Market Update 3-23-2022

Overview

Energy prices are higher after pausing yesterday. API data was supportive for crude oil as inventories drew more than forecast. The continued concern about Russian and even Kazakh supply is underpinning prices.

Yesterday, TotalEnergies said that they would stop purchasing crude and oil products from Russia entirely by the end of the year. (Quantum Commodities) Although there are no official EU-level sanctions in place for buying and using Russian oil, about 2 MMBPD of Russian crude and 700 MBPD of its oil product exports have already been disrupted as a result of refiners and traders "self-sanctioning," according to S&P Global Commodity Insights. Vitol, Mercuria and Gunvor, on the other hand, said the decline is not immediately calculable but they do not see the shortfall exceeding 3 MMBPD. (Reuters)

On Tuesday, news surfaced that oil exports by Caspian Pipeline Consortium (CPC) may fall by around 1 MMBPD while it repairs two of three mooring points damaged by a storm in Russia's section of the Black Sea, RIA news agency quoted Russia's energy ministry as saying. The repairs may take up to two months, RIA reported on Tuesday, citing the ministry. CPC is one of the world's biggest oil pipelines shipping crude from Kazakhstan to global markets. (Reuters)

Trafigura's head of commodities trading added his voice to others regarding the diesel market: ""It is going to get tighter, and we are possibly leading to stockouts.". (Platts) A stockout occurs when customer orders for a product exceed the amount of inventory kept on hand. This situation arises when demand is higher than expected and the amount of normal inventory and safety stock is too low to fill all orders.

Gasoline prices are causing some demand destruction, not only in the U.S., but also in Japan, as per Platts reporting. They cited the head of the largest Japanese refinery, who said Japan's gasoline demand in March is expected to fall 7% year on year and remain 6% below the pre-pandemic level. This comes even as Covid restrictions have been lifted in Japan and the Japanese government has given fuel subsidies, covering gasoline, kerosene, gasoil, and fuel oil, to refiners and oil product importers since the end of January, as part of its efforts to alleviate the effect of rising oil prices on economic recovery from the pandemic.

API              Forecast        Actual

Crude Oil      Unch/+0.1      -4.3

Gasoline         -1.5            -0.626

Distillate         -0.8            -0.826

Runs             +0.2%          n/av

Cushing          n/av           +0.6

Technicals

Momentum and price action are positive.

WTI spot futures see support at 109.30 and resistance at 114.88-115.01.

Brent spot futures see support at 116.18-25, then at 114.05-114.16. Resistance comes in at at the 121.30 area.

May ULSD sees support at 3.5825-45 via the 60 minute chart for May. Resistance is seen at 3.6838, then at 3.7590-3.7620 from the 60 minute chart in May.

RB for May sees support at the double bottom from yesterday/today at 3.2719-22. Resistance above is seen at 3.3940.

Natural Gas

NG has forged ahead to the best level in 7 weeks. Platts yesterday cited growing concern over a prolonged contraction in US production, low storage levels and the potential for record demand this summer. According to a forecast published last week by the National Weather Service, the vast majority of the continental US – excluding coastal portions of California, Oregon and Washington – will see a minimum 33% to 40% probability for above-normal temperatures in June, July and August. The probability is even higher for most states with key cooling regions including the Northeast and Texas facing a 50% to 60% risk of hotter weather. WSJ market analysis cited the storage deficit as the reason for the strength of the NG market Tuesday, adding also that there are forecasts for more freezing temperatures in key consumption regions right up to the end of March. New York City is expected to see lows in the 20s and 30s starting this weekend and lasting several days, according to The Weather Channel.

The NG price rise has come even in the face of rising production. Bloomberg says U.S. output rose to 95 BCF/d Tuesday, up from near 93 BCF much of last week. But, one analyst, cited in NGI, said "heavier maintenance during the spring shoulder season could lead to further variation and potential downside over the next 30-45 days.”

 Russian energy giant Gazprom said on Wednesday it was continuing to supply natural gas to Europe via Ukraine in line with requests from European consumers. (Reuters) Yet, the TTF price was valued at 103 Euros/Mwh as per Reuters, up from Tuesday's settlement on the CME of 98.747 Euros/MWH. 

The ICE market for tomorrow's EIA storage data is predicting a draw of 53 to 58 BCF. The 5 year average for the period is a draw of 62 BCF.

Technically, NG still has positive momentum. Price action is positive. One colleague yesterday dubbed this a bull market. The only drawback is a mean reversion set up on the DC chart, as the settlement Tuesday was above the uppper bollinger band. That band intersects today at about 5.225. Upside resistance lies at 5.370-5.380. Support lies at 5.165-5.176, then at the overnight low area at 5.113-5.121.

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