Outlook: The energy complex has shaken off the weakness experienced late last week and is pushing higher this morning, as crude and products are trading well above even. Giving support to the market is the news that crude production and refinery operations in Texas are likely to take longer to restart than originally anticipated. Cold weather early last week forced the shutdown of about 4 million bpd of crude oil production. The frigid temperatures also caused around 21 billion cubic feet of natural gas production to be forced to shutdown as well. A report from Reuters is stating that shale output in Texas could take up to two weeks to resume normal operations. Also providing a layer of support this morning is an updated forecast from Goldman Sachs. The bank has predicted that Brent crude will reach $70 per barrel in the second quarter of 2021, and $75 per barrel in Q3. Both forecasts are $10 above previous predictions. Goldman Sachs also estimates that global oil demand will reach 100 million bpd by late July 2021. The next OPEC+ meeting is scheduled for March 4. It is expected that the group will increase production by 500,000 bpd in April. Saudi Arabia is likely to unwind its 1.0 million bpd voluntary output cut in April as well. Equities are off to a rocky start this morning, as all three major averages are trading well below even. Rising treasury yields has pressured equities, as the 10-year Treasury yield increased 14 basis points last week to 1.34%, which is the highest it’s reached since February 2020. Federal Reserve Chairman Jerome Powell is scheduled to give his semi-annual testimony on the economy at the Senate Banking Committee on Tuesday.
Crude
- Permian Basin shale production is down about 35%, according to Reuters. Output in the shale formation has fallen below 3 million bpd for the first time since 2018, according to data from Wood Mackenzie.
- OPEC has cut its 2021 forecast for U.S. shale output, expecting production to decline by 140,000 bpd to 7.16 million bpd. The EIA expects shale output to fall 78,000 bpd in March to 7.5 million bpd.
- Saudi Arabia’s fiscal break-even requires crude to be about $80 per barrel, according to analysts at SEB Research.
- Baker Hughes released its Weekly Rig Count Report on Friday and showed that U.S. producers cut 1 oil rig last week, bringing the total down to 305. The oil rig count is down 374 when compared to last year at this time, and 548 lower than at this time in 2019.
- On Friday the CFTC released its Weekly Commitments of Traders Report. They showed that funds and money managers purchased 954 crude oil contracts, increasing net length to 561,626 lots.
- The March crude oil contract is trading $1.80 higher at $61.04. The 20-day and 100-day moving averages are $56.73 and $47.24, respectively. The 14-day RSI is 73.37%. An RSI above 70% indicates an overbought market from a technical perspective.
- As of 10:12 am CST: April Brent is up $1.69 at $64.60, the U.S. dollar index is 0.181 lower at 90.183, while the nearby e-mini S&P 500 futures contract is down 26.50 points at 3,876.25.
Diesel
- The March ULSD contract is trading $0.0140 higher at $1.8369. The 20-day and 100-day moving averages are $1.7179 and $1.4249, respectively. The 14-day RSI is 80.80%.
- India imported about 4.8 million bpd of crude in January, a decrease of about 6% from the month prior, according to data from Reuters. Imports from the U.S. nearly doubled however, as the U.S. became the fourth largest supplier of crude oil to the country.
- On Friday the CFTC reported in its Weekly Commitments of Traders Report that funds and money managers purchased 905 heating oil contracts, increasing net length to 14,733 lots.
Gasoline
- The March RBOB contract is trading $0.0075 higher at $1.8144. The 20-day and 100-day moving averages are $1.6660 and $1.3571, respectively. The 14-day RSI is 80.61%.
- On Friday afternoon the CFTC reported in its Weekly Commitments of Traders Report that funds and money managers sold 7,942 RBOB contracts, reducing net length to 61,321 lots.
- According to AAA, the national average price of retail gasoline is currently $2.635. Prices are up nearly 13 cents from this time last week. The average price at this time last year was $2.473.
Propane
- Propane prices are moving lower this morning. At last look Conway was down $0.0600, trading at $1.1400. Mt Belvieu was down $0.0400, trading at $0.9600.
- Propane values have come under pressure as the weather looks to be mild in the weeks ahead. The 6-10 day and 8-14 day forecasts from the NOAA are calling for a return to normal temperatures for much of the country. Despite what is likely to be weaker home heat demand, inventory levels being as low as they are should provide a layer of support to hub prices.
Natural Gas
- The March Natural Gas contract is trading $0.166 lower at $2.903. The 20-day and 100-day moving averages are $2.863 and $2.847, respectively. The 14-day RSI is 52.59%.
- Natural gas futures have fallen to a one-week low today, as forecasts for mild weather and lower heating demand have pressured prices lower.
- On Friday the CFTC reported in its Weekly Commitments of Traders Report that funds and money managers bought 1,388 natural gas contracts, increasing net length to 37,997 lots.
Both the EIA and OPEC have lowered their respective forecasts for U.S. shale output for 2021. OPEC has suggested a contraction of 140,000 bpd. Both forecasts put production at 7.2 million bpd or lower for the year. This would suggest that despite the bullish outlook for crude prices, the incentive to ramp up production in the U.S. remains relatively weak.
