Outlook: Oversupply concerns and the producer price index is pressuring energies to start trading today. The IEA believes aside from omicron demand implications, inventories would still see swelling into 2022 due to suppliers increasing production and governments selling SPR barrels. The PPI beating estimates is an indicator that inflation is already affecting consumers and will put pressure on the Federal Reserve. Omicron reports continue to show the virus is mild compared to previous variants and it’s effect on demand appears suppressed aside from international air-travel. For now the energy complex is taking on a choppy but downward tilt.
Crude
- The Paris-based IEA said rebounding supplies from numerous producers are creating a new oversupply, which is likely to swell inventories by 1.7 million bpd by early 2022.
- The IEA lowered its forecast for oil demand by 100,000 bpd for this year and next.
- The surge in new omicron cases is expected to temporarily slow, but not upend.
- Saudi Arabia’s energy minister warned traders against shorting oil, saying OPEC+ could react quickly to any drop in price.
- Japan will monitor the energy markets to decide when to auction oil from its national reserves.
- The spread between Brent crude’s two nearest contracts narrowed to 2 cents a barrel compared to $1 a month earlier, indicating loosening supply.
- RBC expects benchmark Brent crude prices to drop 4% from current estimate of $79.50 in 2022 if the U.S. were to release another 100m bbl of crude from it’s SPR.
- U.S. November Producer Price Index rose 0.8% m/m, above the estimated 0.3%-0.7% increase. Year over year it was up 9.6%, the largest yearly gain on record.
- As of 9:38 am CST: Brent crude oil down $0.84 to $73.55, US dollar index up 0.038 to 96.355 while the nearby e-mini S&P 500 futures contract is down 28.00 points to 4640.75.
Diesel
- The IEA believes omicron’s oil demand hit was almost exclusively from reduced air travel.
- The IEA cut jet fuel demand estimates by 600,000 bpd which is just over 10% of last years level.
Gasoline
- The cost of shipping gasoline from Europe to the U.S. has reached YTD highs.
Propane
- Propane is off near 3 cents this morning amid warmer near-term weather models and a setback in crude oil.
- Superior Plus Corp. who services 780,000 customer locations across U.S. and Canada was subject to a ransomware attack over the weekend. The company is still assessing the impact to operations.
Natural Gas
- After initial strength, natural gas settled lower yesterday and continues to fall with current trade off 7 cents, which suggests a weak undertone.
- The EIA released their December drilling productivity report for January and expects natural gas production to grow by 341 MMcf/d compared to 226 MMcf/d last month.
Continuous Daily RBOB: After moving closer to its 200-day moving average, trade this week in RBOB has been weak so far with further downside a possibility.
