Market Update 12/29/2020

Overview

Oil prices are higher as risk on sentiment has increased, according to Platts reporting. Oil prices are being helped by a weaker dollar and the stimulus package signed into law by President Trump.

On the negative side, worries over rises in Covid cases and the possibility for OPEC+ to raise output at its January 4th meeting are holding prices in check.

The risk on sentiment is underscored by the Nikkei 225 index hitting a 30 year high. (CNBC)

On Monday, Russia's Energy Minister said " The terms of the OPEC+ production pact could be revised if oil demand recovers next year faster than currently expected". (OilPrice.com) Russia, is still in favor of another 500,000 bpd increase in the alliance’s oil production from February, Bloomberg reported last week.

This week's petroleum data in the U.S. is seen with crude supplies falling by 2.1/3.8 MMBBL. While an initial Platts survey is calling for increases in product supplies. Gasoline stocks are seen rising by 2.3 MMBBL, while distillate stocks are seen rising by 1.3 MMBBL.

The CFTC Commitment of Traders Report seen Monday showed money managers raised their net length position in WTI in the week ended December 22 by 4,455 contracts total on ICE/CME combined. Money managers reduced their net length in ULSD on the CME by 1,513 contracts. RB net length on the CME rose by 7,202 as new longs were added in the week ended Tuesday December 22.

Technicals

To quote an analyst : "'Markets feel very rangy into the New Year". As we suggested yesterday, there seems to be no discernible trend in energies at present. Underscoring this is the pattern we see for momentum turning neutral.

WTI resistance is seen at 4859-62, then at 4928-31. Support lies at the prior 2 sessions' lows at 4750-56. Below that we see support at 4654-60.

Brent support in March also lies at the prior 2 sessions' lows at 5059-69. Resistance above is seen at 5205, then at 5246.

February RB support comes in at 13582-83, which are the lows of today and last Thursday. Below this support is seen at 13412. Resistance lies at 1.3843, then at 1.3969.

ULSD in February sees resistance at the previous 2 days' highs at 15090-93, then at 15188. Support is seen at 14782-87, then at 14653-71.

Natural Gas

NG January futures expire today. February NG prices are up about 3 cents on what we see as a technical bounce and some possible bottom picking, after prices fell by about 19 cents in February futures Monday. On Monday, the next day Henry Hub cash price fell by 26.5 cents to $2.33 as per N G I reporting. The N G I National Spot Gas Average fell by 24.5 cents to $2.535.

Feedgas volumes remained strong Monday at or near capacity over 11 Bcf/d as the arbitrage to Asia is very wide. Christmas Eve the arb was seen at $7.429 as per N G I. Winter in Asia continued to drive strong demand for heating gas, with temperatures in Beijing, Tokyo, Shanghai and Seoul expected to be lower than average over the next two weeks, weather data from Refinitiv Eikon showed.The average LNG price for February delivery into Northeast Asia LNG-AS was estimated at about $12.50 per million British thermal units (mmBtu), up $1.30 from the previous week ($11.20) (Reuters) TTF traded near two-year highs after the Christmas holiday on colder weather and optimism over a Christmas Eve Brexit deal. (N G I )

Technically, this narrative from an analyst sums it up best: ""bullish traders have to go back to work to repair the damage, while short-sellers have the luxury of sitting back and waiting for speculative longs to come to them. The short-sellers are in control and likely to add to positions on rallies until the strategy is proven wrong with the emergence of colder temperatures and greater heating demand.""

Technically, the one supportive element is the mean reversion set up seen Monday , which saw prices settle below the lower bollinger band. This may lead to a further bounce , but momentum and the large gap created over the weekend are not supportive. For today, February NG has support at 2.263, then at 2.231-2.233. Resistance above lies at 2.389-2.393, then up at 2.475. The lower bollinger intersects at about 2.355. A settle over that value would confirm the mean reversion and possibly see further upside. But, to us prices over $2.50 seem unsustainable given the current weather picture. The weekend gap created on the Februay chart is up to 2.507.

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