Outlook: Energies are looking to continue their bullish run to start the week with crude challenging $85. Supply concerns continue to headline as drone strikes were reported in the UAE and continued conflict between Russia and Ukraine remain steady. OPEC+ continues to report production numbers below their targets with low confidence that will change in the near term. Increasing inflation and interest rate hike expectations also have hedge funds transitioning out of stocks and bonds and over to oil increasing the net length in the market.
Crude
- There were drone strikes in the UAE yesterday on an oil facility, however no supply disruption has been reported.
- OPEC’s members added 166,000 bpd in December, short of the targeted 250,000 bpd.
- Bloomberg News released a poll where most analysts believe Russia will only produce 60,000 of it’s 100,000 bpd commitment over the next six months due to supply disruptions.
- Global crude inventories were at 2.834 billion barrels as of Jan. 9, the lowest level since October 2019.
- Asia is showing signs of increasing strength in the physical crude market with traders looking past Omicron due to tight supply in the near term.
- Goldman Sachs increased their crude forecast to $100 for Brent and $90 for WTI in Q3 2022.
- Baker Hughes reported an increase of 11 rigs up to 492 last week.
- Managed money participants increased crude net length by 65k lots through last Tuesday. During that time crude rose $4.
- As of 10:35 am CST: Brent crude oil up $0.48 at 86.98, US dollar index up $.481 to 95.739 while the nearby e-mini S&P 500 futures contract is down 73 points to 4581.25.
Diesel
- Cold weather patterns throughout the US are increasing heating oil demand and ULSD leads energies today.
Gasoline
- China’s gasoline exports in 2021 slid 9.1% to 14.54 million tons, which is a three year low and equivalent to about 333,000 bpd.
- Global gasoline demand is expected to exceed supply by 420,000 bpd for Q1 2022.
Propane
- A significant cold front over the next week should support pricing.
- Conway and Belvieu are up 2.25 cents to $1.825.
Natural Gas
- US demand rose over the weekend and peaked at 113 Bcf/d on Saturday, driven by Power Burn and ResComm.
- Overnight weather runs added 8 HDDs through the net two weeks signaling cooler weather ahead.
With the fed expected to raise interest rates to fight inflation, hedge funds look to protect their portfolios. Rising rate-hike bets from hedge funds typically leads to a tech selloff and that money has found a home in oil as it trades at it’s highest levels since 2014.
