Outlook: The energy complex has reversed course this morning and has shaken off earlier weakness as crude and products have pushed into positive territory. Providing some support to the market this morning comes from positive headlines surrounding the pandemic. The number of new Covid-19 cases in the U.S. is declining to levels last seen around Thanksgiving. The U.S. is recording about 102,000 new cases each day, based on the seven-day average, according to data from Johns Hopkins University. President Biden announced yesterday that the administration had finalized a deal to secure another 200 million vaccine doses, bringing the U.S total up to 600 million doses. Giving the complex some pause however comes from somewhat bearish reports from both the IEA and OPEC. The IEA released its latest forecast yesterday, stating that global supply will continue to outpace demand for much of the year. OPEC has stated global oil demand will recover more slowly than originally thought, reducing its forecast for global demand by 110,000 bpd in 2021. To give some credence to the less than ideal demand outlook, the number of people who traveled in China ahead of the Lunar New Year Holiday fell by 70% when compared to 2019 levels, according to Reuters. Equities have shaken off most of the losses seen earlier in the session as well. The DJIA remains just below even, while the S&P 500 and the Nasdaq Composite trade in positive territory. All three major averages are poised to settle at near record highs.
Crude
- Iran is currently producing about 2.1 million bpd of crude oil. Iranian officials have stated that if U.S. sanctions were lifted, production could increase to 3.8 million bpd within just a couple of months. The Biden administration has signaled a willingness to lift sanctions if Iran will rejoin the 2015 nuclear accord. Iranian officials have stated that sanctions should be lifted prior to rejoining the agreement.
- Enbridge stated today that the projected cost to replace the Line 3 pipeline will be around $7.3 billion. The company has cited regulatory and permitting delays, as well as construction costs and Covid-19 protocols as the reason for the higher cost. The Canadian portion of the pipeline is complete, but the project is facing hurdles in Minnesota, where reviews have lasted about five years, according to Reuters. The Line 3 pipeline was built in the 1960’s. The replacement would nearly double the capacity to 760,000 bpd.
- Today at noon CST Baker Hughes will release its weekly rig count report. The rig count has risen in 19 of the last 20 weeks. Last week U.S. producers added 4 oil rigs, bringing the total up to 299.
- This afternoon the CFTC will release its Weekly Commitments of Traders Report. We will dive into that data on Monday’s report.
- The March crude oil contract is trading $0.62 higher at $58.86. The 20-day and 100-day moving averages are $54.79 and $46.28, respectively. The 14-day RSI is 77.43%. An RSI above 70% indicates an overbought market from a technical perspective.
- As of 10:25 am CST: April Brent is up $0.63 at $61.77, the U.S. dollar index is 0.012 higher at 90.429, while the nearby e-mini S&P 500 futures contract is up 4.75 points at 3,916.75.
Diesel
- The March ULSD contract is trading $0.0112 higher at $1.7558. The 20-day and 100-day moving averages are $1.6582 and $1.3927, respectively. The 14-day RSI is 77.72%.
- Airlines are continuing to struggle. American and United are both attempting to reduce headcount through voluntary measures. 27,000 employees between the two companies are likely to be furloughed if another round of government aid is not passed. The $1.9 trillion relief bill calls for $14 billion in support to airlines.
Gasoline
- The March RBOB contract is trading $0.0286 higher at $1.6788. The 20-day and 100-day moving averages are $1.6004 and $1.3267, respectively. The 14-day RSI is 73.25%.
- President Biden is planning to sign an executive order to address the semiconductor chip shortage that is plaguing automobile manufacturing. Yesterday CNBC reported that the chip shortage will lead to a loss of more than $60 billion in revenue for the global auto industry. The Semiconductor Industry Association has sent a letter to Biden, asking him to designate funds that would increase research and manufacturing of semiconductors. The coalition stated that the U.S. share of global semiconductor manufacturing has dropped from 37% in 1990 to 12% today. The group has urged Biden to include incentives in the EO to make U.S. chip manufacturing more competitive on a global scale.
Propane
- After the large sell-off late yesterday, propane prices have moved higher this morning. At last look Conway was up $0.0050, trading at $0.9100. Mt Belvieu was up $0.0125, trading at $0.8650.
- The 6-10 day forecast from the NOAA is showing a high probability of much colder than normal temperatures for much of the country. The 8-14 day forecast is calling for temperatures to return to somewhat normal levels. Overnight lows here in the Twin Cities are plunging well below 0 for about the next week. Home heat demand for propane should continue to rise during this time, giving some support to hub prices.
Natural Gas
- The March Natural Gas contract is trading $0.021 higher at $2.889. The 20-day and 100-day moving averages are $2.727 and $2.852, respectively. The 14-day RSI is 58.12%.
- Yesterday the EIA released its Weekly Natural Gas Storage Report. They showed that working gas in storage fell 171 Bcf in the week ending February 5. Natural gas stocks are 152 Bcf above the five-year average but are within the historical 5 year range.
As we can see from the chart below, Iranian crude production has dropped significantly since U.S. sanctions were put in place in 2018. The Iranian government rejected a draft budget based on output of 2.3 million bpd last week. The Iranian fiscal year begins in March, and the proposal was rejected as lawmakers in the country have cast doubt on any immediate sanction relief. This should be viewed as a positive development for global crude supplies, as fewer Iranian exports will help global inventories to continue to draw down.
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.
