PETROLEUM COMPLEX (WTI | BRENT | ULSD | RBOB)
The complex strengthened further today amid a rally in equities and bullish US crude oil inventories. European shares rallied today despite surprise downward revisions to the final Markit Eurozone, German, Italian Composite PMIs and also in the final CIPS/Markit UK Composite PMI. The FTSE 100 shot up 3.5%, the DAX rallied 1.8%, and the CAC 40 strengthened 1.2%. In US economic news, although factory orders growth of 1.0% for November was a beat (consensus was down at 0.6%), the ADP Employment Report was a big miss. The company reported a surprise drop of 123,000 in US private payrolls for December, whereas analysts expected to see a gain of 130,000. Nevertheless, the Dow was rallying 2.1%, the S&P 500 was up 1.5%, and the Nasdaq had gained 0.6% as of this writing. Earlier weakness in the US dollar index had been supportive, but it was trading flat this afternoon. The EIA reported a much sharper than expected draw from US commercial crude oil stockpiles for the week ended January 1, of 8.01mb, but surprisingly large builds in both gasoline and distillate stockpiles. Data were neutral to unsupportive for propane. See our DOE Report for more details.
Forward Curves and US Distillate Stocks
NATURAL GAS | WEATHER | INVENTORIES
Natural gas futures on NYMEX strengthened further today, although developments were fairly neutral. The Global Forecast System sees 435 HDDs over the next two weeks, a slight uptick from 434 in the previous outlook, and closer to the 462-HDD 30-year average. Last year saw just 364 HDDs during the same period. Next week, Refinitiv analysts see total US demand averaging 126.3bcf/d, up by 0.1bcf/d from the previous forecast, while total US supply is seen averaging 100.8bcf/d, up 0.2bcf/d from yesterday's forecast. Taking a more regional perspective, the Northeast is expected to see mixed, near-normal temperatures over the next 5 days, but the 6-10 and 11-15 day outlooks based on the European model call for above-normal temperatures. Things are less supportive for the Midwest, where above-normal temperatures are expected throughout the 3 time frames, with especially large deviations above normal temperatures in the 1-5 and 6-10 day periods. Cash natural gas prices strengthened, with benchmark Henry Hub prices gaining 13 cents to reach $2.77/mmBtu, Transco Zone 6 prices gaining 11 cents to hit $2.76/mmBtu, and with Algonquin citygate prices jumping $1.27 higher to $3.50/mmBtu. The EIA is due to release its weekly natural gas storage report tomorrow, for the week ended January 1, and analysts polled by Reuters see a 144bcf withdrawal being reported. This would far exceed last year's 44bcf drop and also the 101bcf five-year average.
ENERGY TECHNICALS (WTI | ULSD | RBOB | NG)
ULSD futures continued higher today, adding 0.6% in an upside session, but printing a Doji star candlestick. We adopt a bullish stance, as slow stochastics have crossed bullishly and they, the RSI, candlesticks, and major averages all point higher but today's Doji star means we do so with trepidation. We look to today's fresh multi-month high of $1.5422 for nearby resistance, followed by $1.6424, whereas the 9-day ma ($1.4916) and then $1.4000 are our nearby support levels. RBOB futures continued higher in an upside session as well, threatening but not quite hitting $1.5000 resistance and then pulling back to settle near the middle of the daily range. Stochastics and the RSI are neutral, but candlesticks, the major averages, and the MACD point higher. We cautiously take a view favoring higher chances for higher prices, but the pullback from today's highs and the anemic RSI and slow stochastics give us pause. After $1.5000, we see next resistance at $1.5427, whereas $1.3899 and then the 18-day ma ($1.3741) are our nearby support levels. As these are close together, next would be $1.3000. WTI also continued higher in an upside session today, but here too we pulled off of the highs to print a Doji star. Higher chances for higher prices, but unenthusiastically. Next resistance at today's $50.94 high, with $55.58 after that, whereas the 9-day ma ($48.51) and then $45.27 are nearby support. We were favoring upside chances for NYMEX natural gas, and futures added 0.5% today. Bulls seemed to encounter resistance at $2.769 as expected, and we came off to settle below there. Meanwhile, bears had trouble with nearby 100-day ma ($2.622) at the lows as expected. These remain our nearby levels, followed by $2.898 above and $2.403 below. Slow stochastics are approaching overbought territory, but the RSI still has room overhead and so we'll stick with the bulls for now.