Market Update 2-23-2023

Crude?is?+$1.07????Rb?is?+1.8?cts??????ULSD?is?-0.6?cts

Overview

Crude oil is higher as?Russia plans to cut crude oil exports from its western ports by up to 25% in March, exceeding its announced crude oil production cuts of 500 MBPD. The 3 Western ports send out a daily volume of 2.5 MMBPD as per Reuters reporting. Thus the cut equates to about 625 MBPD.

The rally today gets back some of yesterday's almost $2.50 loss in crude pricing. The drop yesterday was fueled by interest fears. These were heightened after the Fed minutes were released late in the day, sending prices to their lows for the day. "Fed minutes show members resolved to keep fighting inflation with rate hikes" is how the CNBC headline read.

Today's rally in energies comes even as API data seen last night was disappointing. Crude supplies rose much more than expected and distillate supplies rose, while a draw was forecast.

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

Crude?Oil???????+1.2/+2.0?????????+9.9

Gasoline????????-0.6/+0.4?????????+0.894

Distillate?????? -0.7/-1.0???????? +1.374

Cushing??????????+0.87??????????? ?+0.5

Runs???????????? ?-0.1%???????????? n/av

Bloomberg reports that a record amount of Russian diesel supplies are afloat on the sea. Kpler data sees 24 MMBBL of diesel being held in vessels' storage as Russia has tagged much of this supply as having a destination labeled "unknown". The International Energy Agency said on Wednesday that it expects Russia to struggle to place diesel, and that it will subsequently have to cut refining runs. Some of the supply at sea may be destined for ship to ship loading in an effort to avoid sanctions and detection as to the cargoes' final port. Ship-to-ship loadings (in the Med) allow a shortened route, returning a tanker faster to port for another loading,” one trader said. There is only a limited fleet available to visit Russian ports. (Hellenic Shipping News)

UBS lowered their Brent oil price forecasts for this year citing resilient Russian supply. They cut their forecast for June by $10 to $100. September's and December's forecasts by $5 to $105. UBS also cites less gas to oil switching having reduced demand as the winter in the Northern Hemisphere has been mild. UBS adds that the stronger dollar is providing near term headwinds.

AAA says that today the national average price at the pump for gasoline is $3.393, down from the price seen one month ago of $3.423. A year ago the price was $3.535.

Technicals

"Oil prices remain lodged in rangebound territory and in search of acute near-term catalysts", as per RBC analysts. While this is true, the energies are in the lower end of the range with negative momentum.

WTI has fallen below its DC based 50 day moving average. That value lies up at 77.55. Resistance basis chart price action lies below that at 75.44-47, then at 76.52-57. Support lies at the double bottom from yesterday/today at 73.80-83, then at 73.21-24.

We note a double bottom from yesterday/today in April Brent futures at 80.40-43. But here too the price fell below its 50 day moving average, which lies at 83.40. Chart based resistance lies at 82.52-56.

April Rb support is seen at 2.5040-80. Resistance lies at 2.5839-53. Yesterday's price action saw a settlement below the 50 day moving average. That value lies at 2.5820.

ULSD for April sees support at 2.6654-93 and resistance at the 2.7600 area.

Natural?Gas?-?March?is?up?8.3?cts,?April?is?up?9.1?cts

NG prices are higher as next day cash prices are seen near $2.200, which suggests March futures should not be far from that as futures and cash converge as we head to expiration. The storage data due out today is not seen as supportive; this even as colder air is set to arrive in the near term for much of the U.S.?As one analytical firm wrote : "the bottoming process will be choppy."

Skepticism abounded yesterday with regard to the rally in prices. Continued high production levels and the slow return of Freeport's LNG facility were cited as reasons for the skepticism. The rally seen Wednesday is being attributed to short covering ahead of the March expiration, as well as a delayed reaction to Freeport's announcement that it is ramping up activity at its LNG facility, even though it will take weeks to get to full production.

Some support may come from the news seen Wednesday that Chesapeake Energy is reducing its rig count. They are reducing drilling due to low prices, cutting back on drilling and completing wells this year. They will drop 2 rigs in the Haynesville basin and one in the Marcellus. (Reuters) Drilling activity is expected to decline most sharply in the Haynesville Shale, where break-even production costs are higher than in Appalachia's Marcellus Shale, and in the Permian in West Texas, where gas is an abundant byproduct of oil drilling. (WSJ)

NatGasWeather.com said in a research note. "More likely, the $2.00 level offered some technical support, at least for now, and the market also continues to be influenced by record flows into the various ETFs which track the Henry Hub price. In terms of the big picture, we do not see much that is different, however. We still have an oversupplied market."??"The market currently is oversupplied by about 5 BCF/d and without producers choking back output, U.S. inventories would swell beyond storage capacity before next winter," says energy-data firm East Daley Analytics. "Prices might still have a little bit of downside risk," they say. The question being asked now : "how low will prices need to fall to spur the right mix of curtailments and demand to balance the market. ?"

Today's EIA storage report is not seen as an overly supportive one. Surveys see a draw of 69-71 BCF. This is below last year's draw of 138 BCF and the 5 year average draw of 177 BCF.

Technically NG confirmed its mean reversion yesterday, which is supportive, but momentum is still negative for the April contract on its daily chart. The market was aiming for a key reversal to the upside yesterday, but failed to do so and volume on the CME for NG futures was not outsized. Thus, 2 indicators that may have lent more conclusive support to the notion of a bottom in place did not come to fruition. Resistance for the April futures is seen at 2.416-2.422 then at 2.518-2.522. Support comes in at the 2 prior sessions' lows at 2.162 and then at 2.113.

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