Outlook: The energy complex has taken a step back this morning as renewed demand concerns have pressured markets lower. The U.K. is currently in a strict national lockdown, but cases continue to rise. Cases in China have also jumped to their highest levels in more than five months, according to a Reuters report. Shijiazhuang, which is the epicenter of the new outbreak in China, is in complete lockdown. People are unable to leave their homes which has pushed vehicle traffic to near 0. Demand concerns will continue to plague the recovery as countries and states move in and out of lockdown to try and control the spread of the virus and its variants. Mutated versions of the Covid-19 virus have popped up around the world in recent weeks. Despite the ability of the virus to mutate, current vaccines are reportedly still effective against them. The CEO of BioNTech, Dr. Ugur Sahin, told CNBC that even if their vaccine were to not be effective against mutated versions of the virus, they have the ability to change the sequence of the vaccine within a few days, and could deliver a new vaccine within about six weeks. Johnson & Johnson is expected to deliver late-stage trial results for its one-dose Covid vaccine by the end of the month. If the data is supportive, the company aims to deliver at least 1 billion doses by the end of 2021. The Johnson & Johnson vaccine uses the same approach and technology that was used to create the University of Oxford/AstraZeneca vaccine that was recently given emergency use authorization by the U.K.’s regulatory body. A stronger dollar is also pushing energy prices lower. Weakness in equities could be weighing on the energy complex as well, as all three major averages are trading well below even.
Crude
- Goldman Sachs has forecast that crude oil prices will breach $60 per barrel by summer 2021. Previously they suggested that prices wouldn’t reach that level until the end of the year. The investment bank believes that Brent will hit $65 this summer, which would put WTI somewhere in the $61 - $62 per barrel range. Goldman Sachs cited the willingness from Saudi Arabia to implement deeper production cuts, along with the Democratic sweep in the Georgia Senate runoff elections last week as the reasons for moving their forecast forward by about six months.
- On Friday Baker Hughes released its Weekly Rig Count Report and showed that U.S. producers added another 8 oil rigs, bringing the total up to 275. Rig counts have risen for seven straight weeks, but are still down 384 from last year at this time.
- The CFTC’s Commitments of Traders Report was released on Friday. They showed that funds and money managers purchased 4,534 crude oil contracts in the week ending January 5, adding to net length of 546,239 lots.
- The February crude oil contract is trading $0.13 lower at $52.11. The 20-day and 100-day moving averages are $48.73 and $43.24, respectively. The 14-day RSI is 72.08%. An RSI above 70% represents an overbought market from a technical perspective.
- As of 10:09 am CST: March Brent is down $0.39 at $55.60, the U.S. dollar index is 0.487 higher at 90.585, while the nearby e-mini S&P 500 futures contract is down 17.75 points at 3,799.75
Diesel
- The February ULSD contract is trading $0.0118 lower at $1.5677. The 20-day and 100-day moving averages are $1.4963 and $1.2955, respectively. The 14-day RSI is 70.57%.
- The CFTC released its Weekly Commitments of Traders Report on Friday and showed that funds and money managers sold 2,880 Heating Oil contracts, reducing net length to 15,026 lots.
Gasoline
- The February RBOB contract is trading $0.0241 lower at $1.5182. The 20-day and 100-day moving averages are $1.3962 and $1.2178, respectively. The 14-day RSI is 71.98%.
- The CFTC released its Weekly Commitments of Traders Report on Friday and showed that funds and money managers purchased 4,957 RBOB contracts, increasing net length to 83,267 lots.
- The U.S. Supreme Court has agreed to review a lower court’s decision that limited the government’s ability to grant small refinery exemptions. The exemption grants a refinery from having to blend biofuel or having to purchase credits in lieu of blending. Small refineries that can prove financial harm caused by blending or the procurement of RINs could apply for the exemption, but a decision from the 10th Circuit ruled that the EPA could only grant the exemptions to refineries that had received them continuously since 2010. The Supreme Court is expected to hear the case in April. Renewable credit prices have shot up in recent weeks, hitting their highest level since 2017.
Propane
- Propane prices are somewhat mixed this morning. At last look Conway was down $0.0050, trading at $0.8350. Mt Belvieu was flat, trading at $86.50.
- Propane hub prices are at or near values that have not been seen for over two years. Strong exports to Asian markets, along with relatively strong U.S. demand have pushed propane stocks lower while buoying prices at the same time.
Natural Gas
- The February Natural Gas contract is trading $0.040 lower at $2.660. The 20-day and 100-day moving averages are $2.615 and $2.975, respectively. The 14-day RSI is 49.35%.
- The CFTC released its Weekly Commitments of Traders Report on Friday and showed that funds and money managers sold 12,437 Natural Gas contracts, pushing funds into a net short position of 4,693 lots.
- U.S. natural gas prices have fallen to a one week low this morning, as mild weather has pressured prices lower. Strong production has also played a part in prices falling off this morning, as Reuters is reporting that lower 48 U.S. production is at 91.6 billion cubic feet per day so far in January, which is slightly above the eight month high achieved in December of 91.5 bcfd.
- Global Natural Gas prices remain high compared to U.S. values, which has helped exports remain quite elevated. The amount of natural gas moving to U.S. export plants has averaged 10.8 bcfd so far in January, which is above December’s record high of 10.7 bcfd, according to data from Reuters.
Goldman Sachs has revised demand forecasts for January and February, reducing each by 1-2 million bpd. Despite the demand reduction, Goldman Sachs sees a supply deficit beginning in February and lasting throughout 2021. The deficit will peak in September at 2.3 million bpd.
