Market Update 7-28-2022

Overview

Crude Oil and ULSD are higher boosted by the record pace of U.S. crude oil exports seen in yesterday's DOE stats, which helped oil stockpiles drop yesterday by the most since the end of May. News wire accounts are also touting the expected slower pace of Fed rate hikes as supporting oil prices. RB has retreated today as the national average price at the pump in the U.S. has fallen for a 44th straight day. The average price is $4.278, as per the AAA.

Besides the crude draw , the DOE stats were supportive with gasoline supplies declining more than anticipated. They dropped by 3.304 MMBBL, beating the estimate for a small drop. Gasoline demand rose by 724 MBPD to a healthy 9.245 MMBPD.

The decline in oil stockpiles seen Wednesday is best synthesized by this comment from a Reuters analyst : Petroleum inventories have depleted in 80 of the last 108 weeks by a total of -438 million bbl since the start of July 2020. Total stocks are at the lowest seasonal level since 2008 and show no signs of rebuilding. This is echoed in a Reuters article which describes how "demand for hydraulic fracturing equipment is quickly outpacing supply, executives said this week, setting the stage for a new obstacle to U.S. oil and gas production growth."

Shell's CEO sees oil prices supported by supply tightness outweighing demand risks. In an interview he said : " Demand hasn’t fully recovered yet and supply is definitely tight." Demand will be helped by gas to oil switching.?JP Morgan analysts said in a note : "We increase our total estimates for additional oil demand from gas to oil switching by 700 MBPD from October 2022 through March 2023," (Reuters)

Saudi OSP's may rise by 70 cents to $1 as per Reuters polling. This is lower than the $1.50 rise we had heard earlier in the week, but would still see the premium for A-Light in September rise to a record above the Oman/Dubai average. While the forward curve tightness seen in the Dubai market supports the OSP hike, the rise may be trimmed by the sharp decline seen recently in cracking margins in Asia. Profit margins at Asian refiners who process Dubai crude have plunged by as much as 97% over a month, with gasoline cracks even falling into negative territory last week. (Reuters)

Technicals

Energies?all?have?positive?momentum.

Resistance for the spot WTI futures is seen at the overnight high at 99.84-99.91. There is a gap to fill on the DC chart up to 101.51. That is the next best resistance level we see above today's high. Support comes in at 96.94-97.06.

September RB sees support at 3.1234-68, then at 3.0785-94. Resistance is forming below 3.20 based on the highs seen the past 3 sessions.

ULSD for September sees support at 3.6540-60 and resistance at today's high at 3.7308, then at the 3.7664 area.

Natural?Gas

NG is higher as September becomes the spot futures contract. Demand still seems to be outstripping supply.

Demand is seen staying strong. Bespoke Weather said the current month is on pace to be the fourth hottest July on record and, based on the mid-range weather forecast, next month could rank among the five hottest Augusts on record. The outlook calls for widespread highs in the 90s and 100s through at least the first third of August. (NGI)

U.S. production topped 97 Bcf on Wednesday, according to Bloomberg estimates, putting output near the 2022 high.

Today's EIA storage number is estimated to show a build of 19 to 23 BCF as per news wire estimates. This compares to last year's build of 38 BCf and the 5 year average build of 32 BCF.

Technically the NG contract has negative momentum on the DC chart with the switch to September hurting as the front month premium of 13 cents has been wiped out. Resistance for the September futures is seen at 8.715-8.725, tested with a high today of 8.719. Resistance is then seen above at 8.874-8.889. Support lies at 8.345-8.347, then at 8.146-8.160.

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