Market Update 2-17-2023

April futures show : Crude is down $2.63???RB is down 6.7 cents????ULSD is down 9.75 cents

Overview

Energies are down hard as the Euro has dropped to its worst level since early January as yesterday's PPI data was worse than expected. Product prices have been hit harder than crude today.

The PPI data in January showed a rise of 0.7%, above the expected +0.4%. Comments yesterday from two Federal Reserve Presidents weighed on equities and supported the dollar. Both officials are advocating for larger rate hikes. They support a 50 basis point hike in March. According to a recent survey, 90% of CEOs at US companies expect a recession during 2023, assuming the Fed continues its hawkish posture on inflation.

The Saudi Energy Minister says that OPEC+ will stick to its current deal through the rest of the year. (Bloomberg) A Russian newspaper today said that Russian crude exports would remain at current levels even as they are set to reduce oil production in March by 500 MBPD. (Reuters)

The CME will have reduced trading hours Monday in observance of the President's Day Holiday in the U.S. The market will open as usual at 6 PM EST Sunday. Trading will be halted at 2:30 PM Monday until 6 PM EST. Trading will then resume until Tuesday 5 PM EST. All trades will be for settlement Tuesday Feb 21, which is also the final trading day for the WTI March futures.

Technicals

Halfway through February, crude is on track for it narrowest monthly range since June 2021, trading in a band of about $8. (Bloomberg) Crude remains mired in its sideways pattern. Momentums though have turned negative for the energies when looking at their April charts.

Support for the April WTI futures is seen at 75.20-30. Resistance lies at 79.00-04.

April RB sees support at 2.5520-30, then at 2.5200-15. Resistance comes in at 2.6300-25, which was tested with an overnight high of 2.6355.

ULSD futures in April see support at 2.6654-93. Resistance lies at the 2.7900 area. ULSD and Gasoil are the elements in the energy complex which are closest to testing the recent spike lows seen 11 days ago. The notion of reduced economic activity due to higher interest rates adds to the narrative seen the past few weeks of ample Gasoil supplies in the ARA region and continued distillate demand weaker than prior years.

Natural?Gas?-?is?down?8?cts?in?spot?futures

NG has slipped today to a fresh low since December 2020. TTF has fallen to its lowest level since December 2021. Warm weather in the Western Hemisphere is the main culprit for both markets have fallen as much as they have. Supplies are ample in both regions.

In Europe, the price decline has also been fueled by ample supplies that were built up in recent months through LNG imports.?Inventories are at about 65% capacity, on average. Thus they are at their highest levels in years, according to a Bloomberg analysis of data from Gas Infrastructure Europe published Monday. Industrial demand in Europe weakened over the past several months due to the sharp run up in prices over the summer. The TTF fall today seems contrary to comments heard this week from the IEA and Shell PLC. The IEA says that Europe still faces the prospect of gas shortages this year, unless demand is cut further. Shell sees demand outstripping supply until 2030. Shell says that Europe will face competition with Asia for limited new supply of LNG over the next 2 years. (Bloomberg)?Platts says that lower LNG prices are "set to rekindle demand" in South Asia. March JKM on Wednesday was worth $15.212/ MMbtu versus the 2022 average of $33.9789 and 2021'a average of $18.5943/MMbtu. Prices have fallen on weakening demand as weather has been mild and supply is ample, mirroring the situation in Europe. Added to this is a supply bump expected when Freeport restarts exporting LNG in earnest, Platts says. The Platts article says that Indian customers may be buyers when prices fall to the $12-13 level.

The EIA data released Thursday showed a draw of 100 BCF. The reaction was muted to the data.?The surplus to last year is now 328 BCF (+16.9%) and the surplus to the 5 year average is 183 BCF (+8.8%). Now the market is seeing the next few weeks' data widening the surplus. Platts is forecasting next week's withdrawal will likely total just 70 BCF. This compares to a 5 year average draw of 177 BCF.

Goldman's notes yesterday said they were lowering their forecasts for Summer 2023 / Winter 2023-24 / Summer 2024 pricing by 20 cents. They see those prices now averaging $3.50/3.40/3.00. But they maintain a view that Summer 2023 prices are too low and would, if sustained, tighten storage too much ahead of winter. The June/July/August 2023 part of the curve in NG is averaging near $3.

With an eye towards the comments we spoke of yesterday regarding unhedged producers, Comstock Resources said the following in their financial report for 2022 : "In response to the current lower natural gas prices, Comstock is releasing two of its nine operated drilling rigs." We also noted the cost pressures on drillers in our comments 2 days ago. EQT's CEO & CFO says they see a slowdown in the NG industry. Drillers are slowing down due to lower demand. (Bizjournals.com)

We heard the following comments yesterday. One colleague is looking for lower NG prices as he believes that the large influx of retail money (see UNG and BOIL for example)?on the long side will sell out soon due to likely steep losses. He has yet to see a supply/demand picture that warrants upside price movement. That sentiment was echoed by another colleague who cited Balance of the Month pricing yesterday under $2.40. He says that producers cutting has a time lag effect, such that supply will not fall for several months. He echoed our other colleague's statement by saying that this market is being dominated by the funds and ETF's ( such as UNG and BOIL).

Technically NG has seen its momentum turn negative today. We see support from lows from December 2020 at 2.283 then at 2.238. Near term resistance lies at 2.496-2.498.

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