Energy Market Update 11-6-2023

Crude is up 86 cents   RB is up 2.6 cents    ULSD is up 1/2 cent

Overview

Energies are higher as the Saudis and Russians announced over the weekend that they will extend their voluntary output cuts until the end of 2023. (Platts)  Also aiding prices today is a weaker U.S. dollar. (Bloomberg)

"We believe these voluntary supply cuts are likely to be extended into the first quarter of 2024 — given seasonally weaker oil demand at the start of every year, ongoing economic growth concerns, and the aim of producers and OPEC+ to support the oil market’s stability and balance,” said a commodity analyst at UBS Group AG. (Bloomberg) "Our oil balance shows that the market will be in surplus in 1Q24, which may be enough to convince the Saudis and Russians to continue with cuts through the seasonally weaker demand period of Q1," ING wrote.

Reuters details how Chinese refiners are dialing back their run rate due to thinning refining margins and reduced refined fuel export quotas. November's run rate is seen at 15.1 MMBPD, down from October's record level of 15.37 MMBPD. The cuts in runs are also said to be due to weakening demand for transportation fuels. One refiner was quoted saying that refining margins are disappearing as they process higher priced crude oil, while the demand for refined fuel is weakening. The refiner said that his company had lowered their run rate to its lowest level so far this year. "Poor demand for petrochemicals is not helping", the refiner added. A Chinese consultancy says that teapot refiners in a key province are running at 57% -down from a rate of 65% in October; this is the lowest rate seen since May 2022, when Covid curbs hurt runs. Refining margins are said to be at the lowest this year as Russian crude has become more expensive. Another consultancy sees December's refinery run rate falling a further 3%.  Another quote read as follows: "Teapots are more price sensitive than a few months ago and are in no rush to stock up more oil". 

Saudi Arabia announced its Official Selling Prices (OSP) for December today. They kept their flagship A-Light grade crude price to Asia unchanged. They raised the price for their Heavy crude by 30 cents, while reducing the price for Medium crude by 10 cents. Quantum Commodities says that keeping the A-Light price unchanged to Asia was an indication that Saudi Arabia does not expect any issues in placing barrels. Prices to the U.S. were kept unchanged. Prices to the Med fell by $1.90 and to N.W. Europe by $2.30.

Indian fuel demand in October rose to a 4 month high. October's demand was running at a rate of 4.55 MMBPD. The October demand was up 5.5% versus September and up 3.7% from the prior year. "India's festive season across October greatly boosted consumption rates, but so did the start of the winter season, which usually sees construction activity pick up and infrastructure projects being launched," said the lead crude analyst at Kpler. (Reuters)

Notable is the drop in net length in WTI on ICE/CME combined held by money managers in Friday's CFTC Commitment of Traders' Report for the week ended Tuesday October 31. Net length fell by 61,689 contracts, as longs were sold and shorts added in almost equal size on the CME. Brent length also fell. ING reports that long liquidation in Brent totaled 16,413 contracts. Money managers' ULSD positions on the CME were little changed. RB length rose by a strong 10,156 contracts during the period.

The Baker Hughes Oil rig count fell by 8 units in Friday's report. A colleague says the oil rig count of 496 is the lowest amount seen since February 2022.

Technicals

The energies are having inside trading days today.

December WTI has lows in the prior 3 sessions bunched between 80.10 and 80.30. Below this support is seen at 79.05-79.07. Resistance lies at 82.83-82.91 and then at 83.60-83.69. Momentum is bottoming and looks poised to turn positive.

ULSD is seeing its DC chart based momentum trying to turn positive from oversold condition. Support for the December contract lies at 2.9044, then at 2.8617. Resistance is seen at the overnight high at 2.9671-2.9697.

RB has lows from the past 3 sessions in the area of 2.1822 to 2.1836. Below this support is seen at 2.1527. Resistance lies at 2.2504-2.2528.

Natural Gas --NG is down 18.6 cents

NG has gapped lower today night as the forecast turned warmer over the weekend. The term used by NGI to describe today's fall is "pummeled" as high output and weakening demand weigh.

The warmer forecast has led Celsius Energy to say that they see storage injections continuing through mid-November. They see the 5 year average storage surplus rising to 250 BCF by November 18. The surplus stood at 205 BCF as of last Thursday's EIA report. (Reminder: there will be no EIA NG storage report issued this Thursday.)

NG prices are likely also being driven by the high production levels seen in the U.S. recently. Reuters reported that last Thursday's production was at a record 107.6 BCF/d. November output so far is averaging 106.6 BCF, up from last month's record of 104.2 BCF/d.  At the same time though, feed gas demand has risen to 14.7 BCF/d this month, up from 13.7 BCF/d in October and over the record of 14.0 seen in April. U.S. total NG demand for this week is seen at 101.3 BCF/d rising next week to 108.9 BCF/d.

TTF prices are also lower today with the December contract falling to its lowest level since October 9. Prices are pressured by a warmer forecast in Europe for the first part of November and storage that is 99% full. The first part of November is seen with temperatures 6 degrees Celsius (almost 11 degrees Fahrenheit) over average, as per Euronews. There is a gap below on the TTF December daily chart that goes from 43.965 to 43.255. Current pricing is near 46 Euros/mwh. Resistance lies above in the 52 Euro area. Momentum points lower.

Notable is the CFTC data issued Friday that showed money managers turned net long in NG futures/options on the CME. They were net long 15,570 contracts after being net short 22,027 contracts in the prior week. 

Words heard from colleagues regarding natural gas prices are : "stuck", "consolidating within established range". Momentum has turned negative with the retreat off the peak seen last Tuesday. The gap created over the weekend currently lies from 3.407 to 3.452. The top of the gap is where we see current resistance. Support lies at 3.318-3.321 and then at 3,253-3.258.

Disclaimer

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