Written Commentary
CRUDE OIL
The crude oil market found some fresh supply-side support overnight and could be ready to extend its recovery move early this week. February crude oil finished Friday with a moderate gain and a second positive week in a row, and it has followed with further gains overnight, reaching its highest level in 2 1/2 weeks. News that China will further relax its Covid restrictions has been a major source of strength. This follows last week’s threat from Russia to cut its crude production by 5%-7% if the EU and G7 nations introduce a price cap on Russian oil purchases. US refinery throughput was expected to have a moderate pullback due to the severe winter storm shutting operations at several major refineries, but crude production in Texas and North Dakota was also expected to drop due to severe cold temperatures.
RBOB and ULSD both finished Friday with strong gains, and they reached new highs for the move overnight. This is due in large part to US refinery shutdowns from the severe winter storms that moved across the US last week and into the weekend. This year was initially expected to be the third-busiest holiday driving season on record, but the winter weather interrupted travel. Average US retail pump prices for regular unleaded are at their lowest level since June 2021 and are 20 cents a gallon below a year ago.
NATURAL GAS
Natural gas was able to find its footing late last week, but the market has fallen back from its overnight highs and is only modestly higher this morning. Last Friday’s positive daily reversal was due in large part to the severe cold that marched across much of the US. This brought record high US gas demand and a sharp drop in production. Demand should ease this week, as the 6-to-10-day forecast calls for above-normal temperatures east of the Mississippi River. Russia announced that it is ready to resume gas shipments to western Europe through the Yamal pipeline, but their deputy prime minister said that 2023 production will be 12% below 2022 year and exports will be 25% lower.
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