Written Commentary
CRUDE OIL
All things considered the energy markets capacity to hold up against the demand threat from the surging omicron variant is impressive. Certainly, the crude oil market was underpinned by this week’s decline in EIA crude oil inventories but given “trends in daily infections” it should become increasingly more difficult to discount sagging energy demand fears ahead. In fact, US crude oil production has reached a 19-month high with the latest EIA reading. Given surging US production readings, the latest Baker Hughes US oil rig count later today may have a late impact on energy markets as an uptick would put US rigs at their highest levels since April of 2020.
While both product markets reached new monthly highs on Thursday, RBOB continues to outperform ULSD and crude oil due to strong holiday driving demand this year. However, China reportedly raised fuel prices overnight while market rumors expect a lockdown of a major Chinese city due to Omicron. Average US retail “pump” prices for regular unleaded gasoline have fallen more than 15 cents a gallon below their mid-November highs, and that may have contributed to the significant uptick in late-December travel this year. While US kerosene-type jet fuel saw their second lowest reading this century in this week’s EIA report, the large amount of flight cancellations over the past 1 1/2 weeks will dampen overall distillate demand going into 2022.
NATURAL GAS
Natural gas futures prices have fallen from a 3 1/2 week high to within striking distance of a 6-month low in less than 2 sessions. In fact, European gas prices have the longest daily losing streak in seven years. A pullback in European prices put the natural gas market on the defensive, due to part to forecasts for milder temperatures in the region.
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