Market Update 8-11-2020
Overview
Energies are higher underpinned by expectations of a U.S. stimulus package, a rebound in Asian demand as economies reopen and a stronger stock market.(Reuters)
The S&P hit a record high overnight on stimulus hopes, as well as some calm on the Sino US front ahead of talks scheduled for Saturday on the Phase 1 of their trade deal. (Reuters)
As for Asian demand , we are reading news from Platts and Reuters that paint a slightly different picture than the positive Reuters headline above gives.
Platts Analytics sees global diesel/Gasoil cracks under pressure for the rest of the summer ,tracking the low end of historical ranges. Platts reporting sees the M1/M3 or cash vs futures Dubai spread at minus 30 cts , which is down from +8 cts value seen July 28th. It is seen remaining discounted in the near term, as per Platts reporting
Reuters reports that the jet crack from Dubai crude fell to 62 cts , down from the July average of $1.93. On Aug 3, the crack was valued at 79 cts. Demand remains "muted" the article said. The Gasoil cash differential has slipped to a discount of 9 cts in Asian trading. There seems to be sluggish physical buying interest. On July 29th , the Gasoil cash premium was +20 cts.
Oil is being pulled from the U.S. SPR, where some oil companies had placed oil in April thru June as storage at Cushing filled up. Since Aug.first 2,2 mln bbls of oil have been withdrawn. 23 mln bbls were stored there in the 2nd quarter. The oil has to be removed by March 31, 2021. (Reuters)
RIN costs have been on the rise lately. U.S. oil refiners this quarter are expected to spend the most since at least 2018 to meet U.S. biofuels requirements, further pressuring margins hit by the collapse since March in global prices and demand. Refiners are raising their RIN cost estimates by as much as 43% for this year vs last year's cost. Monday the RIN value was seen at 43.5 cts, down from a value of 46.75 cts that we saw in July 17th. Tudor Pickering sees current RIN costs at $1.39 / bbl for the refiners. This is up from $1.18 in the 2nd quarter and 52 cts a year ago, according to the Platts article.
Technicals
Technically crude oil looks better than the products as the crude oils are trading not far from their recent highs, which provide nearby resistance. Momentum is positive.
For WTI that recent high value is 4352. Support lies at 4161-67. The one drawback for the crudes is that their upper DC bollingers lie below the recent highs. WTI's bollinger intersects at about 4249.
For Brent the DC bollinger is seen at about 4554. The resistance from the recent high is at 4623. Support lies at 4485-89, just below the overnight low of 4494. Below that we see support at 4424-27.
RB September support is seen at 1.2235-55, then at 1.2081-92. The overnight low is 1.2081. Resistance above lies at 1.2491-97, then at 1.2646.
ULSD has its support at 1.2323-24, just below the 1.2335 low seen today. Below that we see support at 1.2217-23. Resistance above comes in at 1.2713-23 then at 1.2882.
Natural Gas
NG is up 4 cts from settlement, but down 3.5 cts from the overnight high. The rise today is from a hotter European model forecast (N G I ) and an improving risk appetite across global markets as per WSJ reporting.
Platts reporting has the power burn for the first 10 days of August at 4 bcf lower than that seen in July. Temperatures in August are down 2.5 degrees from the July average. Higher NG prices may be having an impact on the immediate demand for power usage. Henry Hub prices have averaged $2.11 over the past week, which is up from July's average of $1.69 . Platts says that there has been a 4% switch in power burn from NG to coal in the ERCOT (Texas) region.
Refinitiv is forecasting this week's EIA NG data to show a build of 52 bcf. Last year saw a build of 51 bcf, and the 5 yr avge is +44 bcf.
Technically NG has a range bound look drawn from the price action of the past week.There are 3 lows from the past 4 sessions between 2.135 and 2.140. And there are 4 highs between 2.255 and 2.284 from the previous 4 sessions. Momentum points lower.
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