weekly review… nymex natural gas2020/08/17 · contango (discount) on the end-of-summer oct/nov...

Monday, August 17, 2020 ◼ [email protected] ◼ © 2020 THE SCHORK GROUP, INC

Monday, August 17, 2020

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NOAA Outlook

Omnium Gatherum

PRICES WERE STRONG LAST WEEK… Spot NYMEX natural

gas for September delivery peaked at the highest high,

$2.379, since early May. After bottoming last month at a

year-to-date low of $1.583, this contract has rallied by

50% or $7,960 per contract. Spot WTI futures failed to

take out the prior week’s $42.52 high print—the highest

high since the market gapped lower on March 09th, but

did finish the week 79 cents higher at $42.01, i.e. the

highest weekly close since the March 06th.

Weekly Review… NYMEX Natural Gas

Per last Friday’s CFTC update, the length held by hedge

funds in the primary NYMEX, ICE futures-and-options

combined contracts and swap contracts fell by 2.1%,

while their shorts dropped by 9.9%. As a result, for a

second straight week, the net length held by fund

managers, and their share of the market’s overall

length rose to the highest highs, since the

OptionsSellers.com fiasco in late 2018, 293,636

contracts and 30%, respectively.

On the other side of Wall Street, prop traders raised their

longs by 2.8%, and raised their shorts by 3.7%. All told,

the props slashed their net length by 16.6% to a 64-

week low, of 13,437; their position now stands 222%

below the ten-week exponential moving average and

their share of the market’s length fell to a 65-week low

Nota Bene: According to the latest update from Baker

Hughes, the combined oil and gas rig count in the

Permian has set a new all-time low in 7 of the last 9

weeks, falling in the latest report by 5 to 117.

SCHORK Technical Trading Bias Daily

Contract NG

Sep-20 WTI

Sep-20 ICE Brent Oct-20

RBOB Sep-20

ULSD Sep-20

ICE Gasoil Oct-20

Trend

As Of

Bullish

27-Jul-20

Neutral

5-Aug-20

Neutral

4-Aug-20

Bullish

14-Aug-

20

Neutral

5-Aug-20

Neutral

5-Aug-20

SCHORK Price Range Probabilistic Model Daily

3rd Resistance 2.557 46.67 48.94 1.3611 1.3138 413.50

2nd Resistance 2.476 44.56 47.10 1.3085 1.2759 399.50

1st Resistance 2.413 42.96 45.75 1.2716 1.2476 387.75

14-Aug-20 2.356 42.01 44.80 1.2446 1.2367 379.50

1st Support 2.320 40.50 43.60 1.2116 1.2015 370.50

2nd Support 2.262 38.99 42.35 1.1748 1.1758 360.75

3rd Support 2.193 37.21 40.75 1.1280 1.1425 347.75

SCHORK Technical Trading Bias Weekly

Contract NG

Sep-20

WTI

Oct-20

ICE Brent

Oct-20

RBOB

Oct-20

ULSD

Oct-20

ICE Gasoil

Oct-20

Trend

As Of

Bullish

7-Aug-20

Bullish

12-Jun-20

Bullish

26-Jun-20

Bullish

12-Jun-20

Bullish

12-Jun-20

Bullish 12-Jun-

20

SCHORK Price Range Probabilistic Model Weekly

3rd Resistance 3.053 56.19 58.18 1.5383 1.4817 495.00

2nd Resistance 2.870 51.17 53.86 1.4211 1.3861 458.25

1st Resistance 2.661 46.20 49.46 1.3048 1.2931 423.00

14-Aug-20 2.356 42.31 44.80 1.1880 1.2592 379.50

1st Support 2.172 34.33 39.04 1.0174 1.0662 336.25

2nd Support 2.022 30.92 36.03 0.9277 0.9950 311.50

3rd Support 1.893 28.10 33.45 0.8555 0.9336 289.25

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of 1.4%, with retail traders maintaining another 3% of

length. Producers account for 66% of the bulk of the

market’s net length, with swap dealers holding all the

market shorts of 335,428 contracts.

The open interest in the primary NYMEX and ICE contracts

has drifted lower, coming in as of last Tuesday at 1.7%

below the ten-week exponential moving average.

Last Thursday, the EIA reported the nineteenth injection

of natural gas into underground storage of the season.

As of Friday, total underground storage for the Lower 48

climbed to 3.332 Tcf and the year-over-year surplus

moved out by 22 Bcf to 585 Bcf (22%). This season’s

hitherto refill is up to a large 1.346 Tcf… which is 28%

above the seasonally adjusted trend and within 1.9% of

the top of the seasonally adjusted range. We are less

than 60% through refills, and the market has replaced

77% of the gas that was delivered last winter.

