Written Commentary
CRUDE OIL
February Crude Oil edged higher overnight, extending its sharp rally from yesterday but has turned slightly lower this morning. The market may be seeing some pressure by a warmer than expected PPI number. The market has turned a bit more optimistic towards Asian demand now that the Chinese government has indicated that it will go all-in on monetary stimulus. The IEA overnight revised its demand-growth outlook for 2025 to +1.1 million barrels per day from +990,000 previously. However, it still expects the market to be “comfortably” supplied next year, with a projected surplus of 950,000 bpd. They said that if OPEC+ does finally start to unwind some of its production restrictions in March, the surplus could rise to 1.4 million bpd. OPEC has had a more optimistic outlook on demand than IEA, but it has cut its oil demand growth forecasts for a seventh straight month, to 1.61 million bpd for 2024 and to 1.45 million for 2025. EU ambassadors agreed to a 15th package of sanctions on Russia over its war against Ukraine, targeting a “shadow fleet” of ships that has aided Russia in bypassing the $60 per barrel price cap imposed by G7 sanctions on Russian seaborne crude in 2022. However, Russian state oil firm Rosneft said today that it has agreed to supply nearly 500,000 barrels per day to Indian private refiner Reliance, the biggest energy deal ever between the two nations. Overnight, Russia said it will respond to Ukraine’s strike that used US-made ATACMS missiles against Russian territory. The EIA report yesterday was mixed, with crude oil stocks falling more than expected and gasoline and distillate stocks increasing more than expected. The market sold off right as the after the report but quickly bounced off those lows. Crude oil and gasoline stocks are well below year-ago and five-year average levels, distillates are above a year ago. Crude stocks in Cushing, OK are near the lowest in six years.
NATURAL GAS
February Natural Gas gave back some of yesterday’s sharp rally overnight as it backed off from the 100-day moving average. Cold weather moving through the northern states this week has boosted the short term demand outlook, but milder conditions are expected to return. For the US storage report this morning, a Reuters survey of analysts calls for a draw of 59 to 176 billion cubic feet for the week ending December 6, with a median estimate of -118. The average change for the week is -66. As of last week’s report, US storage was up 5.9% from a year ago and 7.7% above the five-year average. Contango in March/April spread has a bearish undertone. March is the last month of the winter storage withdrawal season, and it usually trades at a premium to April. LSEG said lower 48 gas output has increased to 102.8 billion cubic feet per day so far in December, up from 101.5 billion in November. Demand is expected to drop to 123.0 bcfd next week from 128 this week due to the warming trend. The amount of gas flowing to LNG plants has increased to 14.0 bcfd so far this month versus 13.6 in November and a record of 14.7 last December. The medium range weather forecasts still show above normal temperatures dominating over the lower 48 states. The 6-10 day shows near-normal temps over the central Midwest with above normal elsewhere, and the 8-14 has the near-normal conditions moving eastward to the coast and below normal in Florida. The western two-thirds are expected to see above or much above normal temperatures.
PRODUCT MARKETS
The 100-day moving average around 1.9853 could be key inflection point today in February RBOB.
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