Written Commentary
CRUDE OIL
Crude oil prices continue to see choppy price action this week as they finished Tuesday with a moderate gain and have reached a new 3-month high early in today’s session. A sharp rally in the Dollar following news reports that President-elect Trump may declare a “national economic emergency” to implement new import tariffs tool crude oil prices off their early highs, but they remain in positive territory. OPEC’s December crude oil production fell by 120,000 barrels per day from their November average output, which supported energy markets as it shows member nations are reluctant to increase production until April. Russia said their December crude oil production came in below their OPEC Plus output quota, which also boosted energy markets. Late Tuesday, the API survey showed US crude oil stocks falling by 4.022 million barrels, a much larger weekly draw than trade forecasts. The API also said Cushing, Oklahoma crude stocks had a weekly decline of 3.115 million barrels. With the EIA showing Cushing crude stock at 22.54 million barrels in last week’s report, a decline of that size would put them below an “unofficial” operational low of 20 million barrels.
NATURAL GAS
Natural gas prices continued to see chaotic price action as they first saw mild early gains before pivoting to the downside to finish Tuesday’s outside-day session with a sizable loss. In contrast, they have turned back to the upside with moderate gains coming into this morning’s action. A brief warmup in temperatures over the US in the 6 to 10-day forecast will diminish residential heating and power plant demand for natural gas, which pressured the market. A warmup should also “unfreeze” wells and pipelines in those areas, which will boost gas production and has also weighed on prices. Current frosty conditions in the central and eastern US have resulted in more than 200,000 customers losing power, while Texas and the southeastern US could have significant power disruption from a winter storm later this week which will reduce near-term power plant demand. Feed gas demand for LNG export terminals has climbed above 15 bcf per day this week, which has supported natural gas prices.
PRODUCT MARKETS
The product markets saw divergent price action on Tuesday as ULSD found support from extreme cold weather in many areas of the US that will ramp up demand for heating oil. In contrast, RBOB continued to underperform the other petroleum complex members as US driving demand should decline following the just-completed holiday period. With the US a sizable net exporter of petroleum products, the news report on an “emergency implementation” of import tariffs could diminish demand for US product exports, and that has taken RBOB and ULSD back down towards unchanged price levels this morning. The API survey said that US gasoline stock had a weekly increase of 7.331 million barrels, a much larger weekly build than market expectations. US gasoline stocks tend to reach their highest levels of the year during January and February, so another sizable weekly build would not be a significant surprise.
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