Market Update 3/25/2021

Overview

Energies have eased back as demand concerns from Covid and lockdowns trump the supply issue associated with the Suez Canal blockage. WSJ reporting also cites the negative tinge to the DOE's for today's price weakness.

The dollar hit a new four-month high against the euro, adding to the pressure on oil prices. India reported its highest one-day tally of new coronavirus infections and deaths and said a new “double mutant” variant had been found. (Reuters)

The Suez Canal Authority said on Thursday it had suspended traffic temporarily. It may take weeks to free the ship. Several dozen vessels, including other large container ships, tankers carrying oil and gas, and bulk vessels hauling grain have backed up at either end of the canal to create one of the worst shipping jams seen for years. Wood Mackenzie says there are a total of 16 laden crude and product oil tankers due to sail through the Canal and thus are now delayed by the incident. The amount of oil loaded on ships in the Canal totals 6.377 MMBBL and oil products loaded on ships in the Canal total 4.911 MMBBL. Some shipping firms may re-route vessels around the southern tip of Africa, which would add roughly a week to the journey. (Reuters) Platts reporting says that the time speads for products in Asia have barely moved. The lack of a significant uptrend in the front-month/second-month time spreads, while in backwardation, suggests the lack of buying appetite in the prompt period.

Given the persistent demand worries and falling prices, expectations are growing that OPEC+ will roll over their output agreement for May when they meet on April 1. Asian crude buyers are said to be pulling from their crude inventories, while maintenance season further mutes demand. Chinese independent refiners, which account for a fifth of the country’s imports, have slowed imports in the second quarter,amid strong Brent prices and a large influx of supplies, including Iranian oil, in the first quarter. U.S. crude arrivals in Asia are expected to drop to about 30 million barrels in April, the lowest since June 2020, according to initial assessments from Refinitiv Oil Research on Eikon. However, the recent drop in Brent crude prices closer to $60 a barrel if sustained, could help revive Asia’s demand in late June or early July, traders said. By that time, Asia’s peak maintenance season would have ended while inventories would have largely been drawn down. (Reuters)

Yesterday's DOE data was disappointing on the surface. Crude supplies rose by 1.912 MMBBL, which was above expectations which were calling for a small draw. Refinery runs rose more than expected. The capacity utilization rose by 5.5%. Estimates were for a rise of 3.2/3.4 %. Crude inputs rose by 956 MBPD to 14.389 MMBPD, which puts them closer to normal after the disruption caused by the freeze in Texas last month. Crude production rose by 100 MBPD to 11.0 MMBPD. Net imports of crude rose by 338 MBPD. Thus , the rise in crude inputs outweighs the rise in crude output and net imports. So, the rise in total crude oil supplies is hard to explain. Gulf Coast crude supplies rose by 5.385 MMBBL, which suggests refinery runs will remain high in the near term. Gasoline demand rose by 174 MBPD to 8.616 MMBPD. But this was still behind the prior 2 years' level. The same can be said for the Distillate demand, which fell this week by 436 MBPD to 3.592 MMBPD. Gasoline imports remain elevated at 939 MBPD, well above the level of the past 2 years of 834 MBPD and 688 MBPD.

Technicals

Momentums are turning positive for the energies, but the price action signals more of a range, sideways pattern to us.

WTI futures support is seen at 5814-20. Resistance is at 6055-62, then at 6134-35.

May RB support comes in at 1.9115-35. Resistance lies at 1.9566-75, then at 1.9793-1.9811. The overnight high is 1.9829.

ULSD May futures support is seen at 1.7656-63, then at 1.7459-66. Its resistance lies at 1.8100-10, then at 1.8308-26. The overnight high is 1.8222.

Natural Gas

NG futures are down slightly as weather remains bearish. Prices remain stuck in the overall range seen the past 10 days.

U.S. NG production has risen to a 12 month high over 93 BCF. The rig count in the Permian has risen to its highest level since April,2020. In the Haynesville, the rig count briefly topped 50 in February, actually outnumbering the basin's pre-pandemic activity level. According to the Dallas Fed, the ongoing expansion in activity and production reflects growing industry optimism this year. The increase in output comes as demand has weakened in March due to above-average temperatures across the country. Demand in Texas and the Southeast has averaged 11.05 Bcf/d so far this month. This level was nearly 2.25 Bcf lower than what power demand was at this time last year, according to Platts Analytics. Algonquin city-gates NG was trading 24 cents lower in ICE preliminary trading on March 24 to $1.91/MMBtu, the lowest level seen this year-to-date. The Algonquin delivers gas to New England. (Platts)

The Suez Canal blockage is likely affecting an estimated 15 LNG vessels with planned transits to Asia and Europe. The potential for delays could put upward pressure on prices, analysts said. ( N G I )

Today's EIA NG storage data is forecast to show a draw of 21 to 26 BCF , as per news wire surveys. Last year saw a draw of 26 BCf and the 5 year average is -51 BCF.

Technically NG has a sideways pattern, even as momentum is positive. Resistance for May futures lies at 2.600-02. Support comes in at 2.515-18, then at 2.459.

Notable for the April NG options expiration tomorrow is the large open interest on the CME in the $2.50 strike. Combined put / call open interest totaled 37,918 contracts as per the close Tuesday.

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