Market Update 4/20/2020
Overview:
Energies are lower with spot WTI trading at its lowest value since March 1999. Spot WTI is down $6.75 at the time of this writing. Lack of storage, lack of demand, and continued oversupply are all weighing on prices.
Reuters reports that oil in floating storage is at a record 160 mmbbls—double the level of two weeks ago.
The Asian jet fuel and gasoil markets are seen remaining weak due to a lack of demand resulting from lockdowns. The jet fuel market is seen weak through, at least, the end of the third quarter. Sources cited by Platts say that air travel is not a necessity and that near term recovery is not possible until a vaccine for the coronavirus is found. Middle distillate supplies in Singapore were at a 43 month high in the week ended 4/15 as arbitrage opportunities to other regions remain unfavorable, thereby "trapping barrels within the region."
Many refiners are being discouraged from buying crude in advance. They are buying only prompt barrels due to demand being unclear and crude pricing being "complex.” “It’s tough to fix on prices for later in the year this far out,” one supplier was quoted as saying in a Reuters article.
Friday, Moody's became the second ratings agency to lower Pemex's credit rating to Junk, which will lead to forced sales of their bonds by institutional investors. Citibank says $7-10B of forced sales may be triggered. ING bank says $10B, but Morgan Stanley puts the amount at $3-5B worth.
Pemex has a total of $85 of bonds outstanding, 63B of which are priced in US dollars.(Reuters) This highlights a global concern that investors—banks in particular—are possibly going to suffer losses as oil industry borrowers see their asset values drop.
Canadian Tar Sands oil output cuts may be permanent as certain levels of pressure and temperature are needed to be maintained to keep the oil reservoirs in shape for future mining—this jeopardizes billions in assets. (Reuters)
Platts Analytics lowered their 2020 global oil demand forecast. They see demand dropping by 7.8 mmbpd—down from March's estimate of a fall of 4.5 mmbpd.
Friday, Baker Hughes reported that the US oil rig count fell by 66 units. The rig count has fallen by 35% in the past month (WSJ)
Friday's CFTC data showed money managers reduced their length in WTI on ICE/CME combined by 37,598 contracts in the week ended 4/14. ULSD and RB positions held by money managers were basically unchanged.
Technicals:
Technically, crude oil and ULSD look weak in price action, but some support may be found today in June WTI and June ULSD as they attack their lower bollinger bands on their charts. In June ULSD, that band intersects at about 9455 and support lies at 9358–the low of last Wednesday. Then we see next support at 9026 from the DC chart and resistance is seen at 9832-35 (the high overnight is 9883).
June WTI has its lower Bollinger intersecting at about 2279. Support lies at the recent low of 2164. Resistance comes in at 2457-59 (the high overnight is 2492).
June RB continues to have the sideways look we mentioned last week with a slight negative bias as it fails to get over the mid-Bollinger, which lies at the 7920 area. There is also a double top from Friday/today at 7900. Support comes in at the 7390 area.
Natural Gas:
NG is lower, hurt slightly by demand worries due to the virus and spring temperatures. Although, the coronavirus has been having less of an impact on natural gas prices than on crude oil as gas demand is holding up fairly well despite many factories and other businesses shutting down for social distancing reasons. (WSJ)
NatGasWeather's seven-day outlook for national demand is "moderate" as the Great Lakes and Northeast expect to see lows this week in the 20s to 40s. (WSJ quote)
CFTC data issued Friday showed money managers covered 6,451 of their net shorts on the CME in the week ended 4/14, leaving them with a net total short position in futures/options on CME at 34,692 contracts.
The NG rig count in the US fell by 6 units as per Baker Hughes data issued Friday.
Technically, NG is neutral stuck in a wide view between 1.52 and 1.91. Currently there is a double top on the DC chart from Friday/today at 1806-1807, lending a slight negative tone. Resistance below that lies in the 1765-1771 area. Support is seen at 1698-1705, tested with a low of 1701. Below that, support lies at 1661-1666 (1661 is the Friday low).
LNG in East Asia is equal in price with coal for the first time ever, which will likely help speed the conversion to usage of NG. NG is now the top fuel in Japan. NG pricing in Asia is being helped by the fall in crude oil prices as many NG contracts’ pricing are tied to that of crude oil. (WSJ)
Overall, NG is being buffeted back and forth by demand worries and the expected fall in associated NG output as crude production is reduced.
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