PETROLEUM COMPLEX (WTI | BRENT | ULSD | RBOB)
The complex rallied today amid voluntary output cuts by Saudi Arabia, strength in US shares following encouraging data on US manufacturing, and further weakness in the US dollar index, despite mostly lower trade in European shares. The DAX fell 0.6% today despite stronger than expected German retail sales data and as-expected unemployment rate data. The CAC 40 also fell, by 0.4%, but the FTSE 100 in the UK rose 0.6%. In US news, the ISM Manufacturing Index for December saw a surprise increase from 57.5 to 60.7, well above expectations at 56.5. As of this writing, the Dow and S&P 500 were both up 0.5% and the Nasdaq had gained 0.6%. Also supportive for crude, the US dollar index was down 0.4% and back near multi-year lows. News on the supply side was bullish today. While Kazakhstan is set to increase production by 10kb/d in each of the next two months, and Russia is set to increase output by 65kb/d each month, Saudi Arabia is cutting production to 8.125mb/d beginning February 1. The kingdom says this amounts to a 1mb/d cut, but the latest figures from secondary sources (in OPEC's own monthly report) we have are for November, when the kingdom produced 8.96mb/d, making it an 0.84mb/d cut from those levels. The Joint Ministerial Monitoring Committee will meet next on February 3, and a full OPEC+ meeting is to take place on March 4.
Forward Curves & Distillate Stocks
NATURAL GAS | WEATHER | INVENTORIES
Natural gas futures strengthened further today with an upgrade to the two-week heating degree day forecast, despite a slightly looser US market balance expectation for next week. Reuters sources also indicated that European and Asian buying of US LNG is picking up amid multi-year highs in global gas prices. The Global Forecast System sees 434 HDDs over the next two weeks, up from 423 previously, closer to the 462-HDD 30-year average, and further above last year's 364 HDDs over the same period. Refinitiv analysts raised their total US demand forecast for next week slightly, by 0.1 to 126.2bcf/d, but raised their total US supply forecast by 0.5bcf/d to 100.6bcf/d, implying a slight loosening of the supply-demand balance, with 25.6bcf/d withdrawals. Although the HDD outlook is stronger, above-normal temperatures are still the expectation for the Midwestern and Northeastern consuming regions over the next 15 days, according to the latest ECMWF forecasts, with particularly large deviations above normal temperatures seen in the Midwest in the 1-5 and 6-10 day outlooks. In the cash market, benchmark Henry Hub prices rose by 21 cents to $2.60/mmBtu, Transco Zone 6 prices in New York strengthened 34 cents to $2.65/mmBtu, and Algonquin citygate prices jumped 85 cents higher to $3.23/mmBtu.
ENERGY TECHNICALS (WTI | ULSD | RBOB | NG)
ULSD futures rallied 3.9% today but in an inside session (higher low, but also a lower high), taking out 9-day ma resistance ($1.4847). There was no apparent motivation from the technical indicators, and as a retracement following a single-session jump of this magnitude would not be unprecendented, we will remain on the sidelines. We expect nearby resistance at the recent $1.5347 high, followed by $1.6424, whereas the 9-day ma and then the $1.4000 psychological level are expected to offer support. RBOB futures rallied to even larger gains of 5.8% today, taking out yesterday's high and hitting a fresh multi-month high of $1.4586, which becomes nearby resistance (followed by $1.5000). Slow stochastics and the RSI are neutral, as is the MACD, whereas the major averages point higher. We remain on the sidelines for now, seeing nearby support at $1.3899 and then at the 18-day ma ($1.3637, held up to a test at the lows today). WTI climbed 4.9% higher in an upside session today, hitting a multi-month high of $50.20 today, after taking out $49.83 resistance. We now look to $50.54 and then $55.58 for nearby resistance, with support expected at the 9-day ma ($48.17) and then down at $45.27. We remain neutral for now. Technical indicators are similar to products. Lastly, NYMEX natural gas futures trade was kind to our upside bias today, as futures strengthened 4.7%. Slow stochastics and the RSI point higher, and neither are overbought, and candlesticks point higher as well. Meanwhile, the MACD and major averages are neutral. With 100-day ma resistance taken out today, this becomes nearby support ($2.617, followed by $2.403), while $2.769 (Fibonacci retracements, reinforced by the 50-day ma) and then $2.898 are expected to offer resistance.