Morning Update 02.26.21
Overview
A risk off sentiment in assets has weighed sharply on energy prices today. Added to this is some slower demand for crude in Asia, an expectation of an increase in supply from OPEC, and a stronger U.S. dollar.
Japan's Nikkei index fell 4% today as U.S. Treasury yields rose. Asia-Pacific equities this week have fallen by the most in 11 months. The yield on the benchmark 10-year Treasury note broke above 1.5% to its highest level in a year. The rise in bond yields caused the dollar to rise. (Reuters/WSJ)
Despite Friday’s price declines, both Brent and WTI are on track for monthly gains of about 20% on supply disruptions in the United States and optimism over demand recovery on the back of COVID-19 vaccination programs. (Reuters)
Chinese crude buying interest is seen slowing in the 2nd quarter as refineries go into maintenance and domestic refining margins have weakened. High crude prices and the backwardation in the crude structure are hurting. The Brent 6 month spread this week hit its widest value in 13 months. The number of unsold crude cargoes headed to Asia in March and April is seen increasing. In spot trading, some Middle East crude grades are selling at discounts to their OSP's. More than 10 teapot refiners in China are seen closing for maintenance between March and June. The run rate at independent refineries is expected to fall below 70% in April, from around 74% presently, according to a Chinese consultant source.
On the positive side, Bloomberg reports that output from 5 key North Sea crude streams will be at a 5 month low in April at 780 MBPD. Bigger declines are possible in June due to work on the Forties pipeline system.
A Reuters poll of 55 participants sees Brent prices in 2021 averaging $59.07. This is up from $54.47 last month. WTI is seen averaging $55.93 , up from $51.42 last month. So far this year, Brent prices have averaged $58.80.
Several refineries in the Gulf of Mexico are restarting in the coming days. Marathon, Valero, Citgo and Lyondell have all announced plans for some units to restart. (Reuters/Seeking Alpha)
Today is the last trading day for March RB, ULSD, and April Brent futures.
Technicals
Momentums are still positive, but price action signals tops in place, especially for RB, where a key downside reversal is setting up. A close today below 1.9535 for April would confirm the reversal. Support below lies at 1.9395-1.9410, then 1.9262-71. Resistance above comes in at 1.9600, then at 1.9710-22.
ULSD for April has support at 1.8472-85, then at 1.8268-76. Resistance lies at 1.8700-25, then at 1.8855.
WTI for April sees support at 6171-76, then at 6095-97. The low today is 6180. Resistance is seen at 6300, then at 6351-57.
May Brent sees its support at 6394-6400, then at 6240-45. resistance comes in at 6583.
Natural Gas
NG spot futures are down 4 cents, continuing their week long slide. The drop comes despite the strong pull from storage seen in yesterday's EIA stats.
Storage drew by 338 BCF. This puts total storage at 1.943 TCF. This is 298 BCF below year ago levels. Current storage is now at a 161 BCF deficit to the 5 year average. The deficit is seen widening with next week's data. Platts Analytics forecasts next week's storage to draw by 137 BCF. The 5 year average for next week is -81 BCF.
Mid-continent NG values are pricing in tightness for next winter with prices over $3.00. Prior to this winter's record-setting market rally, Midcontinent gas prices had typically remained in the mid-$2/MMBTU area, even during the peak-winter months of December, January and February. Traders brace for stronger summer injection demand and lingering supply tightness. Platts Analytics is projecting a smaller summer-season build in the Midcon, potentially leaving inventories there at their lowest pre-winter level on record by late October.
In Asia, some buying interest for LNG has resurfaced as prices there have eased under $6, after having seen spot prices reach into the upper $30's earlier this winter. Demand has emerged from restocking activity in South Korea, incremental gas-fired power demand in Japan following the earthquake, and deferred gas demand from India. Asia is still in a very tight balance with in-basin production continuing to underperform compared to year-ago levels. This has put an emphasis on drawing on supplies from outside the region to help meet demand and to help refill storage stocks which were drawn down earlier this year, as per Platts Analytics.
Technically, NG has a steep stepladder down pattern since making the high on Feb.17. Support was tested at 2.690-2.700, with a low today of 2.697. Below this we see support at 2.610-2.618. Upside resistance lies at 2.800-2.810, then at 2.854-55. Momentum remains negative.
Disclaimer
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