Outlook: The energy complex has dropped this morning on the last trading session of the year. 2020 was one of the most volatile years on record for the energy complex, as we saw crude oil trade below even for the first time ever. Pressuring energy markets this morning is the news that the U.S. has identified its second case of the new and more infectious Covid strain that was first reported in the U.K. The first case in the U.S. was reported in Colorado, and the second in California. The mutant Covid strain has traders on edge, as tighter travel restrictions could pressure already weak demand. A stronger dollar has also pushed prices lower. Yesterday morning the EIA reported significant draws in crude, gasoline, and propane inventories, while also showing that distillate stocks rose much more than industry expectations. The mostly bullish report hasn’t translated to higher futures values however. A Reuters poll of economists and analysts has forecast that WTI will average $47.45 per barrel in 2021. The poll also predicts that Brent crude will average $50.67 per barrel next year. Both estimates are about $1 per barrel higher than the estimate from November. Before the opening bell and the start of the last trading session of 2020, the DJIA was up 6.56% YTD, the S&P 500 was up 15.52% YTD, and the Nasdaq Composite was up 43.44% YTD. All three major averages have traded both sides of even this morning.
Crude
- OPEC+ will hold two meetings next week. The Joint Technical Committee and the Joint Ministerial Monitoring Committee will hold compliance and market condition discussions on January 3 and 4, respectively. OPEC+ is scheduled to increase production by 500,000 bpd in January. Expectations are that the group will increase production another 500,000 bpd in February.
- This morning the U.S. Department of Labor reported that first time claims for unemployment insurance fell 19,000 to 787,000 in the week ending December 26. Economists polled by Dow Jones anticipated that jobless claims would rise to 828,000. Continuing claims, which requires those who have received unemployment to have filed for at least two weeks in a row, fell by another 103,000 to 5.219 million.
- Treasury Secretary Steven Mnuchin stated earlier this week that the $600 stimulus checks would start hitting bank accounts by Wednesday. The official payment date is set for January 4, 2021, but those with direct deposit set up with the IRS may see them earlier.
- The February crude oil contract is trading $0.18 lower at $48.22. The 20-day and 100-day moving averages are $47.38 and $42.83, respectively. The 14-day RSI is 60.35%
- As of 10:33 am CST: March Brent is down $0.25 at $51.38, the U.S. dollar index is 0.219 higher at 89.899, while the nearby e-mini S&P 500 futures contract is down 0.25 points at 3,724.
Diesel
- The January ULSD contract is trading $0.0144 lower at $1.4754. The 20-day and 100-day moving averages are $1.4567 and $1.2726, respectively. The 14-day RSI is 61.52%.
- Yesterday morning the EIA reported that U.S. distillate inventories rose 3.096 million barrels, which was well above industry expectations. Weak demand along with higher imports are the likely culprits for the surprise build. U.S demand for distillates fell 580,000 bpd in the week ending December 25.
Gasoline
- The January RBOB contract is trading $0.0115 lower at $1.4005. The 20-day and 100-day moving averages are $1.3377 and $1.1917, respectively. The 14-day RSI is 66.50%.
- Yesterday morning the EIA reported that U.S. gasoline inventories fell 1.192 million barrels, which was a much larger draw than industry expectations. U.S demand for gasoline also saw a nice bump higher, increasing 106,000 bpd to 8.128 million bpd.
Propane
- Propane prices are slightly mixed this morning. At last look Conway was up $0.0025, trading at $0.7200. Mt Belvieu was down $0.0050, trading at $76.00
- Yesterday morning the EIA reported that U.S propane inventories fell a massive 6.449 million barrels last week. Strong exports and robust U.S. demand have helped push propane prices higher in recent weeks. With the U.S. entering the coldest part of the year and export arbs remaining advantageous, that trend is likely to continue.
Natural Gas
- The February Natural Gas contract is trading $0.041 higher at $2.463. The 20-day and 100-day moving averages are $2.557 and $3.056, respectively. The 14-day RSI is 40.32%.
- This morning the EIA released its Weekly Natural Gas Storage report. They showed that working gas in storage fell 114 Bcf in the week ending December 25. Natural gas stocks are 251 Bcf higher than last year at this time and 206 Bcf above the five-year average.
