Market Update 5-4-2022

Overview

Bullish API data and a proposed ban on Russian oil imports have propelled energy prices higher today.

The European Union proposed a ban on imports of Russian crude oil within six months and on refined oil products from the country by year-end, European Commission President Ursula von der Leyen said Wednesday. (WSJ) Ambassadors from the EU's 27 governments are widely expected to adopt the Commission proposals as early as this week, allowing them to become law soon after. (Reuters) The EU last year got 27% of its oil imports from Russia. (Bloomberg)

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

Crude?Oil????????????????-0.2/-0.8?????????-3.479

Gasoline??????????????????-0.3????????????? -4.5

Distillate?????????????????-1.5??????????? ?-4.457

Cushing???????????????????n/av??????????? +0.978

Runs???????????????????????+0.4%????????????n/av

OPEC has lowered their oil demand forecast for this year by 480 MBPD and thus have raised their forecast for an oil surplus this year by 600 MBPD from their last estimate. These figures are being prepared ahead of tomorrow's ministerial meeting. (Reuters)

Technicals

ULSD is a laggard today which we suspect may be due to concerns over demand going forward. RB is getting overbought basis momentum as it has risen to its best value seen since the highs seen in early March. Crude oils have positive momentum as they trade in a more sideways/range?pattern.

RB spot futures have resistance at 3.6486 then at 3.700 from highs seen on the June daily chart from early March. Support comes in at the 3.5445 area.

ULSD resistance comes in at yesterday's high at 4.2650. Support lies at the overnight low at 4.1007-4.1044.

Spot WTI futures resistance is seen at 107.80-107.99, Support lies at the 104.08-24 area.

Natural?Gas

NG has made a fresh 13 year high today as TTF prices have risen 6% today adding to the bullish narrative that already exists in N. America. TTF prices are reacting to the EU's proposal to ban Russian oil imports. The TTF gas price is the equivalent of roughly $32.50 / MMbtu. Next day Henry Hub NG cash prices have risen to $8.30.

WSJ suggests in a market commentary that the move up has been to some degree a function of more and more long-term investors entering the market on expectations of growing demand for US LNG. This is in addition to the expectations for a short term demand pick up forthcoming due to heat in Texas.

WSJ adds that NG supply has not risen of late as U.S. producers say they will retire debt, buy back shares and pay dividends rather than ramp-up output. "Our investors have been clear: They want us to be disciplined in both high and low commodity price environments and be proactive in returning cash to our shareholders," one CEO was quoted by WSJ. Add to this the fact that a short supply of labor, supplies and equipment are hobbling efforts to quickly add much more production. Appalachian producers cite too few pipelines to get much more gas to market. Producers are said to be spending just enough to keep production flat.

Comments seen in a Bloomberg article exhibit some surprise at the demand inelasticity for NG in the face of the steep price rise seen recently.?One investor cited in the article said because many coal plants have shut due to environmental and economic pressures, power demand for gas is proving to be more inelastic. Add to this the obvious strong demand for gas for LNG exports.

The only drawback to the strong picture for NG is the mean reversion setup seen as of the close Tuesday. The upper bollinger band on the DC chart intersects today at about 8.08. Momentum remains positive and is not overbought despite the sharp rise seen the past few sessions. Support below ies at the prior DC highs at 8.169 and then 8.065.?We see light resistance at the 8.48 area from weekly data from Jan 2008. This was almost tested with a high today of 8.474. The best resistance we see is not until the 8.735 area based on weekly data from 2008.

This up move reminds us of the large options trade that was seen weeks ago in which someone bought the August $10.00-$10.50 call spread for about 2 cts.

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