Market Update 12-15-2022

Overview

Crude oil tried to stay higher during much of the overnight session even in the face of a few news items that seem as they would be a drag on prices. Quantum suggests that the IEA's raising its demand forecast yesterday supported crude prices.

A section of the Keystone pipeline has been reopened. The section runs from Alberta to Illinois, which is a relief to some degree to Midwest refiners. But, the timeline for a full restart remains uncertain. (Bloomberg)

Also a possible weight on prices is a higher U.S. dollar today, as it retreats from the 6 month high against the Euro made yesterday after the Fed raised rates by 1/2%. The Fed chair's comments after the rate hike announcement were seen as slighty hawkish. He said that the Fed's median expectation for interest rates by the end of 2023 is now 5.1%, compared to a forecast of 4.6% in the September projections. He also said : "I wouldn’t see us considering rate cuts unless there’s confidence that inflation is moving down to 2%," which rules out any rate cut before 2025 based on the central bank's current inflation forecast. (Investing.com) Bottom line as he said: the Fed "will stay the course until the job is done."

Chinese factory output disappointed. Industrial output rose 2.2% in November from a year earlier, missing expectations for a 3.6% gain in a Reuters poll and slowing significantly from the 5.0% growth seen in October, the National Bureau of Statistics (NBS) data showed on Thursday. It marked the slowest growth since May, partly due to disruptions in key manufacturing hubs Guangzhou and Zhengzhou. (Reuters)

Yet, Chinese refinery runs rose in November to a 12 month high. China's refinery throughput rose to the highest in 12 months in November, reaching 14.5 MMBPD, Reuters reported, which made it the third-highest daily throughput rate on record. Two new refinery starts contributed to the increased refinery output. Access to discount Russian crude oil has also helped Chinese refiners raise their run rates and boost their margins. Runs are also seen having risen as China seeks to export more fuel products.

DOE data seen Wednesday showed a very large build of 10.321 MMBBL in crude supplies due to the SPR release and reduced refinery runs. The crude stockpile figure included a 2.26 MMBPD adjustment. Kpler analyst Matt Smith attributed the adjustment to exports which were considerably lower on the U.S. Gulf last week than the EIA reported.The SPR release this week rose to 4.748 MMBBL, while the prior 3 weeks had seen releases less than half that amount. Crude inputs to refineries fell by 459 MBPD. The percentage utilization fell by 3.2% to 92.2%. A drop of 0.1% had been forecast in the WSJ survey. Gasoline demand fell by 103 MBPD to a sluggish 8.255 MMBPD, well below last year's figure of 9.472 MMBPD. Although distillate demand rose by 218 MBPD, at 3.768 MMBPD it remained well below the prior 2 years' figures, which were over 4 MMBPD.

Today is the last trading day for the LO/WTI crude options for January. The open interest in nearby strikes is small, suggesting that options expiration should not lead to any fireworks at the close of the futures today.

Technicals

Momentum remains positive for the energies. Some modest tempering of a positive outlook is being created by the double tops seen in Rb and WTI from yesterday/today.

WTI spot futures have their double top at 77.75-77.77. Above that resistance comes in at 79.65. Support lies at 75.38-44, then at 74.80-90.

RB's double top in January is at 2.2496-2.2524. Above that resistance is seen at 2.2840-90. Support lies at 2.1750-60, then at 2.1455-75.

ULSD?spot?futures?see?resistance?at?3.2845-55?and?support?at?3.1732-57.

Natural?Gas

NG are rallying some today as next day cash Henry Hub prices are steady near values seen 24 hours ago in the 6.40-6.80 area. News wire accounts gave varying reasons for the slump in NG futures seen yesterday. The reasons were a smaller than average draw expected today, a warmer forecast, and lingering concerns about Freeport's restart.

Today's EIA NG storage data is seen as a draw of 46 to 51 BCF as per news wire surveys. This compares to last year's draw of 93 BCF and the 5 year average draw of 83 BCF.

The lower NG futures price seen the past 24 hours comes even as demand is set to rise quite a bit next week. Refinitiv projected average U.S. gas demand, including exports, would jump from 123.5 bcf/d this week to 145.9 bcf/d next week.

Demand has picked up recently in Asia as much colder weather has invaded Northern Asia. And going forward, China, Japan and South Korea will experience below-freezing temperatures over the next couple of weeks. In addition, CNOOC put out tenders for LNG cargoes for 2023. They bid for cargoes to be dleviered between February and December 2023. Prices are to be linked to Platts JKM marker. This was their first tender since the Ukraine war began back in February. CNOOC is the largest LNG importer in China. However, the cargoes sought could also be resold overseas, contingent on local demand. China's NG imports are seen rising by 7% in 2023. In the first 10 months of 2022, Chinese LNG imports were down 21.6% due to lockdowns/Covid policy.?(Platts/OilPrice/Bloomberg)

TTF prices are up slightly today as the EU's energy ministers failed to agree on a price cap for NG prices in Europe. This means that the issue will be given over to the leaders of the EU who are meeting today.

Technically NG still has positive momentum, though in the immediate it seems stuck between the low 6.30's and the 6.80's. Support below the low seen yeserday of 6.337 comes in at 6.221-6.230. Resistance is seen at 6.737-6.742 and then at 6.886-6.901.

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