Market Update 12/24/20

Overview

Energies are lower after ticking up in Asia overnight. The overnight boost was seen due to a possible Brexit deal, a weaker U.S. dollar, and the positive DOE data seen yesterday.

The U.K. and the European Union were on the cusp of striking a narrow trade deal on Thursday, swerving away from a chaotic finale to the Brexit split. (Reuters)

At least four drugmakers expect their Covid-19 vaccines will be effective against the new fast-spreading variant of the virus that is raging in the U.K. and are performing tests that should provide confirmation in a few weeks. However, this is offset by warnings in the U.S. against traveling during the holidays. (Reuters)

The DOE data seen Wednesday showed a draw in crude oil supplies of 562 MBBL. Although this was less than the estimated 3 MMBBL draw, the market was happy to see a draw. The API prior had reported a build. The bigger boost for prices came from the product statistics. Gasoline supplies fell by 1.125 MMBBL. A build of over 1 MMBBL was forecast. Gasoline demand rose by 47 MBD to 8.022 MMBD. Distillate demand rose by 172 MBD to 4.174 MMBD. The distillate demand seasonally is down just slightly from the past 2 years' figures near 4.2 MMBD. However, gasoline demand still lags quite a bit versus the past 2 years. The past 2 years showed gasoline demand for the period near 9.3 MMBD. Crude supplies fell on the back of better U.S. exports. They rose by 472 MBD to 3.099 MMBD. Refinery runs fell by 169 MBD to 14.014 MMBD. This is down from the near 17 MMBD level seen the past 2 years. Refiners continue to destock product supplies in the face of lower than usual margins and uncertain demand.

Chinese exports of Gasoil fell by 11.1% in November from October. They were down 13.2% year on year. The drop was due to a pickup in domestic demand. November Gasoline exports out of China were seen down 33.9% from October. Gasoline exports are seen rising in December as one large refiner uses their export quota for the first time. December's exports may beat October's record, but are seen declining in January as Chinese suppliers restock domestic inventories. (Reuters/Platts)

Platts reporting points out that the product crack margins have improved. The diesel crack (ULSD/CL) is at a $5 premium to that of gasoline, which provides incentive to make more diesel, but refiners fear excess supply. U.S. distillate exports last week, as per DOE data, were seen at 1.193 MMBD. This was up from 819 MBD 2 weeks ago, but below the 1.4 MMBD level seen the past 2 years. Kpler vessel tracking data shows U.S. distillate exports falling for the week ending December 28th and into January.

Technicals

Momentum remains negative. 

WTI resistance in February is seen at 4859-62. The 4862 is today's high. This resistance level consists of 3 of the past 6 days' highs. Support below comes in at 4654-60.

February RB support is seen at 13527-46 while resistance is seen at the 13843 area.

ULSD in February sees its resistance at 15121. Support lies at 14653-71.

Natural Gas

NG is down further today, following yesterday's sharp selloff as EIA data disappointed.

The draw of 152 BCF was below expectations we saw of -159/-160 BCF. This, though, was better than last year's -146 BCF and the 5 year average -127 BCF. Total stocks measured 3.574 TCF. This is +278 BCF versus year ago levels and +218 BCF versus the 5 year average. Platts projects next week's data to show a draw of 134 BCF, which is 32 BCF better than the 5 year average. 

Also hurting prices yesterday was news that NatGasWeather.com has already dropped its seven-day outlook for nationwide demand to "LOW" from "HIGH" just a few days ago, and weather forecasts for early 2021 are also looking a bit less bullish than previously thought. (WSJ) The spot NGI National Spot Average price fell by 18 cents Wednesday to $2.69.

Yesterday's selloff has damaged the upside scenario we had envisioned. Support near $2.60 has been pierced. Next support we see is at the 2.525 area. Momentum seems poised to turn negative and the contract has fallen well below the DC mid bollinger, which intersects at about $2.665. Chart based resistance is seen below that even at the $2.648 area.

With an eye to next week's January NG options expiration, the $2.50 dollar strike has a fair amount of open interest. The $2.50 call open interest on the CME was 8,556 contracts as per preliminary data from Wednesday. The $2.50 put open interest was 22,974 contracts on the CME. The $2.75 strike also has a fair amount of open interest on the CME. The calls show 12,958 contracts open, while the put shows 10,688 contracts of open interest on the CME. 

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