Market Update 7-5-2022

Overview

The battle between demand destruction/recession fears versus supply disruptions continues with recession woes winning at present as energy prices are lower.

The recession concerns are most notable in Europe with the Euro valued at 1.03 at a near 20 year low versus the dollar. The ECB is seen tempering rate hikes so as to avoid putting the Eurozone in recession. Yet, the news is not positive already with the S&P PMI reading for June falling to a 16 month low of 52.0 from May's figure of 54.8. The estimate for the June reading was 51.9. Bloomberg cites traders who see the Euro falling to parity versus the dollar by year end. (Bloomberg/Reuters)

Recession fears were also raised by the inflation rate seen in S. Korea. Inflation there was seen at a 24 year high. (Reuters)

Norway has seen its oil output fall by 89 MBPD due to a strike by offshore oil workers. The strike is seen widening, which will see output fall by 130 MBPD by Wednesday with another 160 MBPD at risk. There are plans to shut production across four more fields Wednesday. Currently 3 fields are shut. (DJI/Reuters)

Saudi Arabia raised their OSP's to Asia. The flagship A-Light crude price was raised by $2.80 - slightly more than the $2.40 hike foreseen yesterday. The price for Saudi Medium crude to Asia was raised by $1.00. The premium for the A-Light crude was set at $9.30 versus Oman/Dubai, close to the record high premium of $9.35 per barrel hit in May. Prices to the Med and NW Europe were raised by as much as $1.20. Prices to the U.S. were left unchanged.

We have read 3 different views re oil prices. Citibank sees prices falling to $65 by year end due to recession woes, while JP Morgan sees the possibility for prices to go as high as $380 if Russia retaliates and curbs output and exports. The third opinion we read was from Saxe bank, saying prices would stay in a range between $100 and $125, "with the risk of a prolonged period of high prices the most likely outcome." (QuantumCommodities/Reuters)

Technicals

Momentums are negative though the RB and ULSD momentums are at near oversold levels. The 100 day moving averages for the crude oils have been violated after having held in previous sessions.

WTI sees the DC chart based average at 106.41. Chart based support lies at 102.02-102.11. Resistance lies at 109.23-34.

Brent spot futures has its 100 day moving average at 110.58. Chart based support comes in at 108.03-04. Resistance lies at 112.39-45.

August?RB?support?lies?at?3.5075, then at 3.4425-75.?Resistance?comes?in?at?3.6432-84.

ULSD for August sees support at the 3.7600-3.7610 area.?Resistance lies at 3.9254-68.

Natural?Gas

NG prices have retreated further today as weather demand in the U.S. is not seen as sufficient to offset the loss of demand from the Freeport outage. Prices have fallen to their lowest value since late March on the spot basis.

TTF prices are up a further 2.5% today on top of Monday's 10% rise. Europe continues to worry about supply, which has been aggravated by the strike in Norway. This comes on top of worries about supply from Russia along the key Nord Stream pipeline. Supply woes have caused Goldman Sachs to strongly raise their 3rd and 4th quarter estimates for TTF pricing. Goldman sees 3rd quarter TTF pricing at 153 Euro/Mwh and 4th quarter at 121 Euro/Mwh. They had previously estimated those prices at 104 and 105 Euros. Goldman says that they see the full restoration of flows along the Nord Stream pipeline as unilkely. They say that European natural gas market tightness will not ease in the near or medium term. (DJI) European TTF prices are also being supported by maintenance issues at French nuclear facilities and a strike at 1 nuclear plant in France. (Reuters/Financial Times)

Norwegian energy supplier Equinor said that it had shut down three oil-and-gas fields due to a worker strike. The strike is expected to reduce gas output by 27.5 MBPD of oil equivalent, Equinor has said. Norway’s oil and gas lobby had warned that the strike threatens 13% of daily gas exports into Europe. The strike may widen by the weekend. The strike is seen possibly reducing NG output by as much as 264 MBPD of oil equivalent. (Bloomberg/Financial Times/DJI)

NG has seen prices fall below the 200 day moving average on the DC chart. That values lies at 5.616. Chart based resistance lies just above that at 5.650-5.652, then at 5.832. Support is seen at 5.255-5.270, then at 5.087-5.092. Momentum is neutral at near oversold level. Some support may come in at the 5.27 area given that that is where the 200 day moving average for the August NG lies on the daily chart.

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