Market Update 3-28-2023

Crude is +14 cts???May RB is down 13 points??May ULSD is down 73 points

Overview

Crude is near unchanged, but products are a little lower. Crude was supported overnight by a weaker dollar, concerns over Iraqi crude output and less worries over the banking sector.

The concerns over Iraqi crude production are mounting as the cessation of pipeline exports from the Kurdish region is seen leading to output shut ins. Some shut ins have already started as there is limited tank storage available in the region. (Reuters)

Russia's Oil minister today said that they have managed to re-route their crude exports to "friendly" countries after the imposition of Western sanctions. They will still see a drop in their oil and gas output this year, as Moscow comes under pressure from Western restrictions and a lack of European buyers. Russia had been working to reroute its oil and oil product exports to Asia, Africa, Latin America and the Middle East from its traditional markets in Europe. (Reuters)

Quantum Commodities says that distillate prices in Europe lagged crude prices Monday as a "slew" of gasoil tankers are heading to Europe from the Mideast. The April / May Gasoil spread has suffered along with that news. Its value is currently under $20. We alluded to possible peaking action one week ago when the spread was near $34 (see attached 60 minute chart).?Momentum remains negative for the spread, but some support is likely near $17.50 (see daily chart).

We are seeing 2 different stories that have an undertone of weakening demand. WSJ details how shipping container costs into the U.S. have dropped dramatically as retailers have dialed back orders, as retailers ended up overstocked in the 2nd half of 2022, as consumer spending shifted. Retailers are still coping with excess inventories. Thus, shipping container rates are 75% of what they were a year ago. U.S. container imports were down 25% in February versus a year ago.?While the headline out of Asia is that passenger airline travel is near a return to pre-pandemic level, the cargo air demand is sluggish. Air cargo demand in the first 2 months in Asia is down 15.5 %.?Concerns over the broader economic climate, weakness in consumer and business sentiment, continued to affect air cargo markets in February.?As for the passenger travel, in February, the average international passenger load factor rose by 38.6 percentage points to 81.3% for the month, achieving levels recorded in pre-pandemic 2019. The demand outlook for international travel is positive, but expected to moderate in the coming months compared with the larger traffic volumes in the later months of last year as more borders reopened over the course of 2022, as per the head of the Association of Asia Pacific Airlines (AAPA).?(Airlinergs.com)

With regard to the banking sector, we saw the following comment on WSJ :?"A growing number of investors are betting on a rebound in the banking sector, wagering that regional lenders are in much better condition than many initially feared after the collapse of Silicon Valley Bank. The situation in the banking sector is fluid, and investors broadly remain on edge, but many challenge the notion that there is any fundamental, widespread problem on the asset side of bank balance sheets."

Technicals

Momentum?remains?positive?for?the?energies.

WTI?spot?futures?have?resistance?at?73.80-84.?Support?lies?at?71.10-15.

ULSD?for?May?sees?support?at?2.5934-71?and?resistance?at?2.7065-77.

RB May futures see support at 2.6140-60. resistance lies at the double top from yesterday/today at 2.6632-1.6649. Above that we see strong resistance in the 2.6960-2.6975 area.

Natural?Gas-?NG?is?near?unchanged.

NG fell again today to a fresh low for the May contract as NG production remains stout and weather demand starts to drop as we head to shoulder season.

Today is the expiration of the April NG options with open interest in the $2.00 put on the CME still high at 23,402 contracts, even after seeing a drop of almost 6,000 lots in yesterday's activity.

Celsius Energy put U.S. NG production at 101.6 BCF/d, which they say is up 6.4 BCF/d versus year ago level. This increase they say is offset to some degree strong power burn as they see coal to gas switching. They also reported about a drop in imports from Canada. Net NG imports from Canada fell to a 2023 low Monday at 4.0 BCF/d. This was down 1.9 BCF/d from 2022 level. Freeport took in 1.5 BCF of feed gas Monday, up from 0.6 BCF taken in Sunday.?(Reuters) Celsius Energy has feed gas today to 13.9 BCF, which Celsius says is within 0.2 BCF of the record high.

Conversations on social media are abounding about the retail investors having large long positions via UNG and BOIL. The numbers we have seen have them holding about 137,000 contracts of length. The chatter is that much of that length will need to be rolled in the coming weeks, thus keeping some pressure on the front end of the futures curve.

Technically price action remains negative even as momentum is oversold. Evidence of the negative price action is seen via the fact that if April NG closes under 2.073, that would be the lowest closing price for the spot futures since Sept. 22, 2020, as per WSJ reporting. May NG sees support via the DC chart at 2.136-2.141 and then at 2.057-2.059. resistance lies at last week's double top at 2.382-2.383.

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