Market Update 2-20-2023

Crude is up $1.11???Rb is up 3.64 cents?????ULSD is up 6.40 cents ---these values are for the April contracts

Overview

Energies are higher spurred by Chinese demand hopes as per news wire commentary seen today.

China is expected to import a record amount of crude oil in 2023 due to increased demand for fuel as people travel more following the dismantling of COVID-19 controls and as a result of new refineries coming onstream, analysts said. China's crude imports may rise between 500 MBPD and 1 MMBPD this year to as high as 11.8 MMBPD, reversing the previous two years' decline. This year's imports are seen exceeding 2020's record of 10.8 MMBPD, according to analysts from four industry consultancies - Wood Mackenzie, FGE, Energy Aspects and S&P Global Commodity Insight. One analyst cited in the Reuters article said that Chinese jet fuel demand will reach 90% of pre-Covid level this year as the country opens up.?Diesel demand will lag though in the key sectors of construction and manufacturing. Refinery thruput is seen rising by 800 MBPD to 1.2 MMBPD from 2022 levels with domestic demand for gasoline and strong export margins driving the increase. A Chinese consultancy says that state owned refiners are increasing their thruput this month by 5.5% from January's level to 74.5% of capacity. A Bloomberg News survey says consumption will rise to an all-time high of about 16 MMBPD this year.

China's demand for gasoline is leading to a drop in those exports in February. They are seen at 300,000 tonnes, down from January's gasoline exports of?625,000 tonnes and 1,900,000 tonnes in December. The need for gasoline in China is causing an oversupply of diesel for their domestic market. Thus, diesel exports in February are seen rising to 2.4 million tonnes, up from January's 1.78 million tonne level and just above December's exports of 2.32 million tonnes. (Reuters)

RB cracks in Europe fell last week to their worst in a month as Transatlantic movement has slowed. The U.S. RB valuation versus Euro RB has widened to 35 cts/gal., which is the widest value in a year, as per Quantum reporting. Freight rates are high limiting product movement. In addition, Padd 1 gasoline stockpiles in the U.S. are at their highest level in 13 months as per DOE data, and ARA gasoline stocks are at their highest in 6 months, Quantum adds. Further in Europe, a glut of diesel supplies has caused diesel and gasoil cracks to fall to their lowest value since before the beginning of the Ukraine conflict. Quantum says that the ULSD crack in Europe fell last week by $2.3/bbl to $22.90/bbl. Goldman Sachs trimmed its forecast for diesel cracks this year by 25% Monday as the disruption from Russian sanctions does not seem to have had as much of an impact as previously expected. Goldman, though, is bullish gasoline on a tight summer octane market. (Quantum)

The CFTC intends to resume publishing the COT report as early as Friday, February 24, 2023. Staff will begin with the COT report that was originally scheduled to be published on Friday, February 3, 2023. Thereafter, staff intends to sequentially issue the missed COT reports in an expedited manner, subject to reporting firms submitting accurate and complete data. (CFTC.gov)

Reminder : today will see shortened trading hours on the CME's platform due to President's day. There will be a halt in trading from 2:30 PM EST until 6 PM EST. Also, tomorrow is the last trading day for the March WTI futures.

Technicals

As an analyst said in comments today : "Crude oil rebounded during Asian hours following last week’s selloff, which once again confirmed the market remains rangebound,” said Ole Hansen, head of commodities strategy at Saxo Bank A/S. The demand pickup in China is so far failing to offset a hawkish outlook from the Fed, he said."

Momentum for the April RB & ULSD look neutral. That for the April WTI is still negative.

April WTI futures see support at the overnight low at 76.31-37. Resistance lies at 78.70-78.

April RB has support at the overnight low at 2.6141-64. Resistance lies at the 2.700 area.

ULSD for April sees support at 2.7162-78. The overnight low is below that at 2.7924. Resistance lies at the 2.81 area.

Natural?Gas?--up?1.5?cents

NG is up slightly now after falling to a fresh multi-year low overnight, as the theme is that the demand level is not enough to arrest the slide in prices as storage will fill more than average. The following comment from a colleague seems to sum the NG market up :?the market continues to see the lack of demand as a major problem, and as long as that’s going to be the case, I just don’t see how natural gas takes off. This is even in the face of reports late last week that these lower NG prices are/will have an effect on producers output, but most seem to point to a lag factor for the supply to drop; thus that "reprieve" is not yet having an impact. Talk of a test of the $2.00 level is becoming more popular.

The expected 4 week period from February 11 to March 10 is seen having a total 632 GWDDs, which is 39% below the historical average of 1043 GWDDs, suggesting that temperature-driven natural gas demand will be suppressed relative to seasonal averages. (Celsius Energy)

But, Refinitiv sees demand this week rising to 118.6 BCF/d from last week's 117.2 BCF/d. Next week's demand is seen rising to 125.0 BCF/d.

TPH analysts said coal-to-gas switching has picked up over the past week as Henry Hub prices dipped below $2.50. In particular, they noted that areas in the Mid-Atlantic and PJM Interconnection Inc. region have picked up the slack. For example, after having trended in the 67% range throughout January, gas’ share of thermal generation rose to the 71% range over the past few days and set new seasonal highs. But, at present this boost does not seem ample enough to support NG prices, as temperatures rise as the calendar moves along, TPH adds. (NGI)

EBW Analytics Group LLC said the year/year storage comparison – which sat at a 308 BCF deficit to close 2022 – is projected to exceed 500 BCF in early March. Last week's surplus versus last year was 328 BCF. The surplus was 183 BCF versus the 5 year average in last week's EIA data.

TTF prices have fallen to almost par with Brent crude pricing. The TTF equivalent is now about $85/bbl. Brent is now worth $84. Prices are now low enough that Europe may go back to using gas for power generation, after turning to cheaper coal last year, according to Business Insider reporting. We have previously cited analysts' comments about industrial demand possibly being rekindled after prices seen last summer forced several industries to cut back NG use and overall activity sharply. TTF prices fell below 50 Euros/Mwh for the first time in over 17 months on Friday. (Bloomberg)

Noteworthy is the increase in open interest seen in CME data for Friday's activity in NG put options for April 2023. There were sizable increases in the $2.25, $2.00 and $1.50 put strikes, suggesting continued worries over lower prices, we believe.

Our comment from Friday about retail investors having piled into NG of late is echoed by the fact that CME NG futures open interest at 1.245 million contracts has risen to its highest level since December 2021, as per Reuters. The UNG fund's share total has hit a record. UNG shares have set a record for outstanding shares every day this month except one, Reuters adds.

NG DC based momentum looks neutral. Price action has yet to signal a definitive bottom in place. But, support is getting thicker here as we have fallen to a level last seen in September of 2020. We see support from overnight activity in March futures at 2.175-2.184. Below that we see support at 2.135-2.140 from lows seen in August 2020. Resistance is seen at 2.420-2.431 from some congestion seen the past 2 weeks.

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