Outlook: The energy complex has shaken off yesterday’s weakness as crude has pushed to an 11-month high this morning. Bringing support to the market this morning comes from expectations that U.S. crude oil stocks fell again last week. Traders will look ahead to official government data from the EIA that will be released tomorrow morning for confirmation. The lack of fresh headlines likely means that the EIA report will be the catalyst that drives trade for the remainder of the week. The prospect of increased stimulus measures is also bringing support to the market. The Biden administration is likely to pursue a much more aggressive stimulus agenda than originally thought due to both Democratic challengers winning Senate runoff races in Georgia, giving Democrats the thinnest of majorities. Reflationary trade has been discussed in recent weeks, and it appears likely to occur. The simple explanation is that with increased dollars in circulation – due in part to aggressive stimulus measures that have the potential to occur – those increased dollars are purchasing the same or perhaps fewer commodities. More dollars in circulation will likely lead to higher inflation and a weaker dollar. Dollar denominated commodities, such as crude oil, will benefit from that weakness and continue to push higher. Equities have been somewhat mixed this morning, but all three major averages are currently trading above even.
Crude
- This afternoon an industry group will release its weekly inventory report. The Reuters poll of analysts and traders is anticipating that the EIA will report a 2.72 million barrel draw in U.S. crude oil stocks for the week ending January 8. The EIA report is due out at 9:30am CST on Wednesday.
- U.S. online purchases over the holidays grew 32.2% from 2019 levels, totaling a record of $188.2 billion, according to data from Adobe Analytics.
- Officials at the World Health Organization have stated that herd immunity from Covid-19 vaccines will not happen in 2021. They also stated that social distancing and mask wearing will need to continue into 2022.
- According to data from Petro-logistics, OPEC+ compliance fell to 75% in December. Compliance from members had hovered around 100% in the months prior.
- Kazakhstan has reduced oil output by around 200,000 bpd as of Monday, according to a Reuters report. Winter weather has caused power outages, forcing the slowdown in production. Last week OPEC+ agreed to allow Kazakhstan to increase production by 75,000 bpd in February and March. It is unclear when production will reach above pre-outage levels.
- The February crude oil contract is trading $0.81 higher at $53.06. The 20-day and 100-day moving averages are $49.05 and $43.33, respectively. The 14-day RSI is 75.31%. An RSI above 70% represents an overbought market from a technical perspective.
- As of 10:08 am CST: March Brent is up $0.88 at $56.54, the U.S. dollar index is 0.072 lower at 90.393, while the nearby e-mini S&P 500 futures contract is up 4.00 points at 3,796.00.
Diesel
- The February ULSD contract is trading $0.0244 higher at $1.5979. The 20-day and 100-day moving averages are $1.5041 and $1.2980, respectively. The 14-day RSI is 74.06%.
- This afternoon an industry group will release its weekly inventory report. Tomorrow morning the EIA will release the Weekly Petroleum Status Report. The Reuters poll of analysts and traders is estimating that the EIA will report a 2.96 million barrel build in U.S. distillate stocks for the week ending January 8.
- According to TSA checkpoint data, 708,177 passengers went through U.S. airport security checkpoints on Monday. That compares to 1,992,453 the year prior, which represents a drop in demand of around 65%. On Sunday January 3, over 1.3 million travelers went through security checkpoints, which was the highest number since March 15, 2020.
Gasoline
- The February RBOB contract is trading $0.0347 higher at $1.5555. The 20-day and 100-day moving averages are $1.4080 and $1.2212, respectively. The 14-day RSI is 74.31%.
- The Reuters poll of analysts and traders is predicting that the EIA will report a 2.993 million barrel build in U.S. gasoline stocks for the week ending January 8.
- According to a report from research firm Rhodium Group, U.S. greenhouse gas emissions experienced a drop of more than 10% in 2020, which was the largest annual decrease in emissions since World War II. The U.S. transportation sector saw the largest drop in emissions last year, down 14.7% from 2019 levels. The massive draw in greenhouse gas emissions can be accredited to the coronavirus pandemic.
Propane
- Propane prices are moving higher again this morning. At last look Conway was up $0.0200, trading at $0.8600. Mt Belvieu was up $0.0125, trading at $89.00.
- Cold weather in the 6-10 day and 8-14 day forecast from the NOAA, along with strong exports continue to buoy propane prices.
Natural Gas
- The February Natural Gas contract is trading $0.110 higher at $2.857. The 20-day and 100-day moving averages are $2.633 and $3.028, respectively. The 14-day RSI is 60.44%.
- U.S. natural gas prices have hit a six-week high this morning as colder weather is anticipated towards the end of January. Cold weather in Europe and Asia is also driving up the price of natural gas globally, which in turn is helping drive U.S. exports to record levels.
- On Thursday the EIA will release its Weekly Natural Gas Storage Report. Early industry expectations are calling for a 126 Bcf draw in U.S. Natural Gas stocks for the week ending January 8.
Traffic in London, Rome, and Berlin fell significantly in December and into early January. Strict lockdown measures have pressured demand lower. According to U.K. government data, average sales per filling station are down around 20%.
