Morning Update 03.18.21

Overview

Energies are lower due to the disappointing DOE data seen yesterday and the renewed concerns about the pandemic. 

Germany is seeing a rise in coronavirus cases, while Italy plans a national lockdown for Easter and France will introduce tougher restrictions.(Reuters) In the U.S., a contagious variant that's rapidly spreading is threatening another dangerous surge. In 15 states, new Covid-19 cases reported over the week that ended on Tuesday were at least 10% higher than a week ago, according to data from Johns Hopkins University. (CNN) 

The DOE stats showed gasoline imports surged to 910 MBPD, up 58% on the week and the strongest since the week-ended August 7. The nationwide inventory gasoline build was concentrated on the US Gulf Coast and in the Midwest, which saw counter-seasonal increases of 770 MBBL and 750 MBBL, respectively. Gasoline stocks were further padded by a 440 MBPD increase in production to 9.12 MMBPD, an 18-week high. Crude inputs rose by 7.1%, but were still 9% behind where they were the week prior to the February deep freeze. Gulf Coast regional refinery runs languished 15.8% behind pre-storm levels. But, most see refinery runs increasing in the coming weeks. A harbinger of that, we believe, is the large increase seen this week in Gulf Coast crude supplies of 5.261 MMBBL. Product supplies rose unexpectedly. Gasoline stocks rose by 0.472 MMBBL, Distillates by 0.255 MMBBL. They were both forecast to fall by at least 1 MMBBL. Product demand slipped. Gasoline's fell by 284 MBPD to 8.442 MMBPD. This is well below the past 2 years' figures of 9.96 and 9.409 MMBPD. Dsitillate demand fell by 459 MBPD to 4.028 MMBPD. This is close to last year's 4.013 figure, but well below 2 years ago's 4.706 MMBPD level. (Platts) 

Reuters details the rise in gasoline prices worldwide. Pump prices are at or near pre-pandemic levels in 25 countries which account for 80% of global fuel demand, according to energy consultancy FGE. This, despite still weakened overall global oil demand. 2021 demand in the final quarter is likely to remain 1.4 MMBPD lower than the same period in 2019, as per the IEA. Some of the price increase in certain countries is due to weaker local currencies versus the U.S. dollar. Prices in some parts of India reached record levels; Argentina saw prices over pre-pandemic levels. Prices at the pump in the U.S. have risen to their highest level since June, 2019. Prices have not been this high in March since 2014, AAA data showed. Yet, the Reuters article suggested that current pricing of $2.80 in the U.S. may not crimp demand too greatly, as the current price is well below a $3 per gallon threshold that is typically seen as a level that impacts consumption. U.S. gasoline consumption is expected to grow to 8.6 MMBPD in 2021, up from 8.03 MMBPD in 2020, according to the EIA, before rising to 8.89 MMBPD in 2022. This week's DOE data showed demand of 8.442 MMBPD. 

China’s gasoline exports rose 30.1% year-on-year to 3.54 million metric tonnes in the first two months of 2021, customs data showed on Thursday, as refineries sought to ease domestic inventory pressure due to high output. The first 2 months' average equates to 439.8 MBPD. Diesel exports fell 0.9% year on year to 427.4 MBPD. Jet fuel exports totalled 880,000 tonnes (averaging 109.3 MBPD) , down 70.1% from 2.93 million tonnes a year earlier. The greater gasoline exports were seen as a result of the travel restrictions that were imposed this year during the Lunar New Year.(Reuters) 

Reuters reports that weak Chinese demand for Russian ESPO crude has led to some of this supply heading to the U.S. Deliveries of ESPO to the U.S. would be the first such in over one year. ESPO crude has been displaced by Iranian crude heading to China. Also, teapot refiners are seen reducing their run rate between March and June to 60-65%. 3 weeks ago the rate was seen near 74%. 

Platts quotes the Institute of International Finance as saying that the Saudi breakeven for crude has fallen $10 from 2020 to $66, as non-hydrocarbon revenues have risen and public spending has been dialed back. The Institute projects Brent to average $60 this year. 

Technicals

Momentum is negative for the energies as key support levels are being attacked. For WTI, that value to us is 6380. Support for the May crude lies at 6310. Resistance is seen at 6488-90. 

RB for May sees support at 2.0175-83, then very good support is down at 1.9793-1.9811. Resistance lies at 2.0704-11. 

ULSD for April has its support at 1.8779-84, then at 1.8570. Resistance lies at 1.9131-45, then at 1.9360-65. 

Natural Gas

NG is down slightly as the weather forecasts remain mild and today's EIA data is seen as weakish. 

Today's EIA storage data is seen showing a draw of 17-22 BCF as per news wire surveys. This compares to last year's -15 BCF and the 5-year average of -59 BCF. 

Yesterday, NGI’s Spot Gas National Average ticked up 3.0 cents to $2.440, despite warm forecasts overall. 

Feedgas deliveries to US liquefaction terminals set a new record March 17 of 11.65 BCFD as end-user prices in Northeast Asia rose for April, S&P Global Platts Analytics data showed. The previous record of 11.58 BCFD was set on December 13, 2020. Even without the impact of LNG demand in Japan, Platts JKM pricing has remained high enough to continue to incentivize marginal supply from the U.S., according to Platts reporting. Platts Analytics expects full dispatch economics out of the US to continue in the months ahead, notably with European need to inject gas. Reuters reports that customs data showed that China’s imports of liquefied natural gas (LNG) jumped 27.2% to 14.04 million tonnes (0.5 BCF) over January and February. 

One analyst quoted in NGI publication retains a neutral stance for NG pricing. We agree with that sentiment as prices have been in a range this week and volume traded on the CME implies a lack of conviction on price direction. Volume for NG futures traded on the CME yesterday was 310,407 contracts. Support for spot futures lies at 2.478-2.479 , then at 2.454-2.458. Resistance above lies at 2.561-66. There is a gap to 2.584. Reinforcing the neutral nature of NG, the momentum indicator has flatlined since the beginning of the month. 

Disclaimer 

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