As far as this Thursday’s report goes, the typical injection

is 38 ±12 Bcf and the five-year mean (interpolated) is 44

Bcf. The early consensus is looking for a normal injection

in the low 40s Bcf. Last week the EIA lowered its end-of-

season forecast to 3.962 Tcf. However, at the current

pace it is hard to see how we do not smash through

the 4.0 Tcf threshold.

Nevertheless, a normal winter—which has been lacking

over the last several seasons—coupled with a rebound in

economic activity (the Atlanta Federal Reserve Bank is

currently forecasting a rebound to 20.5% GDP for the

third quarter), plus lower domestic production, then the

glut of gas we will sitting on by early November, will

rapidly erode, especially if we see a rebound in LNG

exports… which market chatter suggests is highly

anticipated.

To this point, Caveat Venditor—gas sellers beware—the

market’s term structure is beginning to price in lower

production and increased demand for this winter.

For starters, on June 25th, the spread between the first

(spot) Henry Hub natural gas futures contract on the

NYMEX fell to a -$1.016 per MMBtu discount (contango)

against the thirteenth futures contract (the corresponding

contract one year out). This was the largest month-

1/month-13 discount since May 15th, 2012 and it was a

clear as day telltale of a market that was well supplied.

After all, discounts on the spot market indicate abundant

supplies relative to anticipated demand, and eight-year

high discounts indicate excessive supplies relative

to expected demand. However, by last Friday, August

14th, the month-1/month-13 discount narrowed to a five-

month low of -$0.384 per MMBtu.

Furthermore, (see below) the backwardation (premium)

on the end-of-winter March/April (HJ) spread—blue line,

far right of the X-axis—is holding firm for the moment.

Last week, the premium averaged -9.9%. Meanwhile, the

contango (discount) on the end-of-summer Oct/Nov (VX)

spread—orange line—inched by 36 basis points from a

ten-week low to -13.2%.

As far as this week goes for September gas, a drop below

2.172 alerts to weakness towards our 2.022 second

support point. Below here we look for support at our

1.893 third level of support. Then again, strength above

2.661 opens the door to our 2.87 second level of

resistance. Through here we will look for resistance to

hold at 3.053.

NYMEX WTI

As of last Tuesday, proprietary trading desks (prop desks,

i.e. firms that speculate with their own capital) raised

their length in the NYMEX WTI complex by 1,000

contracts. Over the last three weeks these speculators

raised their length from the lowest position, 675,098

contracts, since December 2015, to 712,525 contracts.

Shorts upped their position by 0.3% to 518,279

contracts. All told, their net length fell by 0.2% to

194,246 contracts. Whereas back in early April (the eve

of the spot market’s plunge into negative territory), prop

desks accounted for more than three-fifths of the

market’s net length, today these trades make up around

one-third of the length.

At the same time, hedge funds have maintained their

exposure of net length of the market at three-fifths for

the last three months. Small retail investors accounted

for around 7% of the market’s length last week. Swaps

dealers and producers account for the market’s net shorts

with a respective split of 85/15.



Last week, the Baker Hughes Canadian crude oil rig count

rose to a 22-week high of 19. The count is now running

93 rigs below the seasonally adjusted trend and 31 rigs

below the bottom of the seasonally adjusted range. In

the U.S., the oil and gas rig count has fallen to a new all-

time low in 14 out of the 15 weeks, hitting 242 as of last

Friday.

Per last Wednesday’s update from the EIA, crude oil

stocks where they count most, the NYMEX hub at

Cushing, rose for sixth straight week. For the week ended

August 07th, inventories rose to an eleven-week high of

53.29 MMbs, which pushed inventories further outside of

the high end of the seasonal range. NYMEX stocks of the

three major futures contracts—WTI, RBOB, and ULSD—

rose 2.09 MMbs to a five-week high of 125.6 MMbs. The

year-over-year surplus rose by 537 basis points (bps) to

22.9% or 23.4 MMbs.

As far as this week goes for October WTI, a drop below


support point. Below here we look for support at our 28.1

third level of support. Then again, strength above 46.2

opens the door to our 51.17 second level of resistance.

Through here we will look for resistance to hold at 56.19.

ICE Brent

As far as this week goes for October Brent, a drop below


support point. Below here we look for support at our



resistance. Through here we will look for resistance to

hold at 58.18.

NYMEX Products

As far as this week goes for September RBOB, a drop

below 1.0174 alerts to weakness towards our 0.9277

second support point. Below here we look for support at

our 0.8555 third level of support. Then again, strength

above 1.3048 opens the door to our 1.4211 second level

of resistance. Through here we will look for resistance to

hold at 1.5383.

