Market Update 9-15-2021

Overview

Energy prices are up today on the back of supportive API data seen last night and the better demand picture proferred by OPEC & the IEA this week.

Also aiding prices is the disruption of supply from the Gulf. Colonial Pipeline yesterday cut service for a while on its Line 1 Gasoline pipe. It can carry up to 1.5 MMBPD from Houston to Greensboro on its way up the East Coast. Colonial's Line 2, that can carry up to 885 MBPD of distillate fuel, is still shut. (Reuters) As of Tuesday, 720,217 BPD (39.57%) of crude production was still shut in in the U.S. Gulf.

The upbeat supply demand picture is also reflected in the oil product stockpiles kept at the key Mideast port of Fujairah. Platts reports that total product inventories there have fallen to their lowest level since August 27,2018. Marine bunker sales in August were the highest seen this year. Some fuel oil sales are occurring because of the rise in Natural Gas prices, causing end users to seek alternative fuel supplies.

China has announced that they will release 7.38 MMBBL of crude from their SPR in their first auction set for 9/24. The barrels being sold are to be used for feedstock for petrochemical production and are only to be used by the buyer of the crude. The grades beng sold are primarily Mideast sour crude. The barrels for auction include Qatar Marine, Forties, Oman, Murban and Upper Zakum. (Platts)

API                       Forecast            Actual

Crude Oil              -2.5/-3.5             -5.44

Gasoline               -2.2/-2.3             -2.76

Distillate              -1.7/-2.0             -2.89

Runs                  +1.5/+2.4%           n/av

Cushing                  n/av                  -1.3

Chinese refiners cut their throughput in August to their lowest rate since May 2020, due to an increase in Covid cases and lower fuel export quotas issued by the government. Refiners ran 13.74 MMBPD in August, down from 13.91 MMBPD in July. Teapot/independent refiners ran at 63% in August versus their rate of 64.4% in July. (Reuters)

Asian product markets are seeing a positive tone. The Gasoil market has seen good demand from Europe with the arb to send product open. Also helping is the lower supply from China as fuel export quotas there have been reduced. On the whole export allocations out of China have been reduced by 37.3% this year from last. Chinese exports in August were less than 1/2 those seen in July, as per Platts reporting. Platts Analytics sees Q4 Asian Gasoil demand 2.4 MMBPD higher than in Q3. Reuters reports that the Jet cash differential has swung to a premium of 6 cents on the back of physical buying interest. The differential stood at -5 cents on August 13 and was worth -40 cents on 7/13. The jet market is seen benefiting from kerosene winter heating demand, Reuters reports.

Technicals

USLD is within striking distance of highs seen in July. Those highs are at 2.2028 then at 2.2101. Support comes in at 2.1738-55, which are the prior sessions' highs. Below that we see support at 2.1577-87.

RB support lies at 2.1805-22, then at 2.1634-52. Resistance lies at 2.2179-89.

WTI has resistance at 7217-21, then at 7282-85. Support lies at the overnight low at 7062-65, then at 7016-18.

Natural Gas

NG has leaped to a new high, as has the TTF marker. Lower production due to outages, nuke maintenance, and heating demand are supporting prices. US lower 48 production was down 0.4 bcf to reach 90.4 bcf due to a slow recovery post Ida,as per NatgasWeather analysis. (WSJ)

On Tuesday, the NGI National Spot Gas average rose by 12.5 cents to $5.35, after gaining 36.5 cents on Monday. Califonia to W.Texas is to see temperatures of 90 to 100's in the coming days, while the Eastern part of the U.S. is set to see temps of 80 to near 90, thus keeping power burn strong. (NGI)

As of Tuesday, there was still 1.075 BCF (48.2%) of gas shut in in the Gulf of Mexico.

Reuters analysis has the following comment regarding the recent sharp rise in European NG prices. They say that the volatility seen of late is due somewhat to deteriorating liquidity, because short-term volatility has become too extreme and risks are too high. Extreme short-term volatility, price gapping and evaporation of liquidity are the characteristic features of a market nearing an extreme high/low – in terms of time if not price, the analyst adds. The lack of liquidity becomes self reinforcing. Traders with strong risk controls will pull back from running any open net position in either flat prices or calendar spreads, fearing the risk/reward ratio is unacceptable, and preferring to wait until trading conditions have become more normal again. The self-reinforcing volatility-liquidity cycle then accelerates the move to the extreme high/low, with prices overshooting, usually followed an abrupt correction.

Technically NG has yet to signal a top in place, even as it bumps up against the weekly chart's upper bollinger band. That value comes in at about 5.35. The RSI indicators on both the DC and Weekly charts show an overbought condition, as both are over 82 on a 14 period basis. Values over 70 suggest an overbought condition.

Resistance for the NG HH futures at 5.470-77 has been breached. Above this we see resistance at 5.612 from data from the DC chart from January 2014. Support comes in at 5.369, which is yesterday's high. Next support is at 5.278-5.286 from the 60 minute chart.

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