Outlook: The energy complex has moved higher this morning, as crude and products are all trading well above even. Despite being up around 30 cents on the day, nearby crude is currently the weakest leg of the complex. March RBOB is up about 2.5 cents, while March ULSD has jumped about 1.5 cents higher. Providing some support to the market this morning is the anticipation that Saudi Arabia will begin reducing crude oil output by 1 million bpd starting on February 1. The Saudi’s have pledged to cut 1 million bpd in both February and March, as demand concerns are expected to persist throughout Q1 and Q2 of this year, before improving in the latter half of the year. Preventing further gains this morning is weakness in equities. That weakness is stemming from a report from Johnson & Johnson in regards to its Covid-19 vaccine. Johnson & Johnson has said that its single-dose coronavirus vaccine was just 66% effective in protecting against the virus. The vaccine is reportedly less effective against the various mutated versions that have popped up in South Africa, the U.K., and Brazil. Despite not being as effective as some of the others, the FDA has indicated that it would authorize a vaccine that is proven to be safe and at least 50% effective. All three major equity averages have started the day in the red, with the S&P 500 down about 20 points, and the DJIA currently down about 200points.
Crude
- OPEC oil output has increased for a seventh straight month, according to a Reuters survey. The survey found that the 13-member cartel is producing 25.75 million bpd in January, an increase of 160,000 when compared to December. The biggest production increases came from Saudi Arabia and Iraq, which reflects their higher quotas. Compliance from the group was measured at 103% for the month, up from 99% in December.
- Saudi Aramco is expected to lower its official selling price for its flagship Arab Light grade crude in March. Five sources at Asian refiners expected the March price to fall by 16 cents per barrel, according to Reuters.
- Today at noon CST Baker Hughes will release its weekly Rig Count Report. Last week U.S. producers added another 2 oil rigs, bringing the total up to 289. If any oil rigs are shown to have been added, it will be the highest rig count since May.
- This afternoon the CFTC will release its weekly Commitments of Traders Report.
- The March crude oil contract is trading $0.53 higher at $52.87. The 20-day and 100-day moving averages are $51.99 and $44.65, respectively. The 14-day RSI is 62.36%.
- As of 9:45 am CST: March Brent is up $0.53 at $56.06, the U.S. dollar index is 0.008 lower at 90.447, while the nearby e-mini S&P 500 futures contract is down 17.75 points at 3,762.00.
Diesel
- The March ULSD contract is trading $0.0203 higher at $1.6213. The 20-day and 100-day moving averages are $1.5759 and $1.3405, respectively. The 14-day RSI is 69.06%.
- The EPA announced this morning that U.S. biodiesel production fell to 151 million gallons in November 2020, down from 160 million gallons in October. Soybean oil based biodiesel remains the most common type produced, with 683 million pounds used in the production of biodiesel in November. That equates to around 60% of the total amount produced.
Gasoline
- The March RBOB contract is trading $0.0337 higher at $1.6091. The 20-day and 100-day moving averages are $1.5261 and $1.2783, respectively. The 14-day RSI is 76.66%. An RSI above 70% indicates an overbought position from a technical standpoint.
- General Motors has said that they will only sell electric vehicles by the year 2035. The company also plans to become carbon neutral by 2040. GM will use 100% renewably energy to power its U.S. facilities by 2030 as well.
Propane
- Propane prices are moving higher this morning. At last look Conway was up $0.0400, trading at $0.8825. Mt Belvieu was up $0.0050, trading at $0.9450.
- Concerns over low propane inventories in the spring are starting to help push prices higher. As we’ve seen in recent weeks with large inventory draws and high exports, propane inventories are starting to trend near the bottom of the five-year average.
Natural Gas
- The March Natural Gas contract is trading $0.023 lower at $2.641. The 20-day and 100-day moving averages are $2.626 and $2.880, respectively. The 14-day RSI is 53.81%.
- Yesterday morning the EIA released its Weekly Natural Gas Storage Report. They showed that working gas in storage fell 128 Bcf in the week ending January 22. Natural gas inventories are 244 Bcf above the five-year average.
U.S. propane inventories are beginning to approach the bottom end of the five-year average. Draws in stocks in the winter months are typical, as can be seen in the chart below. Inventory levels at PADD’s 2 & 3 (Midwest & Gulf Coast) are also nearing the low end of what’s considered normal. As we continue to move through the winter and into early spring, inventories are likely to continue drawing down and will continue to support prices.
