Morning Highlights
Morning Highlights

2.9.21 The energy complex is taking a bit of a breather today, as crude and products have been pressured slightly lower this morning

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Feb 9, 2021

Outlook: The energy complex is taking a bit of a breather today, as crude and products have been pressured slightly lower this morning. Profit taking could be part of the reason for the slight setback, as crude has recently hit the highest price level since January 2020. The fundamental picture for the energy complex remains bullish however, as tightness in global crude supply, aggressive stimulus measures in the U.S., improved vaccine rollouts, and a growing sense of optimism that demand will return more quickly have all helped support the continued rally in prices. On the supply side, Saudi Arabia is enacting a 1.0 million bpd production cut for the months of February and March. Libyan production has also taken a dive lower, falling to just over 1.0 million bpd, down from 1.3 million bpd. Libyan output has gone from nearly 0 in the early fall to higher than pre-blockade levels by the end of 2020. Production in the country has fallen in recent weeks due to an ongoing strike by Petroleum Facilities Guards, whom are preventing exports from the Hariga port, according to Reuters. Libyan crude production is currently exempt from the OPEC+ supply agreement. Yesterday Democrats in the U.S. House of Representatives released the first draft text for the $1.9 trillion covid-19 relief bill. 12 different committees will meet in the coming days, as the House will prepare to bring the finalized bill to the floor for a vote during the week of February 22. The House Ways and Means Committee’s draft measures would send $1,400 direct payments to those that qualify. The committee left income thresholds unchanged from previous bills. The draft also includes an increase in the child tax credit, as well as funding for schools reopening, and enhanced unemployment benefits. Equities have been slightly mixed this morning, as the DJIA and the S&P 500 are trading below even, while the Nasdaq Composite has traded both sides.

 

Crude

 

  • According to data from Johns Hopkins University, the spread of Covid-19 appears to be slowing. The seven-day average of new cases was just over 110,000 on Monday, which is down nearly 25% from the week prior. Health officials in the U.S. are concerned that variants of the virus could cause cases to spike however. Global cases of the virus are nearing 110 million.
  • The International Monetary Fund is expecting Russian oil output to recover to pre-pandemic levels when the current OPEC+ supply cuts taper off. Russian crude production fell for the first time since 2008 in 2020. The OPEC+ agreement expires in April 2022.
  • This afternoon an industry group will release its weekly inventory report. Tomorrow morning the EIA will release its Weekly Petroleum Status Report.
  • Amazon stated on Monday that they will purchase half of the energy produced by a 759 megawatt wind farm in the North Sea. The wind farm is expected to be completed and operational by 2023.
  • The March crude oil contract is trading $0.10 lower at $57.87. The 20-day and 100-day moving averages are $53.97 and $45.78, respectively. The 14-day RSI is 77.12%. An RSI above 70% indicates an overbought market from a technical perspective.
  • As of 10:21 am CST: April Brent is up $0.82 at $60.16, the U.S. dollar index is 0.073 lower at 90.964, while the nearby e-mini S&P 500 futures contract is up 16.25 points at 3,896.50.

 

Diesel

 

  • The March ULSD contract is trading $0.0007 lower at $1.7471. The 20-day and 100-day moving averages are $1.6358 and $1.3766, respectively. The 14-day RSI is 81.47%.
  • The International Energy Agency has stated that India will be the biggest driver of global energy demand growth in the next two decades. India will reportedly account for 25% of global growth. India’s energy consumption is expected to nearly double by 2040. Oil demand is expected to rise to 8.7 million bpd in 2040, from about 5 million bpd in 2019. Refining capacity will also rise dramatically, from about 5 million bpd currently to 7.7 million bpd by 2040.

 

Gasoline

 

  • The March RBOB contract is trading $0.0107 lower at $1.6641. The 20-day and 100-day moving averages are $1.5836 and $1.3131, respectively. The 14-day RSI is 74.49%.
  • A global shortage of semiconductor chips is having an impact on the manufacturing of automobiles. General Motors is extending a temporary shutdown at three assembly plants through mid-March due to the shortage. Ford was forced to cut production of the F-150 last week due to the chip shortage as well. Ford said the shortage could have a dramatic impact on earnings, lowering them between $1 - $2.5 billion this year.

 

Propane

 

  • Propane prices are mixed this morning. At last look Conway was up $0.0200, trading at $0.9900. Mt Belvieu was down $0.0100, trading at $0.8800.
  • The NOAA’s 6-10 day and 8-14 day forecast are both showing a high probability of colder than average temperatures for the majority of the country. Temperatures in the Twin Cities will hover around 0 for a high for much of the next week, with overnight lows plunging well below 0 degrees. That cold weather should provide a layer of support for propane values.

 

Natural Gas

 

  • The March Natural Gas contract is trading $0.075 lower at $2.807. The 20-day and 100-day moving averages are $2.694 and $2.858, respectively. The 14-day RSI is 55.66%.
  • Despite the frigid weather for much of the country, natural gas futures have slipped this morning. Forecasts for demand are showing a contraction in the latter half of the month.
  • The Natural Gas Storage Report from the EIA will be released on Thursday at 9:30am CST.

 

Holiday Schedule: Energy markets will halt at noon CST on Monday, February 15 due to the Presidents Day holiday. CHS Energy Hedging will be staffed until noon.