Outlook: Crude oil hit the highest level since February this morning after Saudi Arabia announced that they would voluntarily cut an additional 1.0 million bpd of crude production in February and March. Russia and Kazakhstan will be allowed to make small increases to their production as well. The announcement comes after a two-day OPEC+ meeting, where many members argued holding production steady as Covid-19 and variants of the virus rapidly spread around the world. Providing some risk-premium to the market comes from a clash between Iran and South Korea, as Iranian Revolutionary Guard troops seized a South Korean tanker earlier in the week. The clash stems from the South Korean government freezing $7 billion in Iranian assets. Iranian government officials state the tanker was seized due to polluting in the Straight of Hormuz and the Persian Gulf. Over on the political side of the spectrum, the Georgia Senate runoff elections took place yesterday. As expected, the results are very close. Democratic challenger Raphael Warnock appears to have won against Republican Senator Kelly Loeffler as several media outlets have called the race for Warnock. The race between Democratic challenger Jon Ossoff and Republican Senator David Perdue has not been called. According to data from FiveThiryEight, Ossoff currently holds about a 16,000 vote lead with 98% of expected voting having been reported. Equity markets have been slightly mixed this morning, as the DJIA and the S&P 500 are pushing higher while the Nasdaq Composite trades below even.
Crude
- Goldman Sachs has stated that the Saudi’s cutting an additional 1.0 million bpd of crude production points to weakening global demand. More stringent lockdown measures, particularly in parts of Europe, could once again pressure crude oil demand in Q1 of this year. Goldman Sachs remains bullish on crude however, as a tight market in Q2 along with demand returning will likely support prices.
- Dr. Scott Gottlieb, the former FDA chief in the Trump Administration, has stated that the South African variant of Covid-19, which is known as 501.V2, is very concerning because the virus appears to be resilient to antibody drugs.
- Private payrolls fell in December for the first time since the start of the pandemic, according to data from ADP released this morning. Private payrolls fell 123,000 last month, marking a contraction in private payrolls for the first time in seven months. Economists surveyed by Dow Jones estimated a rise of 60,000. Companies laid off 19.4 million workers in April and have recovered almost 10.0 million since.
- Yesterday afternoon an industry group released its weekly inventory report. They showed that U.S. crude oil stocks fell 1.7 million barrels last week. The Reuters poll of analysts and traders is anticipating that the EIA will report a 2.133 million barrel draw in U.S. crude oil stocks for the week ending January 1.
- The February crude oil contract is trading $0.08 higher at $50.01. The 20-day and 100-day moving averages are $47.86 and $43.00, respectively. The 14-day RSI is 65.75%
- As of 9:05 am CST: March Brent is up $0.33 at $53.93, the U.S. dollar index is 0.045 higher at 89.481, while the nearby e-mini S&P 500 futures contract is up 9.00 points at 3,727.25.
Diesel
- The February ULSD contract is trading $0.0001 higher at $1.5190. The 20-day and 100-day moving averages are $1.4743 and $1.2889, respectively. The 14-day RSI is 65.35%.
- The Reuters poll of analysts and traders is expecting that the EIA will report a 2.309 million barrel build in U.S. distillate stocks for the week ending January 1. Yesterday afternoon an industry group reported that U.S. distillate stocks rose a massive 7.1 million barrels last week.
Gasoline
- The February RBOB contract is trading $0.0084 higher at $1.4605. The 20-day and 100-day moving averages are $1.3620 and $1.2083, respectively. The 14-day RSI is 70.36%.
- The Reuters poll of analysts and traders is predicting that the EIA will report a 1.525 million barrel build in U.S. gasoline inventories in the week ending January 1. Yesterday afternoon an industry group reported that U.S. gasoline stocks rose 5.5 million barrels last week.
- U.S. retail gasoline prices averaged $2.17 per gallon in 2020, according to data from AAA. That is around 44 cents lower than in 2019, and the lowest annual average since 2016.
Propane
- Propane prices are moving higher again this morning. At last look Conway was up $0.0275, trading at $0.7800. Mt Belvieu was up $0.0125, trading at $80.50.
- An OPIS survey of analysts and traders is predicting that the EIA will report a 3.46 million barrel draw in U.S. propane inventories in the week ending January 1.
- IHS Markit is estimating that propane stocks fell 3.66 million barrels last week.
Natural Gas
- The February Natural Gas contract is trading $0.007 higher at $2.709. The 20-day and 100-day moving averages are $2.583 and $3.045, respectively. The 14-day RSI is 52.09%.
- Natural gas futures have traded both sides of even this morning as forecasts for warmer weather have pressured values slightly. High exports are countering high production, providing somewhat of a price floor as January exports are on pace to match the record high achieved in December.
- The Natural Gas Storage Report from the EIA will be released on Thursday.
