure on Monday highlighting the persistent threat of gas flows through Ukraine being cut off. (Reuters) Added to this is the continued wrangling amongst EU members over price caps on natural gas. "Internal divisions are deepening within the EU as countries attempt to lower the price of natural gas while also ensuring they secure enough of it.", as per OilPrice.com.

NG fell midday Monday as news surfaced of issues with Sabine's LNG facilities. There was a drop of at least 1 BCF of feedgas volume to the Sabine Pass over the weekend, some it due to a problem on a pipeline that feeds the facilities. Also, news was heard that Sabine's Train 5 had gone offline, which hurts feedgas demand. This was reflected dramatically in the Nov/Jan spread, which has fallen further today to a fresh low below 55 cents.

The sensitivity to NG pricing due to feedgas demand at LNG facilities was noted by a colleague. This is due to NG having become more of a global commodity. But, the explosive increase in feed gas demand in the U.S. seen the past few years is expected to slow. NGI reporting points out that there are no new LNG facilities due to come online until 2024. One analyst cited by NGI says : "Gulf Coast LNG export capacity is set to increase gradually through 2025, but that slower near-term expansion growth could impact natural gas producers as new projects lag behind market dynamics. For 2023, while demand from Asia and Europe will continue to be high, U.S. natural gas producers will see lower prices as the market waits for demand to catch up with supply."

EBW analysis has the 5 year average storage deficit falling to 125 BCF over the next 4 EIA NG reports, as injections could linger into November. (NGI) The deficit to the 5 year average average stood at -264 BCF after last Thursday's number.

The technical picture for NG on the DC chart is showing some cracks, as the contract has fallen back below the 200 day moving average and momentum looks poised to turn negative. The 200 day average intersects at 6.620. The recent double bottom at 6.305-6.310 seems to be targeted. Below that we see the next best support at the $6 area. Resistance is likely at the 6.60 area, then at 6.786-6.798.

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