As of August 07th, EIA gasoline inventories in the East

(inclusive of the NYMEX delivery complex around New

York Harbor) fell for the first time in three reports.

Inventories of 68.26 MMbs are still at the upper reaches

of the seasonal range. Demand was strong but, so too

was production, with both metrics rising to summer

highs. Keep in mind, we are approaching the end of the

peak demand season. After the Labor Day holiday

(September 07th) we typically see around a 500 Mb/d

drop off in demand.

As noted last Thursday, this year’s seasonal

gasoline demand destruction will be exacerbated

by extant COVID-19 mitigation mandates, first and

foremost being a dearth of in-person learning at

numerous educational institutions, not to mention

no road trips and no weekend tailgates in the Big

10 and Pac 12.

PADD 1 distillates (inclusive of the NYMEX market area)

fell by 386 Mbs to 65.86 MMbs. Nevertheless, inventories

are still 20% outside the top-end of the seasonal range

and 39% greater than the corresponding week from a

year ago. More to the point, as illustrated above, the

discount on the NYMEX Nov/Dec spread fell last week to

a 14-week low, with November trading at an average

discount of 1.57% to the December contract. As noted

above in the natural gas section, discounts on the front

of the curve—ne less, at the start of the peak demand

season—are a clear signal of a well-supplied market.

As far as this week goes for September ULSD, a drop

below 1.0662 alerts to weakness towards our 0.995

second support point. Below here we look for support at

our 0.9336 third level of support. Then again, strength


of resistance. Through here we will look for resistance to

hold at 1.4817.



September gas bottomed at a 2.171 low print, rocketed

to a 2.379 high print, and settled within 0.008 ticks of

our 2.364 third daily resistance at 2.356, up 17.4 cents.

As far as today goes for September gas, a drop below 2.320

alerts to weakness towards our 2.262 second support point.

Below here, we look for support at our 2.193 third level of

support. Then again, strength above 2.413 opens the door to

our 2.476 second level of resistance. Through here, we will

look for resistance to hold at 2.557.

NYMEX WTI September High 42.57 Low 41.62 Close 42.01 Chng -0.23

September WTI peaked overnight at a 42.57 high print,

bottomed late Friday afternoon at a 41.62 low print, and

finished the day 23 cents lower but, finished the week at

the highest Friday settle since March 06th at 42.01.

As far as today goes for September WTI, a drop below 40.50

alerts to weakness towards our 38.99 second support point.

Below here, we look for support at our 37.21 third level of

support. Then again, strength above 42.96 opens the door to

our 44.56 second level of resistance. Through here, we will

look for resistance to hold at 46.67.

NYMEX NATURAL GAS September High 2.379 Low 2.171 Close 2.356 Chng 0.174



ICE BRENT October High 45.29 Low 44.47 Close 44.80 Chng -0.16

October Brent peaked Thursday night at 45.29 bottomed

late Friday at a 44.47 low print, and settled 16 cents

lower at 44.80.

As far as today goes for October Brent, a drop below


support point. Below here, we look for support at our



resistance. Through here, we will look for resistance to

hold at 48.94.

NYMEX RBOB September High 1.2530 Low 1.2257 Close 1.2446 Chng 0.0098

September RBOB peaked early at 1.2530, bottomed late

at 1.2257 but, finished 98 ticks higher at 1.2446.

As far as today goes for September RBOB, a drop below



1.1280 third level of support. Then again, strength


of resistance. Through here, we will look for resistance

to hold at 1.3611.

NYMEX ULSD September High 1.2539 Low 1.2317 Close 1.2367 Chng -0.0014

September peaked Thursday evening at 1.2539,

bottomed Friday afternoon at 1.2317 and settled 14 ticks

lower at 1.2367.

As far as today goes for September ULSD, a drop below



1.1425 third level of support. Then again, strength


of resistance. Through here, we will look for resistance

to hold at 1.3138.



ICE GASOIL October High 383.75 Low 378.50 Close 379.50 Chng -2.25

October gasoil peaked early at 383.75, bottomed late at

a 378.50 low print, and settled 2.25 points lower at

379.50.

As far as today goes for October gasoil, a drop below





resistance. Through here, we will look for resistance to

hold at 413.39.

SCHORK Weather Demand Recap

NOAA’s 6-10 Day and 8-14 Day forecasts… Summer’s here, and

not it’s not.


weekly review… nymex natural gas2020/08/17 · contango (discount) on the end-of-summer oct/nov...

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