Written Commentary
CRUDE OIL
Crude oil and the products have seen some volatile trade in the wake of conflicting information regarding next week’s OPEC Plus meeting, and with the EIA stocks report today, they could continue to see choppy, two-sided action. A report that OPEC Plus would reduce its crude oil production quota at next week’s meeting provided support to the petroleum complex yesterday. Hopes that China would start to relax its Covid Zero policy provided an additional boost. However, a report from Reuters indicating that OPEC Plus would keep its production quotas unchanged undercut prices, and their decision to have a virtual meeting instead of meeting in person seemed to increase the chances for the quotas to remain unchanged. The International Energy Agency has forecast Russian crude oil production to decline by 2 million barrels per day by the end of March due to the EU ban on Russian imports that is expected to begin on Monday. The API survey yesterday showed US crude oil stocks declining 7.85 million barrels last week, which was a much bigger drop than expected. If that is matched by the EIA report today, US crude oil stocks would fall to a 13-week low. Any increase in US crude production would send that to a new 2 1/2 year high. Another reading for crude oil refinery throughput above 16 million bpd would help soothe domestic demand concerns.
NATURAL GAS
The near-term demand outlook for natural gas has improved, which may help it extend its recovery move off Monday’s low. A shift towards cooler temperatures in the US 8-14-day forecast provides support, as it could strengthen demand in the next couple of weeks. US gas production fell to 98 bcf on Tuesday after averaging above 100 the previous week. On the other hand, US LNG exports fell to 11.3 bcf per day this week from 12 last week. Exports are not likely to see any sizable increase until the Freeport export terminal comes back online. The Reuters survey has a median forecast for US gas storage to show a net injection of 103 bcf. This compares to +80 bcf in last week’s report, +54 last year, and a five-year average +34. The injection season is well underway, with the potential for back-to-back triple-digit builds this week and next. With the decline in US production this week, we think natural gas could hold its ground above Monday’s low. Look for support in January natural gas at $6.980 today, with resistance at $7.310.
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