Market Update 1/6/21

Overview

Energy prices are mixed with RB and crude oil higher, while ULSD is unchanged. Prices rose overnight to fresh highs for the recent rally on the back of the news from Saudi Arabia heard yesterday and on the back of a weaker U.S. dollar. Amid the commotion of the OPEC+ meeting and the elections, the large builds in product inventories seen in the API data last night went mostly unnoticed, Platts said.

Saudi Arabia announced yesterday that they would cut their oil production by 1 MMBD for February and March. Russia and Kazakhstan will be allowed to raise their output by 75 MBD in February and by a further 75 MBD in March. The Saudi Energy Minister said "the output cut was not only a goodwill gesture to other members of the alliance, but also a "preemptive measure" in case global oil demand worsens from rising coronavirus cases." (Platts) OPEC will decide on April output levels in March.

Goldman analysts said their updated first-quarter 2021 market balance outlook had weakened and that the latest OPEC+ plans point to a surplus of 250 MBD versus a deficit previously.There are prospects for a tighter market from April to July, however, when it forecasts a 1.3 MMBBL deficit. Goldman expects sustained backwardation and lower implied volatility and sees year-end Brent prices at $65 per barrel. (Reuters/Bloomberg)

The U.S. Dollar hit its lowest value since March, 2018 on Democrat gains in the U.S. Senate elections. (CNBC)

China on Wednesday introduced more restrictions near Beijing.Chinese authorities on Wednesday imposed travel restrictions and banned gatherings in the capital city of Hebei province, which surrounds Beijing, in the latest escalation of measures to stave off another coronavirus wave. (Reuters)

The API data was not overly supportive, although the crude oil draw was given by Platts as a reason for the uptick in crude prices in Asia. The crude oil draw was in line with expectations, but product supplies rose more than anticipated.

    API                       Forecast                Actual

    Crude Oil               -1.2/-1.8               -1.663

    Gasoline                +0.9/+1.4            +5.473

    Distillate                +1.4/+2.2            +7.136

    Runs                       +0.5%                 n/av

    Cushing                    n/av                   +1.1

Technicals

We see a few indicators that temper the bullish argument. There are mean reversion setups from the close yesterday for Brent and WTI. The energy contracts have bumped up against their upper bollinger bands on the DC chart. In the case of Brent crude, the market is currently over that bollinger band. Momentum is positive for the energies on the DC basis, but is very overbought on the Weekly Continuation charts.

Spot WTI futures have resistance above at 5020, then at 5052-60, which was tested with a high of 5059. Support below comes in at 4928, then at 4859-66. The DC upper bollinger intersects at about 4983.

Brent spot futures see resistance at today's high at 5463, then at 5588. Support lies below at 5333-40. 5340 is today's low. Support below this lies at 5248. The upper bollinger here lies at about 5328.

February RB support is seen at 14345-60, then at 14235-38. Resistance comes in at 14677-81, which is today's high. Resistance above that is seen at 14850-90 from weekly highs. The upper bollinger on the DC chart intersects at about 14635.

ULSD for February sees its resistance at 15247, then at 15347. The overnight high is 15387. Support lies at 15082-86, which held with an overnight low of 15076. Below that we see support at 1.4869. The DC upper bollinger lies at about 15279.

Natural Gas

Spot NG futures are lower on what DJI reporting says is profittaking from the recent run up.

Bespoke Weather Services is projecting a draw of 135 BCF for tomorrow's EIA figure. The 5 year average is -114 BCF, while NGI quoted the following Tuesday: "EBW Analytics Group analysts said the current gas surplus ‘may vanish entirely’ by the storage week ending January 14, implying a tightening versus year-ago conditions of a startling 12.1 BCFD.” The surplus versus the 5 year average as of last week's EIA data was 206 BCF. The surplus over last year was 251 BCF as per that data.

Technically, NG has a supportive look as it holds above its mid bollinger on the DC chart. That value lies at about 2.608. One other supportive element we see is that today is the 6th day in a row of a higher low on the DC chart. Momentum is positive. For today, we see support at 2612-2618, which was tested with a low of 2606. Below that we see support at 2.566. Resistance at 2700-08 was tested on the overnight high. Above this, resistance lies at 2.730-2.732, which is yesterday's high.

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