Market Update 7-18-2022

Overview

A softer U.S. dollar and a lack of a Saudi commitment to raise output have propelled energy prices higher today.

President Biden left Saudi Arabia without a pledge for an oil production increase. The Saudi Foreign minister said the following over the weekend :" at the end of the day OPEC+ has an existing system to monitor the markets and guarantee supply according to energy market needs; our opinion up to now is that this system is effective and is working as needed." (Platts)

The price rise today comes even as we see a few items that are somewhat negative. China on Saturday registered its highest amount of Covid cases in 2 months. (Quantum Commodities)

Libya has resumed oil exports, lifting a 3 month force majeure. Yet, production remains well below capacity. June output was seen at 650 MBPD. Their capacity is 1.2 MMBPD. The National Oil Corporation said exports ranged from 365 to 409 MBPD versus the normal rate of 865 MBPD. Prime Minister Abdul Hamid Dbeibah said that the country’s exports are on track for a full resumption after months of outages. (Bloomberg/Platts)

India's demand for petrol and diesel fell in the first half of July over the previous month as the onset of monsoon chipped away consumption. Diesel, the most widely used fuel in the country, saw consumption drop 13.7 %. Due to the monsoon season, consumption traditionally is lower in July-September than in April-June. Diesel demand was however almost 27 per cent higher year-on-year, supported by strong economic growth and a relatively low baseline for the same period in 2021 when a second wave of COVID-19 had impacted the economy. Gasoline sales in the first half of July were down 7.8%. But this level was still between 23% and 46% better than each of the past 3 years. (EconomicTimes)

The Baker Hughes rig count issued Friday showed an increase of 2 units for Oil.

Money managers raised their net long holdings in WTI on ICE/CME combined by 15,479 contracts in the week ended Tuesday July 12. This came about mostly due to shorts being covered on the CME. ULSD net length was basically unchanged, while RB net length rose by 1,220 contracts. Net length in Brent on ICE was reduced by 3,374 contracts, leaving money managers with the smallest net long held since November 2020, as per ING.

Technicals

RB & Crude oil momentums remain negative, though they are getting close to oversold. Price action suggests bottoms in place for now.

September?WTI?sees?support?at?94.19-24?and?resistance?at?98.40-50.

RB August futures see support at 3.2095-3.2100 and resistance at 3.3466-96.

ULSD for August sees support at 3.6167-78 and resistance at 3.7446-65 and then at 3.8019-30.

Natural?Gas

NG is higher as the heat in the U.S. is set to invade the Eastern portion of the U.S. Also, Dallas is set to see a high of 109 degrees on Tuesday.?Yet, we hear that the 11-15 day forecast is tempering some of the heat in Texas.

TTF prices in Europe are lower, even as much of Europe is in the grips of a heat wave with France and the UK set to see record temperatures. The heatwave is exacerbating issues with reduced wind power and lower nuclear plant output on top of demand for air conditioning. In addition, Europe must slash gas demand before a possible hard winter, the IEA warns. Coordinated actions across Europe are essential to prevent a major gas crunch. (IEA.org / IrishTimes)

The?Baker?Hughes?rig?count?seen?Friday?was?unchanged?for?NG.

We read the NG chart wrong Friday by suggesting a range bound market. We failed to see the up ladder look, but even more so missed what looks like an inverted head and shoulders formation on the DC chart, whch if correct suggests a possible move to over $8.40. As we pointed out Friday, a colleague said the move over the 6.830 area negated the downdraft seen in the prior 4 weeks, while another colleague said Friday that money managers are likely on the defensive with a move over 6.950.

Is a short covering rally in the offing as our colleague suggests? CFTC data seen Friday showed money managers raised their net short position in futures/options on the CME by 16,881 contracts in the week ended Tuesday July 12. That brought their net total short position to 68,275 contracts. The increase in net shorts was due to managers selling out longs.

Technically NG has positive momentum. Support for the spot futures comes in at 6.950-6.966. Resistance above lies at 7.330-7.346 and then at the 7.463 area.

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