Market Update 6-16-2022

Overview

The Fed's decision to raise rates continues to ripple thru the energy market causing further declines. "Aggressive monetary tightening is an emerging threat to demand", to quote WSJ reporting. Products have fallen more than crude today. ULSD is leading the fall after surging Wednesday versus the other energies.

The Fed expects to hike rates to 3.4% by year end, meaning a further 1.75% rise in rates across 4 remaining scheduled policy meetings. The Fed is now projecting 2022 U.S. economic growth at +1.7%, versus their March prediction of +2.8%. They reduced their 2023 estimate to +1.7% from prior estimate of 2.2%. (Bloomberg) The Fed chair said : the central bank was "not trying to induce a recession." "Our objective really is to bring inflation down to 2% ."?May's inflation rate was over 8%. (Reuters)?European stocks tumbled after a surprise rate hike from Swiss National Bank. This was followed by a rate hike by the Bank of England. (Reuters)

Russia's shipped crude exports over June 1-15 rose by 576 MBPD to average about 3.88 MMBPD, according to preliminary data from shipping analytics provider Kpler. The latest export flows, which are up from 3.81 MMBPD in May, put Russia's seaborne crude exports at the highest since May 2019. (Platts)

Wednesday saw distillate cracks surge globally. The August ULSD versus August Brent crack rose by over $7 Wednesday to near $64.40. We heard that there was buying interest for the ULSD in that spread. In Asia, the middle distillate cracks for 10ppm Gasoil and jet fuel rose to record highs. The Gasoil crack in Singapore was seen above $60 for the first time-rising $4.57 on the day to $62.41, according to Quantum Commodities reporting.

DOE stats were a mixed bag, we believe.?Crude supplies rose by 1.956 MMBBL, while a draw of near 1.2 MMBBL was forecast. Negatives were crude production rising by 100 MBPD to 12 MMBPD, the highest level since June 2020 and crude inputs to refineries falling by 67 MBPD to 16.32 MMBPD. But on the positive side, crude exports rose by 1.493 MMBPD.?Distillate and gasoline demand fell slightly. Gasoline demand was down 106 MBPD, but stayed above 9 MMBPD at 9.043 MMBPD. Yet, gasoline demand is behind last year's level of 9.360 MMBPD, but well above that seen 2 years ago of 7.870 MMBPD. But, distillate demand fell by 31 MBPD to 3.619 MMBPD, well below last year's level of 4.336 MMBPD and just above 2020's figure of 3.555 MMBPD.

The downdraft in prices seen today comes even as most analysts see crude supplies as tight going forward. The IEA yesterday said they see 2023 crude oil supply being in a deficit by 500 MBPD. Bernstein estimated global inventory levels at 48 days of demand cover, below the long-term average of 55 days. (Reuters) And recently we have seen a surprise drop in Libyan supply. This has led analysts to say the drop in prices will not be prolonged. (Reuters) One analyst says :?Oil is more likely to touch $130-140 rather than go back to $100. (Economic Times)

Technicals

Crude and RB continue to have stepladder down looks and momentum is not yet oversold.

RB for July sees support at 3.8114-3.8157. The latter is today's low. Resistance comes in at 3.9373-3.9433.

ULSD for July sees resistance at 4.5714, then at yesterday's high at 4.6070. Support is seen at 4.4025-4.4084.

WTI spot futures see support at 112.85-93, which was tested with a low of 112.79. Below that we see support at 111.68-75. Resistance lies at 116.57-74.

Brent spot futures resistance at 119.72-81 was tested with a high of 120.05. Support lies at the low at 116.00-116.02.

Natural?Gas

NG prices are up today as the heat remains in place in much of the U.S. This has helped raise next day cash prices by 50 cents versus this time yesterday. Next day HH cash prices have risen today to be quoted above $7.90. NatGasWeather said the 15-day outlook remained “solidly hot and bullish” as of early Thursday. (NGI)

TTF prices have risen by a further 17% today to near Euro 140/Mwh,?as flows from Gazprom are seen reduced to various parts of Europe. The flow along the key Nord Stream pipe to Germany is said to be at 40% of capacity. Tuesday they were seen at 60%. Today's flow was seen at 65 million cubic metres of the 167 million cubic metres capacity. Tuesday's flow was 100 million cubic metres. Gazprom blamed the cuts on delayed delivery of Siemens Energy equipment undergoing maintenance in Canada. Germany's energy regulator rejected that explanation. Germany has called the reductions through the Nord Stream pipeline “politically motivated”. Gas flows to Italy were also down and Czech power utility CEZ said it had observed a similar cut to its Russian gas supply but was replacing the missing volumes from other source. Austria has seen reduced flow as well.?This all comes in addition to the loss of Freeport LNG supplies to Europe. The latest crisis could hit key industries from chemical to steelmakers, a body blow for the region that’s already struggling with surging inflation and meager growth. Gas rationing is becoming a real prospect. (Reuters/Bloomberg) Moscow said more delays in repairs could lead to suspending all flows, as per Reuters reporting.

The rise in European gas prices has had a knock on effect on Asian NG prices. Asian spot LNG on Thursday were seen rising above $30 per million British thermal units for the first time since April, according to traders. That’s the highest level for this time of year, and a roughly 50% jump in the last month. (Bloomberg) By comparison, the 140 Euro price in Europe is roughly equivalent to $41/mmbtu.

Today's EIA data is seen narrowing the deficit to last year and the 5 year average. Estimates for today's storage injection are +90/+93 BCF. Last year saw a build of 28 BCF and the 5 year average is +79 BCF.

Technically NG futures still have negative momentum, but have risen to test the 50 day moving average on the DC chart and if the spot futures close above that, we wonder if that may spark some technical buying.?The 50 day moving average lies at 7.792. Chart based resistance at 7.905-7.919 has been tested. Above that resistance is seen at 8.015-8.016. Support is seen in the 7.515-7.539 area, then at 7.335-7.346.

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