We are excited to have two new employees that have joined CHS Hedging with focus on energy and fertilizer risk management. You will start hearing more from Riley Schwieger and Michael Dix into the New Year.
Outlook: Energies are lower today as increased restrictions overseas and rising cases of Omicron continued over the weekend. Equities are following suit with Biden’s Build Back Better plan in jeopardy, and the overall health of the economy for 2022 in question. Fauci continues to stand by his statement that nationwide restrictions won’t be necessary to fight Omicron, but the market remains cautious on that view particularly after several entertainment and sporting events were cancelled over the weekend.
Crude
- OPEC+ compliance with oil production cuts stood at 117% in November, up from 116% in the two previous months.
- Biden’s Build Back Better unlikely to pass after Joe Manchin announced he is a “no” with the current proposal. As a result, GS Research has revised down their 2022 GDP forecast.
- Oil’s market structure is showing signs of oversupply as the prompt Brent timespread has flipped into a bearish contango pattern Monday.
- New York state broke a record for new infections over the weekend with over half of tests showing the Omicron variant. The director of NIH expects omicron cases in the U.S. will rise sharply over the next two weeks.
- The total U.S. crude rig count increased by 4 rigs last week and brings the total rig count to 475.
- The Biden administration’s release of crude out of the U.S. emergency reserves is going into a second round with bids due by the first day of the new year.
- Demand in Asia continues to soften and central banks are pivoting toward tighter monetary policy to try and rein in accelerating inflation.
- Germany imported 7.7m tons of crude in October, the highest since July 2019 and up 1.1m tons from September.
- Oil-fired power generation will reach peak demand between January and February, driven by the winter Japanese demand, according to an Energy Aspects report last week.
- The amount of crude held around the world on tankers that have been stationary for at least 7 days rose by 90.26 million barrels last week according to a Vortexa report.
- As of 9:48 am CST: Brent crude oil down $3.80 to $69.72, US dollar index down 0.174 to 96.391 while the nearby e-mini S&P 500 futures contract is down 78.00 points to 4532.00.
Diesel
- Nearby ULSD is down around 10.00 cents as it monitors a sharp drop in crude oil.
- Travel restrictions internationally will continue to put pressure on diesel as covid cases continue to rise.
Gasoline
- RBOB is off near 9.00 cents to 2.0330. The 200-day moving average in RBOB was tested on Thursday at 2.1867 and since then aggressive selling has taken place.
- The gap between wholesale costs and prices at the pump peaked at $1.14 in November, with the five-year average at 85 cents. The gap currently sits at 93 cents as of last week according to Reuters.
Propane
- Propane is down sharply this morning with Conway and Belvieu down 4.5 cents to $1.00 and $0.9950 respectively.
Natural Gas
- Nearby natural gas is up nearly 18 cents to 3.868 and retested its 200-day moving average which comes in at 3.930.
- Temperatures are forecast to fall below zero Celsius in multiple European capitals this week where unplanned nuclear outages were announced last week, putting additional stress on the market. Dutch TTF natural gas prices are up more than 7% this morning.
- The total U.S. natural gas rig count declined by 1 for the week ending in Dec 17th.
Continuous Daily WTI: The January WTI contract expires today and is down more than $4.00 to 66.66 as concern about the omicron variant prompts risk-off across broader markets. Trendline support comes in below current trade at 65.20 and with the current pace of losses this morning this level could be tested today.
