Outlook: The energy complex has recaptured much of the losses experienced yesterday, as May crude is up about 4% on the day. Product markets are experiencing similar gains, with April RBOB up about 5 cents, and April ULSD up around 6 cents. Adding support to the complex is the news that the tanker that is blocking the Suez Canal may take weeks to clear. Officials have stopped all ships from entering the canal as of yesterday. The canal is used by refiners in the U.S. and Europe and is considered to be one of the busiest waterways in the world. Around 52 vessels pass through the canal each day on average. The waterway connects the Mediterranea Sea to the Red Sea through the Isthmus of Suez. Next week members of OPEC+ will meet virtually, where it is anticipated that the current production quotas will be maintained for an additional month. It is also expected that Saudi Arabia will roll the 1.0 million bpd production cut into May. Caution from the group is likely to be exercised due to the recent volatility, as well as the continued lockdowns in Europe which are likely to pressure demand for energy products lower. Equities have jumped higher this morning, as all three major averages are trading well above even. A University of Michigan survey released today showed the final reading of the index of consumer sentiment was 84.9 in March, up from 76.8 in February. Economists polled by Dow Jones anticipated a reading of 83.7.
Crude
- President Biden announced yesterday that the administration has a new goal of having 200 million Covid-19 vaccinations being distributed within the first 100 days in office. The original goal of 100 million was surpassed last week Friday. The U.S. is averaging about 2.5 million doses per day. That pace will have to hold steady in order to hit the 200 million goal.
- Analysts at Goldman Sachs have stated that the recent volatility in the energy complex is overshooting the shifts in crude oil fundamentals. They believe that a slower ramp-up of production from OPEC+ this spring and summer, along with robust demand starting in the latter-half of Q2 will help reestablish the bullish trend in the complex.
- Yemen’s Houthis stated today that they had attacked Saudi energy and military sites with 18 armed drones. The Saudi energy ministry reported that a missile had struck a crude distribution station. The Houthi military spokesman, Yahya Sarea, stated that the group is prepared to carry out “stronger and harsher” attacks in the future. Some of today’s price action could be pricing in some risk-premium.
- Today at noon CST Baker Hughes will release its weekly Rig Count Report. Last week they showed that U.S. producers added 9 oil rigs, bringing the total up to 318. Despite the continued rise in rig counts, U.S. crude production has remained relatively flat at around 11.0 million bpd.
- This afternoon the CFTC will release its weekly Commitments of Traders Report. We’ll go into that in more detail on Monday morning.
- The May crude oil contract is trading $2.34 higher at $60.90. The 20-day and 100-day moving averages are $62.60 and $52.50, respectively. The 14-day RSI is 49.72%.
- As of 10:23 am CST: May Brent is up $2.23 at $64.18, the U.S. dollar index is 0.225 higher at 92.753, while the nearby e-mini S&P 500 futures contract is up 14.25 points at 3,914.75.
Diesel
- The April ULSD contract is trading $0.0605 higher at $1.8083. The 20-day and 100-day moving averages are $1.8659 and $1.5861, respectively. The 14-day RSI is 48.43%.
- The blockage of the Suez Canal has caused global shipping rates to skyrocket. Rates for oil tankers have nearly doubled, according to a Reuters report. Blockage of the canal is likely to cost global trade between $6 billion – $10 billion each week.
Gasoline
- The April RBOB contract is trading $0.0516 higher at $1.9725. The 20-day and 100-day moving averages are $2.0120 and $1.6443, respectively. The 14-day RSI is 51.65%.
- Chinese electric car start-up NIO is being forced to shutdown production for five days due to the global shortage of semiconductors. Ford will also idle production of the F-150 pickup at a Michigan plant through Sunday. From a global perspective, vehicle manufactures are expected to lose around $60 billion in revenue due to the shortage. The chip shortage is due to a number of factors. Production was only briefly interrupted during the peak of the first wave of the pandemic, but demand has skyrocketed due to the work from home environment much of the world is in. New videogame consoles from Sony and Microsoft, new GPU’s from Nvidia and AMD, and a crypto-currency mining boom are adding stress to an already undersupplied situation. President Biden signed an executive order in late February to address the shortage, but it seems that the supply scenario will continue to be quite thin moving forward.
Propane
- Propane prices are moving higher this morning. At last look, Conway propane was up $0.0200, trading at $0.8200. Mt. Belvieu was up $0.0175, trading at $0.8900.
- The 6-10 day and 8-14 day weather outlook from the NOAA is calling for warmer weather for much of the country. Temperatures here in the Twin Cities reach above 70 degrees by the first week of April. Home heat demand for propane has all but wrapped up for the season at this point. We should likely start to see inventories beginning to build due to weak demand and strong production, which may put pressure on nearby hub values.
Natural Gas
- The April Natural Gas contract is trading $0.013 lower at $2.557. The 20-day and 100-day moving averages are $2.625 and $2.690, respectively. The 14-day RSI is 43.69%.
- Yesterday morning the EIA released its Weekly Natural Gas Storage Report and showed that working gas in storage fell 36 Bcf in the week ending March 19. Natural gas stocks are 78 Bcf below the five-year average.
While the U.S. continues to vaccinate around 2.5 million people each day, health experts have stated that wide-scale testing is a necessary part of getting life back to normal. The U.S. appears to be going in the opposite direction on testing however, as the number of daily tests has declined 35 percent since early January. The U.S. is recording around 58,000 new Covid-19 cases each day based on the seven-day average, according to data from Johns Hopkins University, which is about a 7% rise from the week prior.
