Market Update 3-16-2023

Crude?is?down?90?cents????RB?is?down?2.8?cents????ULSD?is?down?8.5?cents

Overview

Prices have fluctuated either side of settlement so far in today's session. The market tone is synthesized in the following comment from Citibank's analysts : "“Prices are likely to remain volatile given the dimensions of uncertainties over Fed actions, US banking turmoil, and China’s recovery,”.

Markets reacted positively overnight to the news that the Swiss National Bank had offered Credit Suisse a $54 billion loan/lifeline. The Swiss National Bank said that Credit Suisse met "the capital and liquidity requirements imposed on systemically important banks" and that it could access central bank liquidity if needed. Reuters added , though, that while Credit Suisse's announcement helped trim some early losses, trade was volatile and sentiment fragile (in Asia).

Bloomberg offers the following reason for the sharp selloff seen the past few days. "Part of the selloff has been one-sided oil market positioning. Money managers and other speculators had the most bullish bets relative to bearish ones in four years in the week to March 7. " Coupled with a string of bearish options flows, the market’s bank-driven slump grew deeper, Bloomberg adds. Evidence of the negative flow via options, is the fact that several LO/WTI put options registered large open interest increases on the CME Wednesday. The June and July $50 puts and the May $57 put option saw significant increases.

Yesterday's DOE data seemed to be ignored, even as it was a mostly supportive report. Products drew more than forecast. Gasoline stocks fell by 2.016 MMBBL as demand rose modestly by 32 MBPD to 8.594 MMBPD. This was below last year's figure of 8.944 MMBPD, but beat 2021's demand of 8.442 MMBPD. Distillate supplies fell by 2.537 MMBBL. Demand rose by 222 MBPD to 3.736 MMBPD. This was above last year's figure of 3.704 MMBPD, but below 2021's demand of 4.028 MMBPD. Yet, this week's distillate demand figure beat last year's for the first time since mid-January. Crude net imports fell this week by 1.720 MMBPD to a very low amount of 1.189 MMBPD, propelled by a rise in crude exports. Quantum says that this week's crude exports were the 3rd highest in the last 41 years. Nonetheless, crude supplies rose by 1.55 MMBBL, again a function of an adjustment of 2.230 MMBPD, given that net imports (supply) fell?and crude inputs to refineries (demand) rose by 431MBPD. Reuters commented on the crude supply rise as follows: "Fueling the rise was an increase in Gulf Coast crude stockpiles, which climbed to their highest since April 2021, the data showed. Meanwhile, East Coast crude inventories fell to their lowest on record."

President Biden says he does not support a lowering of the $60 cap on Russian oil, which backs a stance by the G7 group. Poland and some Baltic states had lobbied for a lowering of the cap. It would take all 27 member states to push for a change in the price cap -- and lowering it would still require sign off from the G-7. "The current price-cap mechanism depends on Russia using G-7 services so the leverage that the U.S. and the G-7 possess is not going to last forever.", according to one analyst. Some experts have warned that Russia will inevitably weaken the effectiveness of the price cap over time as Moscow builds out an end-to-end supply chain to sell its oil, using non-Western tankers and service -- and that now is the time to squeeze their energy income. (WSJ)

Today is the last trading day for the April LO/WTI options. But open interest in nearby strikes in the April options is small, thus we do not expect options expiration to have any material effect on end of day trading/settlement prices.

RBC analysis offers the following opinion on crude oil pricing : "“True physical tightening, particularly in the North Sea, needs to occur before the paper market can rally.” The May December Brent spread has shed $1.50 since the beginning of the month, having found decent resistance in the $3.50 area. (see attached chart)

Technicals

While momentum for the energies on the DC charts remains negative, we see 2 indicators that suggest a temporary bottom in crude oil. The crude oils have mean reversion set ups. But more importantly to us is the heavy volume that traded on the CME in WTI futures Wednesday. Volume was over 1.7 million contracts. Tops and bottoms are often associated with heavy volume.

The lower bollinger on the WTI chart lies at about 68.50. Support is seen at yesterday's low at 65.65. Resistance is seen at the recent lows at 70.08-70.25.

Brent's DC lower bollinger lies at 74.60. Support via the chart is from yesterday's low of 71.67. Resistance comes in at 76.89-91.

The lower bollinger on the ULSD chart lies at 2.6060. Support is seen at 2.4743-53 from weekly data from 2021/2022. Resistance lies at the overnight high at 2.6276-84, then at 2.6647-53.

April RB sees support at yesterday's low at 2.3862. Resistance lies at 2.4930-45.

Natural?Gas-?NG?is?up?3.3?cents

NG is up on the continued expectation for colder than normal weather through the second half of March. The rise comes even as a below average EIA storage number is due today.

Today's EIA data is seen as a draw of 60 to 64 BCF. This compares to last year's 86 BCF draw and the 5 year average draw of 77 BCF.

The EIA this week detailed how 2022 saw record demand for NG. In 2022, U.S. natural gas consumption averaged a record 88.5 BCF/d—the highest annual natural gas consumption, according to records beginning in 1949. U.S. natural gas consumption last year increased 5% (4.5 BCF/d) from 2021, the second-fastest year-over-year growth since 2013. Natural gas consumption in the United States set monthly records in 9 of 12 months in 2022, based on our Natural Gas Monthly.

Re demand, lower LNG prices in Asia are said to have tempted Chinese buying interest. China is on track to import 5.39 million tonnes of LNG in March, according to data compiled by commodity analysts Kpler. This would be up from February's 4.96 million tonnes and also above the 4.77 million from March last year. Spot LNG prices in Asia ended last week at $13.50, but have risen this week to $14.85, as per Energy Intelligence. S. Korea and Japan?are taking in less LNG in March as temperatures have been mild. Japan is importing the least amount since May 2020. Yet, Reuters adds that some price sensitive importers such as India and Bangladesh have been buying LNG this month.

NGI details some skepticism in NG price strength due to ample supplies in the South Central region. Some have also spoken of ample supplies in the Salt region data seen in the EIA weekly storage report. South Central storage supplies are strong, in part because of the liquefied natural gas outage at Freeport in Texas, as per Rystad Energy analysts. "The return of Freeport LNG export volumes and elevated gas burns due to increased competition in the thermal stack has provided some much-needed balance for the region.” However, the market is not convinced “that will be sufficient as we head into the shoulder season.”, Rystad says. Offsetting this is "some speculation that Haynesville producers may have started to shut-in wells in response to lower gas prices,” East Daley analysts said. East Daley “believes declining samples instead are linked to start-up of Freeport LNG on the Texas Gulf Coast. With Freeport now cleared to resume commercial operations, pipeline deliveries have ramped recently."

Technically NG still has negative momentum, but seems stuck in a narrow range. Support is seen at recent lows at 2.384-2.391, then at 2.341-2.350. Resistance lies at 2.607-2.610, then at 2.694-2.698.

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