Market Update 2-9-2022

Overview

Energy prices are mixed with ULSD lower, while Crude and RB are higher as the market remains wary of a possible increase in Iranian oil supplies with nuke talks ongoing. The API data was bullish. Some rumblings from the U.S. and Japan regarding high prices may be hurting prices today.

The Japanese government is planning to hold a meeting regarding rising crude oil prices on Thursday. The ministers are expected to discuss the effectiveness of the government's measures it has implemented so far and possible further actions to curb soaring prices. (Reuters) Yesterday, the White House Press Secretary again urged US and global oil producers to increase supply. The Seceretary said "all options remain on the table," when asked if the government would move to tap the Strategic Petroleum Reserve again. She added that "oil producers around the world have the capacity to produce at levels that match demand and reduce the high prices."(Platts)

The Press Secretary's belief that producers have the ability to increase production is at odds with data provided by Platts. In their survey of OPEC+ production for January, Platts says output rose by 160 MBPD, well below the 400 MBPD they had agreed upon. The failure to reach target level seems to be due to disruptions in Venezuela, Kazakhstan, Libya and Iraq. Some of those disruptions have been resolved. But, Platts goes on to say that Russia will fall well short of their final output target of 11 MMBPD, as due at the end of the OPEC agreement. Platts sees Russia raising capacity by 325 MBPD on top of their current output of 10.08 MMBPD. Platts says that by June, 96% of the world's remaining 1.8 MMBPD of spare capacity will reside in 2 countries -Saudi Arabia and the UAE.

API                 Forecast            Actual

Crude Oil         +0.1/+0.7        -2.025

Gasoline             +1.4              -1.138

Distillate         -0.6/-2.1           -2.203

Cushing              n/av              -2.502

Runs                 -0.2%               n/av

Overnight prices rose on the back of these bullish API stats.

The EIA yesterday in their Monthly Short Term Energy Outlook (STEO) raised their 2022 price forecasts quite a bit for WTI and Brent. They see Brent averaging $82.87, up $7.92 from their forecast from last month. Their WTI forecast was raised by $8.03 from last month to $79.35. The EIA reduced their estimate for OPEC production for Q1 2022 by 220 MBPD to 28.17 MMBPD. But, they raised their Q2 estimate by 340 MBPD to 28.51 MMBPD. U.S. oil output will average 12.6 MMBPD in 2023, an increase from its previous estimate of 12.41 MMBPD. This year’s production forecast was also revised higher to 11.97 MMBPD from an earlier projection of 11.8 MMBPD. The EIA raised their estimate for global oil demand this year to 100.6 MMBPD, from last month's estimate of 100.52 MMBPD. Global oil supply this year is seen rising to 101.39 MMBPD, up from last month's estimate of 101.05. Global oil production level is seen rising to 103.47 MMBPD in 2023.

Technicals

Brent and ULSD have neutral momentum, while that of Rb and WTI point lower. There are double bottoms on the Brent and WTI charts from yesterday/today.

For Brent those values are 8993-9005. Below that support is seen at 8890-9000. Resistance comes in at 9120-30, then at 9213-16.

WTI sees the double bottom at 8841-51. Below that support lies at 8757-64. Resistance is seen at 8995-9000, just above the overnight high of 8989. Above this we see resistance at 9069-73.

RB front month support comes in at 2.6173-90, then at 2.5955-60. Resistance is seen at 2.6466-75, then at 2.6675-2.6700.

ULSD for March sees resistance at 2.8125-35, then at 2.8340-45. Support lies at 2.7676-98, then at 2.7457-63.

Natural Gas

NG prices have fallen further today as winter weather is not cold enough to boost demand dramatically and production rebounds following the freeze offs seen last week. Power loads are decreasing. The market also saw yesterday's EIA Short Term Energy Outlook as bearish as forecasts were lifted for US gas production in Q3, Q4 and all of 2023. (WSJ)

NGI quoted a source that said U.S. NG output had risen to near 93.0 BCF yesterday. This is up from Friday's level of 88.5 BCF and is near to the 7 day average seen before last Friday of 93.6 BCF.

Refinitiv projected average U.S. gas demand, including exports, would drop from 130.0 bcfd this week to 122.6 bcfd next week.

The EIA in its STEO issued yesterday said U.S. natural gas production and demand will both rise in 2022 as the economy continues to grow. The EIA projected that dry gas production will rise to 96.09 BCF/d in 2022 and 97.97 BCF/d in 2023 from a record 93.59 BCF/d in 2021. Last month , they projected U.S. supply for this year at 96.04 BCF/d. The agency also projected that gas consumption would rise to 84.27 BCF/d in 2022 from 82.92 BCF/d in 2021 before sliding to 83.85 BCF/d in 2023. That compares with a record 85.29 BCF/d in 2019. Last month, they forecast U.S. NG demand for 2022 at 82.77 BCF/d. The EIA sees 2022 LNG exports from the U.S. averaging 11.35 BCF/d, down from last month's estimate of 11.54 BCF/d. The EIA sees NG prices at the Henry Hub averaging $3.92 in 2022, up from last month's estimate of $3.79. They lowered their end of season NG storage forecast to 1.56 TCF, down from 1.822 TCf in last month's forecast.

Technically NG has negative momentum as length in the front end seems to be shed, as per open interest data from the CME. Yesterday saw NG open interest fall quite a bit for a second straight day. A test of support for March at 4.007-4.011 seems likely. Below that we see support at 3.924-3.931. Resistance lies at 4.213-4.220.

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