Market Update 11-22-2022

Overview

Oil is higher today as Saudi Arabia said OPEC+ was sticking with output cuts and could take further steps to balance the market, outweighing global recession worries and concern about China's rising COVID-19 case numbers. (Reuters)

On Monday, oil prices fell as the WSJ reported that the Saudis were said to be discussing the possibility of an increase in production by OPEC+ of 500 MBPD when they convene at their December 4th meeting.?"Ostensibly, delegates said, a production increase would be in response to expectations that oil consumption will rise in the winter, as it normally does. Oil demand is expected to increase by 1.69 MMBPD to 101.3 MMBPD in the first quarter next year, compared with the average level in 2022. " (WSJ)

That report was later denied by the Saudis. Reuters added the Saudis were considering an output cut if needed. The UAE, Iraq & Kuwait added their voices to the fact that no output hikes have been discussed. (Reuters)

The up move for oil prices today comes even in the face of China shutting parks and museums as China's COVID cases rise. (Reuters) Quantum Commodities reporting says that restrictions in China are impacting up to 20% of China's economy.

BP abandoned a plan to restart operations at its biggest refinery (400 MBPD) in Europe this week after workers at the plant started strike action. BP said : "operations at the refinery remain shut down." In addition to the labor dispute, BP is also working to resolve a fault at the plant, which prompted it to cease fuel-making operations last week. That issue could take more than a week to resolve. (Bloomberg)

In addition to the Saudi stories, Reuters quoted Russian Deputy PM on Monday as saying that Russia would not ship oil or oil products to any countries imposing price caps. He said Russia may have to cut oil output due to price caps.

Bloomberg suggests that the rising cost of VLCC shipping is putting pressure on oil prices. The Russian oil sanctions are causing tankers to travel 1,000's more miles for hauling oil. US Gulf shipments to China, one of the industry’s longest-distance mainstream routes, now cost about $6.60 a barrel, Baltic Exchange forward freight data compiled by Bloomberg show. That’s almost three times where it was in February. Another weight on oil prices is the labor strife in Europe, which has reduced refinery operations. Bloomberg cites Mediterranean and West African crude prices weakening against that for Brent. The West African crude market was hit hardest by surging freight as more than half of its cargoes are shipped to faraway locations including China and India. But, some traders are of the mind that prices have already sunk enough to stimulate more Asia buying. Chinese and S.Korean buying has cropped up for oil for delivery in the first 2 months of 2023, Bloomberg reports.

European buyers of Russian crude have scaled back their buying sharply ahead of the December 5th sanctions date. Russia has already lost more than 90% of its market in the bloc’s northern countries. Russia shipped just 95 MBPD to Rotterdam — its only remaining European destination for seaborne deliveries outside the Mediterranean/Black Sea basin — in the four weeks to Nov. 18. That’s down from more than 1.2 MMBPD sent to the region’s ports each day in early February. Three-quarters of the crude loaded at Russia’s Baltic ports is now headed to Asia. (Bloomberg)

Technicals

Crude oil momentum seems to be bottoming, while that for RB has turned higher, but that for ULSD remains negative.

WTI spot futures see support at 79.70-79.75 and resistance at 82.59-82.64.

RB for January has support at 2.3840-65, then at 2.3682-2.3702. Resistance lies above at 2.4675-2.4700.

January?ULSD?sees?support?at?3.3540-3.3575?and?resistance?at?3.4540-50.

Natural?Gas

NG is lower as the 6-10 day forecast has warmed up a bit. Warmer temps in the northern tier of the US has allowed production to rise as freeze offs abate. Celsius Energy has output at 100.9 BCF/d-up from a level between 98 and 99 BCF/d seen in prior day.

Also possibly weighing on NG prices is a Reuters story seen late Monday suggesting that Freeport's restart date was in question as Freeport has not asked the Pipeline and Hazardous Materials Safety Administration (PHMSA) for a review as yet. One source cited in the article says that such a review would take more than one month.

The December NG options on the CME will expire this Friday and then the futures go off the board Monday. Thus we suspect the next 2 days will see possible heightened volatility as participants close out their December exposure. The December options open interest on the CME show a fair amount of contracts outstanding in the $6 and $7 strikes. The total for the puts and calls for the $6 strike is roughly 33,000 contracts, while that for the $7 strike is about 23,000 contracts.

Gazprom said it may curb NG shipments via the last remaining route to Western Europe next week. TTF prices are up, but only slightly. European storage is amply supplied at present, thus muting the Russian threat. In addition, German government officials said on Tuesday that they will introduce a cap on gas and electricity prices for companies and households next year. (Bloomberg)

Technically NG has positive momentum, but there are now 2 recent highs in the same area. Yesterday's high of 6.837 was only slightly above the 6.823 high seen two weeks ago. Support lies below at 6.370-6.382.

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