Market Update 10-24-2022

Overview

Energies?are?lower,?hurt?by?weakness?in?Chinese?stocks?and?the?Yuan.

The Hang Seng Index fell to its worst level since April 2009. (CNBC) The Chinese currency is near the 14 year low seen last week. All this is said to be due to concerns over a continued zero tolerance Covid policy after the Chinese Prime Minister secured a 3rd five year term at the National Congress. (Bloomberg)

Refinery output in China rose by 1.9% in September, which was the first increase since November 2021. The run rate was 13.82 MMBPD, up from August's rate of 12.64 MMBPD. Chinese crude imports were down by 2% in September versus year ago level. The September average was 9.79 MMBPD. But, as per WSJ this was the most since May. Chinese fuel exports rose by 36% in Spetember versus a year ago. They were the highest since June 2021. Chinese exports of diesel fuel were the highest in a year, while jet fuel exports were said to be the highest in 29 months. (Reuters/OilPrice.com)

Reuters carries an article that suggests that Russia will be able to evade much of the G-7 oil price caps as they will use their own ships and services.?A U.S. official did not dispute that 80-90% of Russian oil will contnue to flow. The official says that 1-2 MMBPD of crude oil and refined products could be shut in. Russia could see costs rise though as they use sub-par insurance and financing, and their ships are forced to make longer voyages. Russia exported 7 MMBPD in September. JP Morgan sees Russia's exports being reduced by just 600 MBPD versus September levels.

The Baker Hughes rig count for oil seen Friday showed an increase of 2 units.

CFTC data issued Friday showed money managers reduced their net length in WTI futures/options on ICE/CME by quite a lot. Net length fell by 29,389 contracts with shorts being added and longs being shed on the CME. RB net length fell by 2,726 contracts , while ULSD length rose by 4,487 contracts. The data reflected positioning for the week ended Tuesday Oct. 18.

Technicals

Momentum is still negative for the energies, although price action suggests that the contracts are likely range bound.

WTI sees support in December futures at 82.09-10 and resistance at the double top from Friday/today at 85.85-85.90.

December RB sees support at 2.3950-64, which are 2 of the past 4 lows. Below that support lies at 2.3621-27. Resistance comes in at 2.4600-30, then at 2.4925-50.

ULSD for December sees support at 3.5028-3.5046 and resistance at 3.6005-3.6031.

Natural?Gas

NG and TTF prices fell today to their lowest values for spot futures since March as weather in the U.S. and Europe remains benign.

TTF prices are being pressured by forecasts for this week for temperatures in Europe that will be 4-8 degrees Celsius over average. In addition, storage in Europe is full. The spot futures for TTF have fallen below 100 Euros/Mwh ($29.30/MMbtu), after rising in late August to just over 350 Euros/Mwh. Jan. thru March prices are near 140 Euros/Mwh.

NG is also feeling the negative weight of benign weather. The front spread here has widened to near 60 cents. Here too weak near term demand has pulled down the front month while the winter months hold their value better.

The?Baker?Hughes?NG?Rig?count?was?unchanged?in?the?report?seen?Friday.

CFTC data issued Friday showed money managers reduced their net shorts on the CME by 6,493 contracts in the week ended Tuesday Oct. 18. Their net short total was 87,631 contracts.

Reuters and Platts had articles Friday detailing interest in Asia to restock LNG for the winter as prices there had fallen below $30/MMbtu during the week. LNG imports into Asia may be impeded by the large number of vessels currently offshore in Europe. Freight rates are too high to allow the ships to head to Asia and with Asian prices below those seen in Europe, cargoes are not as likely to head there.

Technically NG is oversold. The 14 day RSI reading for the spot futures on the DC chart is 22. There is also a mean reversion set up based on the close Friday below the lower bollinger band. That band intersects at about 4.925. Chart based support at the 4.78 area was tested overnight with a low of 4.750. Below that we see support at 4.682-4.691. Resistance lies above at 5.253-5.255.

It seems to us that it will take a colder forecast and/or a return of feedgas demand from a resumption of LNG exports from the Cove Pt (0.8 BCF/d) and or Freeport (2.1 BCF/d) facilities to see NG rally.

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