Market Update 10/01/20

Overview

Oil prices have retreated today after yesterday's end of quarter rally. Virus fears are causing the pullback as is the Reuters news regarding OPEC supply. 

A Reuters survey out Wednesday said OPEC production rose in September for the third straight month. Output was said to have been up 160 MBD to 24.38 MMBD. Increases from Iran and Libya were cited. Reuters posted a headline that England has seen a rise of 61% this week in COVID-19 cases, underscoring the overall virus fears that persist.

Wednesday's data from the DOE was mostly positive. Crude supplies drew by 1.98 MMBBL. Surveys were looking for a build. The draw was helped by an uptick in crude exports and a rise in crude inputs to refineries. Exports rose by 490 MBD to 3.512 MMBD. Crude inputs rose by 300 MBD to 13.67 MMBD. Distillate stockpiles fell by 3.184 MMBBL, beating expectations. Gasoline disappointed as stocks built by 0.683 MMBBL; a draw was forecast. 

Energies also were helped Wednesday by the ongoing talks for another stimulus package from Congress. (WSJ) Strong equity performances for the end of the quarter were also helpful for the energies.

The uptick in oil prices Wednesday came despite news that Libya's production has risen to 300 MBD. They had been pumping 260 MBD 3 days ago. (Bloomberg)

A Reuters survey of 40 analysts and economists forecast Brent crude averaging $42.48/BBL in 2020. That compares with an average of $42.54 this year and last month's forecast of $42.75. Brent is projected to average $50.41 in 2021. The 2020 U.S. crude price outlook was at $38.70/BBL versus $38.82 predicted in August. It has averaged $38.20 this year.

Middle Eastern OSP's for November are mostly seen staying steady. There may be a rise of 10-20 cents in line with the firmer Dubai spread market seen trading last month. (hellenicshippingnews.com)

The Norwegian labor union is threatening to widen their strike action to 4 more fields. The 4 fields produced 260 MBD in July. (Reuters)

The jet fuel crack from Dubai rose to an 8 week high in Asia. The rise is attributed to regional refinery cuts and to a hope for kerosene demand to pick up as winter approaches. The crack was up 50 cents Thursday from the day before. The value was pegged at +66 cents. (Reuters) Jet fuel and kerosene are considered very similar as a result of their refining process.

Technicals

Energies remain rangebound as the crude oils and RB flip-flop around the mid bollinger bands on their Daily Continuation (DC) charts. Momentum has turned negative for the WTI and RB.

RB's negative turn may be attributable to a degree to the rollover from October's expiration. The market has lost over 200 points of premium from October's going off the board. November RB support is seen at 1.1557 and then at 1.1396-1.1409. Resistance above lies at 1.1984-1.2000.

November WTI support is seen at 3866-68. Resistance comes in at 4070-80. 

December Brent has a rollover gap from the November expiration. The gap goes down to 40.98. Resistance basis the DC chart is seen at 4252-62, which was tested today with a high of 4256. Support lies at 4121-27.

USLD has the best look of the energies. It has positive momentum. Here some of the support seen on the DC chart may come from the bump up in November's value from October's by nearly 70 points. November has support via the DC  chart at 1.1150-55. Resistance lies at 1.1616-34. The overnight high is just below that at 1.1608.

Natural Gas

NG is up slightly this morning after settling lower Wednesday as the forecast for the coming 7-10 day period shows low demand. Storage worries remain as injections need to only average about 53 BCF over the coming 6 reports to reach the psychologically high number of 4.0 TCF. 

Today's number is estimated to show a build of 80 BCF, as per a WSJ survey. Last year's number was +109 BCF and the 5-year average is +78 BCF.

Platts reporting suggest that the surge in NG pricing for the winter in Chicago will lead to switching from NG to coal in the Midwest. Winter strip futures prices in Chicago are seen now averaging $3.28. This is up over $1.50 from year ago and from this summer's levels. Platts Analytics sees the price increase leading to a drop of 0.4 BCF in power burn demand this winter versus last. 

Notable to us technically is the double bottom that has been created in the winter strip with the drop on Tuesday to near $3.00, equaling a low seen 2 weeks ago. We suspect that holding the psychological $3.00 level for the strip will give the NG market a more supportive tone. This would be despite the negative momentum seen on the chart.

November NG futures have support at 2.490-2.497 and resistance at 2.629-2.633, which is derived from lows seen in early August on the November daily chart. DC based momentum for NG is positive.

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