Written Commentary
CRUDE OIL
After forging the highest price since Dec 5th yesterday crude oil prices have backed off and sit just above uptrend channel support at $77.77. Apparently, the recent Arctic blast in the US resulted in a 36% reduction in Gulf Coast refining activity which reduced demand for spot crude. Furthermore, the market has been presented with the restart of the Keystone oil pipeline and reports overnight pegged Russian 2022 oil exports 7.5% above 2021. In a supportive development hedge funds increase their net bullish positioning in Brent and WTI, with WTI bullishness reaching the highest level in 4 weeks. Another supportive development overnight came from a 7.6% week over week decline in ARA crude oil in storage.
The gasoline market is facing mixed fundamental headlines this morning with Bloomberg noting a definitive decrease in Chinese mobility measures and news of significant 2022 US gasoline export flow to Mexico. Pemex indicated its Houston refinery has already sent 8 times as much gasoline to Mexico as was seen in all of 2021. Shortages. While both product markets reached new highs for the move early in the day, there was significant divergence later during Tuesday’s session. ULSD outperformed the rest of the petroleum complex as it held onto a large portion of early strength, due to cold weather strengthening heating oil demand while also benefiting from a decline in US refinery operations from the cold snap. In contrast, RBOB was unable to find its footing as it finished with a moderate loss and a negative daily reversal. Driving demand looks to be subdued this week as many parts of the US are recovering from winter storms and cold temperatures.
NATURAL GAS
While natural gas prices saw choppy action coming out of the holiday weekend, they were able to post their first back-to-back positive daily results in 2 weeks. However, above-normal temperatures for the eastern US in the latest 6-to-10 and 8-to-14-day forecasts should weigh on natural gas prices ahead as that should lead to a significant reduction in heating demand over that timeframe. Keep in mind that recent storms also resulted in a sizable reduction in US gas production, and there may only be a modest recovery in output over the next week. More importantly, the winter storms and cold temperatures are likely to result in a huge weekly draw in US gas storage that could put storage levels back below their 5-year average.
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