Market Update 2-15-2023

Crude is down 79 cents???????RB is down 1.55 cents??????ULSD is down 6.75 cents

Overview

Energies have been soft overnight as API data showed a sizable increase in crude stocks. Adding to the softness is the firm US dollar. The IEA raised its demand forecast in its monthly report issued today, which may have helped limit some of the downside for energy prices.

The IEA raised their 2023 global growth forecast from last month's estimate by 100 MBPD to a record 101.9 MMBPD. The IEA added that the current supply surplus could turn to a deficit. Restrained OPEC+ production could bring a supply deficit in the second half. The IEA said that about 1 MMBPD of production from OPEC+ member Russia will be shut in by the end of the first quarter due to sanctions. The IEA says that Russian output in January was just 160 MBPD below pre-Ukraine war levels.

Yesterday's CPI inflation data has reinforced the notion of rates staying high. On Tuesday, two Federal Reserve Presidents spoke of the need to keep rates up, even suggesting rates may have to rise higher than originally expected. The market is now pricing in 2 rate hikes of 25 basis points, one in March and one in May. (Reuters)

API????????????? Forecast???????Actual

Crude?Oil????????+0.8?????????+10.507

Gasoline?????????+1.5??????????+0.846

Distillate????? ??+0.2?????????? +1.728

Cushing??????????+0.227??????+1.945

Runs????????????? +0.2%??????????n/av

The prior announcement of the 26 MMBBL SPR release by the U.S. is also seen weighing on prices -as per Reuters and Bloomberg market commentary.

Today's AAA National Average gasoline price at the pump has arrested a slide that began Jan. 27. The price today is $3.418. One year ago the price was $3.498. Today the spot RB price is near $2.47. One year ago the spot RB futures were worth about $2.68. Gasoline demand as per the DOE last year at this time was over 9 MMBPD, while this year's demand is about 8.4 MMBPD. As we move forward, though, comparisons in price to last year will become hard to make as the Ukraine war began in late February 2022.

Today is the last trading day for the March WTI options. The open interest in the nearby strikes does not suggest any fireworks for WTI futures settlements at the close today.

Technicals

Momentum has turned neutral for the ULSD, but remains positive for the crude oils and RB. We continue to see prices as range bound.

WTI spot futures have support at 77.46-47 and then at 76.53-55. Resistance lies at 79.61-73 and then at 80.62-67. The 50 day moving average on the DC chart intersects at 77.32. Will this provide a floor currently ?

March RB sees support at 2.4263-2.4311 and then at 2.4045-2.4047. Resistance lies at 2.5138-45 and then at the recent high at 2.5337.

March ULSD has a double bottom from today/yesterday at 2.8524-43. Below that we see support at 2.7882-2.7905. Resistance comes in at the overnight high at 2.9300-11 and then at 2.9775.

Natural?Gas?--?is?down?2.5?cents

NG prices are a bit lower as we suspect that the EIA data due out tomorrow is weighing on prices, even as demand is set to rise next week and some forecasters are teasing cooler temps end of the month into March. Next day Henry Hub pricing is still languishing near $2.50.

This week's EIA NG data is seen below average and well behind last year's level. Estimates from Platts and Reuters surveys are calling for a draw of 109 and 115 BCF respectively. Last year the draw was 195 BCF and the 5 year average draw for the week is 166 BCF.

Refinitiv sees demand this week averaging 118.3 BCF/d. Demand is seen rising next week to 123.2 BCF/d. Reuters does point out that a return to normal or slightly below normal temps in late February have less of an impact than in January. The 30-year average temperature in the U.S. Lower 48 states is about 37 degrees Fahrenheit on Jan. 25 versus 42 F on Feb. 25, according to data provider Refinitiv.

Freeport was on track to pull in 0.7 BCF/d of feed gas on Tuesday, up from 0.5 BCF/d on Monday, according to Refinitiv. On Monday, Freeport LNG asked federal regulators for permission to put what the company called Phase 1 of its restart plan into commercial operation. Phase 1 includes the full operation of the plant's three liquefaction trains, which turn gas into LNG, two storage tanks and one LNG loading dock. Most of the gas going to Freeport LNG was being used in liquefaction Train 3, which started operating in test mode over the weekend. Federal regulators approved the restart of Train 3, but they have not authorized the facility to commence liquefaction operations. Freeport LNG still needs permission from regulators to place new LNG in the tanks and transfer it to ships. The LNG loaded onto ships over the past few days is old LNG that was already in the tanks. (Reuters)

We find the following noteworthy when looking at NG output. Reuters reports that drillers in the Appalachia Basin have been getting less gas out of each new well for 24 months in a row. The EIA, in its Drilling Report, said it expects new Appalachia gas well production per rig to drop to 24.6 MMCF/D in March, the lowest since June 2020. New gas well production per rig in Appalachia hit a record of 33.3 MMCF/d in March 2021. Thus, we note that the rig count may not have to drop as much as some believe for there to be a plateau or decline in US NG output.

Overall when looking at the big picture for NG, we see the following elements that will influence prices over the coming months. As noted above, drilling production may have run into some headwinds. Add to this the inflationary pressure that drillers have encountered in recent months. Wood Mac has reported that in 2022, the average cost of drilling and completing a well in the U.S. Lower 48 states rocketed 34%. (OilPrice.com) LNG demand is seen increasing in the next few months as Freeport returns to operation. In addition, looking forward, the U.S. is set to see a fair rise in LNG export capacity as new facilities come online. The projects under construction are the Golden Pass, Plaquemines and Corpus Christi Stage III terminals. Altogether, they would add 5.7 BCF/d by 2025, according to the EIA. Will this LNG feed gas demand increase start to crowd out other buyers, especially from certain key geographical natural gas producing locations (notably the Marcellus and Appalachian basins near Pennsylvania) ? Add to all this the pipeline constraints that may see NG produced unable to be marketed. We have seen such already in the Permian, where prices have on occasion gone negative, because takeaway capacity was not sufficient to move all the gas produced there out of the region. Thus, we see a market in NG that going forward over the long haul has some distinct upside pressure forces at work. This, in turn, may cause some end users to wish to lock in purchases farther out along the curve. The 2024, 2025 and 2026 average prices are about $3,65, $3.85 and $3.90 respectively. Spot futures are currently near $2.55.

Technically NG still has a range bound look with resistance at the prior 2 highs at 2.610-2.623 and then at 2.773-2780. Support lies at 2.410-2.415 and then at the 2 past weeks' lows at 2.341-2.350. The TTF chart suggests support amassing just above 50 Euros. That is a price point that we have seen touted by analysts could see a rebound in industrial demand in Europe.

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