Outlook: The energy complex has moved slightly higher this morning as demand concerns are being outweighed by the prospects for a quicker global economic recovery. Vaccine headlines have been relatively supportive as well, despite the results from Johnson & Johnson’s Covid-19 clinical trial being just 66% effective against preventing the virus. I think what is being missed from this headline is that the Johnson & Johnson single dose vaccine may only be 66% effective at prevention, but it did however prevent all hospitalizations, which is significant. If the vaccine may not prevent you from getting sick, but does make it significantly more mild of a case, that should be viewed as a positive development. Johnson & Johnson is likely to push for an emergency use authorization from the FDA towards the end of February. The FDA has signaled a willingness to grant an authorization for any vaccine that proves to be safe and over 50% effective. President Biden is scheduled to meet with 10 Republican Senators today as the GOP lawmakers have announced a $618 billion relief bill. The scaled down bill lowers the direct payments to $1,000, and also lowers the income threshold. The bill would also reduce unemployment benefits and funding to state and local governments. Despite the meeting that will take place, Senate Majority Leader Chuck Schumer has labeled the GOP bill has “inadequate” and has signaled that Democrats may move forward without the help of Republican colleagues. Stimulus negotiations are likely to be a catalyst for trade in the days ahead. Equities have started the week in positive territory, as all three major averages are trading well above even this morning.
Crude
- Goldman Sachs has stated that Brent crude oil prices could rise to $65 per barrel by July. Analysts at the bank have cited a supply deficit of 2.3 million bpd in Q4 of 2020 as part of the reason for the bullish outlook. Higher demand in the previous quarter, along with tighter OPEC+ supply helped drive the deficit. Goldman Sachs has forecast a supply deficit of 900,000 bpd through the first two quarters of 2021, which is 400,000 bpd higher than previous estimates.
- In its most recent monthly report, the EIA has stated that U.S. crude oil production rose 692,000 bpd in November, bringing total output to 11.124 million bpd. That is the first time production has increased over the 11.0 million bpd threshold since April.
- According to data from Reuters, Russia’s crude oil production increased by 120,000 bpd in January. The increase is inline with their quota under the OPEC+ agreement.
- The Baker Hughes Rig Count Report was released on Friday and showed that U.S. producers added 6 oil rigs last week, bringing the total up to 295.
- On Friday afternoon the CFTC released its weekly Commitments of Traders Report. They showed that funds and money managers sold 2,414 crude oil contracts, reducing net length to 541,302 lots.
- Reuters is reporting that Exxon and Chevron executives discussed a merger in early 2020. The merger would have been the largest of all time. The discussions are no longer active, but are an indication of where the market was and how extensive the challengers were, even for two of the largest companies in the world.
- The March crude oil contract is trading $0.53 higher at $52.73. The 20-day and 100-day moving averages are $52.17 and $44.78, respectively. The 14-day RSI is 61.73%.
- As of 10:14 am CST: April Brent is up $0.46 at $55.50, the U.S. dollar index is 0.339 higher at 90.930, while the nearby e-mini S&P 500 futures contract is up 26.25 points at 3,731.50.
Diesel
- The March ULSD contract is trading $0.0198 higher at $1.6182. The 20-day and 100-day moving averages are $1.5812 and $1.3447, respectively. The 14-day RSI is 67.82%.
- The CFTC released its weekly Commitments of Traders Report on Friday and showed that funds and money managers bought 5,211 Heating Oil contracts, increasing net length to 17,826 lots.
Gasoline
- The March RBOB contract is trading $0.0049 higher at $1.5576. The 20-day and 100-day moving averages are $1.5304 and $1.2822, respectively. The 14-day RSI is 66.45%.
- The CFTC released its weekly Commitments of Traders Report on Friday and showed that funds and money managers purchased 5,408 RBOB contracts, increasing net length to 87,991 lots.
- In the EIA’s Petroleum Supply Monthly Report for November, they stated that U.S. demand for refined fuels was still down considerably compared to the year prior. They showed that U.S. demand for diesel was down 7.1% from a year earlier, while gasoline demand was still down by 13.3%.
Propane
- Propane prices are moving higher this morning. At last look Conway was up $0.0400, trading at $0.8900. Mt Belvieu was up $0.0500, trading at $0.8900 as well.
- With the export frenzy that dramatically drove prices up cooling, hub inventories and weather are likely to be what drives trade. Low inventories in the Gulf and Midwest should be supportive for prices from now into the early spring. Cold weather is expected, as both the 6-10 day and 8-14 day forecast from the NOAA are showing a high probability of lower than average temperatures for much of the country.
Natural Gas
- The March Natural Gas contract is trading $0.242 higher at $2.806. The 20-day and 100-day moving averages are $2.626 and $2.880, respectively. The 14-day RSI is 53.81%.
- Natural gas futures have shot up to a six-week high this morning, as forecasts for much colder weather have pushed values higher.
- The CFTC released its weekly Commitments of Traders Report on Friday and showed that funds and money managers sold 1,306 natural gas contracts, reducing net length to 11,872 lots.
February 1 marks the start of Saudi Arabia’s voluntary 1.0 million bpd output cut. Russia and Kazakhstan will be allowed to increase production by 75,000 bpd in both February and March as well. Demand concerns will continue to drive market sentiment, but those concerns should be balanced by the willingness from Saudi Arabia to cut production.
