Market Update 6-8-2022

Overview

WTI has risen to its highest value for the spot futures since early March as the tone is bullish, despite bearish API data. Products are down as the notion of demand destruction and refiners ramping up runs globally creeps in.

Traders and analysts are bullish for crude prices this summer. Goldman Sachs raised their Brent price forecasts for the second half 2022 and first half 2023 by $10 to $135/bbl. They say that the "structural supply deficit" has not been resolved. Morgan Stanley says that to replace lost Russian diesel exports, European refiners will have to ramp up their refinery runs to 12.2 MMBPD from current 10.9 MMBPD, above the installed capacity of only 11.9 MMBPD, they write. Trafigura's CEO?told a conference Tuesday that the oil market could reach a “parabolic state” later this year with prices surging to record highs of $150/b or more in the coming months. He sees demand destruction likely by the end of the year. JP Morgan analysts estimate Russia has cut about 500 to 700 MBPD of oil product exports, because it now finds marketing fuel harder than marketing crude. (Reuters/Quantum Commodities)

Libya shut production from its largest field again. The field had been running at 180 MBPD earlier this week. Added to supply concerns is the possibility for a strike by some Norwegian oilworkers as of June 12. 11% of workers there have threatened to strike. Natural Gas supply is not seen being affected at first if there is a strike.??(Reuters)

Physical N.Sea price differentials are at their highest value seen since March as summer maintenance is upcoming. Forties crude has risen to +$3.70 versus Dated Brent. (Quantum)

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

Crude?Oil????????-1.9/-2.9?????????????+1.85

Gasoline?????????+0.3/+2.0?????????????+1.82

Distillate???????+0.8/+1.06????????????+3.38

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

Cushing??????????-1.352?????????????? ? -1.8

The EIA in its Short Term Energy Outlook (STEO) issued Tuesday raised their WTI and Brent average price forecasts for 2022. WTI is seen averaging $102.47, up 4.3% from May's forecast of $98.20. The Brent forecast was raised by 3.9% to $107.37 from May's $103.35. Expected U.S. crude production for 2022 was left basically unchanged from last month. But the EIA raised its global crude oil and liquid fuels production estimate for 2022 to 100.08 MMBPD from May's figure of 99.89 MMBPD. For 2023 they see global production at 102.10 MMBPD up from May's estimate of 101.60 MMBPD.

On Tuesday the 10 PPM diesel crack from Dubai in Asia hit a record of $58.28. Reuters reporting says that the crack may soon peak as refiners in Asia ramp up production and the oncoming monsoon season may cause a demand falloff. Refinitiv says the crack is up 60% in the past 2 weeks. Asian refiners are seen prioritizing diesel output in an effort to increase exports to the region and to Europe as well. One analyst was cited as seeing demand destruction causing the crack to ease. Kpler sees the crack falling to $24-$26 in Q3 as output increases.

The UAE's Energy minister said that efforts by OPEC+ oil producers to boost output are "not encouraging". He noted the group was currently 2.6 MMBPD short of its target. (Reuters)

The World Bank on Tuesday slashed its global growth forecast for 2022 by nearly a third, warning Russia's invasion of Ukraine had compounded damage from the COVID-19 pandemic, and that many countries now faced recession. (Reuters)

Technicals

Momentum for the products on the DC chart bases has turned negative. WTI DC based momentum is nearing an overbought condition.

ULSD?for?July?has?resistance?at?4.4025-85?and?support?at?4.2466-77.

RB support for July is seen at the 4.0525 area. Resistance comes in at 4.1845, below the overnight high of 4.1908.

Spot WTI futures resistance is seen at the high today at 121.36-37, then at 123.27-38 from data from the April 2022 contract, when spot prices were last this high. Support comes in at 119.10-18, just below the overnight low of 119.30. Below that support lies at 117.63-72.

Natural?Gas

NG forged to a new high this morning, after seeing a modest decline Tuesday along the front end of the curve as the commodity index fund roll began. This may have put some pressure on the front end Tuesday as positions may have been moved back along the curve. Open interest for the July front month contract on the CME saw a fairly large drop.

The EIA in its STEO issued yesterday lowered their NG price forecast for 2022 to $7.40 from last month's estimate of $7.42 and left next year's forecast of $4.74 unchanged. The EIA sees NG production in the U.S. for 2022 at 96.5 BCF/d , down from last month's estimate of 96.71 BCF/d. The production estimate for 2023 was dropped to 101.57 BCF/d from 101.71 BCF/d seen last month.

Watchwords we heard from colleagues the past 2 days and echoed in some trade pubilcations is volatility and the high margin costs of carrying contracts, which may be holding investors and traders back from taking on new positions. This may exacerbate some price movement. The general belief seems to be that $10 is becoming more of a real prospect for NG pricing moving forward. Another watchword cropping up is the fact that NG is no longer strictly a domestic U.S. based commodity. To quote from WSJ : " the US market's increasing ties to global gas markets, may be setting a new bar for what's considered a high price for natural gas." That LNG and export demand together with slow production increases in the U.S. are likely to see end of season storage well below average, thus supporting prices.

In the near term, though, the market feels overbought now that prices are three times higher than a year ago, say traders talking to WSJ. Momentum though remains positive on the DC chart and the pattern still has an upside look. Resistance at the Tuesday high at 9.544 has been tested; resistance then lies at 9.600 and 9.627 from data from 2008. Support lies at the double bottom from yesterday/today at 9.200-9.209.

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