Outlook: Markets are mixed this morning with WTI and RBOB lower while ULSD and NG move higher. Crude is finding weakness following the continued climb of covid cases being reported in China. National cases have risen over 16,000 bringing a greater threat for mobility restrictions and demand destruction. Goldman Sachs thinks the most likely timeframe for when China may loosen restrictions is after their march parliamentary sessions. This scenario would heighten demand risk for the end of Q4 and into Q1 of 2023. OPEC+ has been reducing their demand forecast over the past two months stating China’s covid policies as a driver. This trend continued as they dropped their Q4 demand by another 520,000 bpd in their monthly report released today. OPEC+ will meet just one day before the EU’s Russian oil embargo takes effect next month.
Crude
- President Biden and Chinese President Xi met in person today as leaders call for easing tensions.
- China reported 16,072 new covid cases nationwide on Monday, up from 14,761 on Sunday.
- Goldman Sachs says China is most likely to exit its Covid-Zero policy after the parliamentary sessions in March.
- OPEC+ lowered its fourth-quarter demand forecast by 520,000 bpd due to a weaker economic backdrop and China’s covid policies.
- OPEC’s fourth-quarter outlook has fell by 1 million bpd in the past two months.
- The EU is “ready to go” with an effort to impose the price cap on Russian oil, according to the president of its executive arm Ursula von der Leyen.
- Treasury Secretary Janet Yellen said it's likely the EU sanctions will force Russia to offer some of its crude at price capped levels to its allies to prevent shut-in supply.
- JPMorgan estimates Russia’s oil production will only see a modest drop of 200k-500kbpd following Secretary Yellen’s comments regarding India buying Russian product.
- Baker Hughes US oil rig count rose by 9 to 622 last week.
- As of 8:18 am CST: Brent crude oil down $1.01 to $94.98, US dollar index up $0.626 to 106.918 while the nearby e-mini S&P 500 futures contract is down 13.25 to 3986.00.
Diesel
- Colder than average temps may provide support to diesel this week.
- A move higher this week could allow Nearby ULSD to test its 50-, 100-, and 200-day moving averages which have all congregated tightly between $3.67-$3.69.
Gasoline
- RBOB is following crude’s move lower today, likely influenced by rising covid cases in China.
- Nearby RBOB will look to hold above its 50-day moving average at $2.5948 today to prevent further losses.
Propane
- Conway is trading at .9100 while Belvieu is trading at .8800
- Conway is trading at 43% of crude.
- The US is exporting 57% of production as of 11/4/22.
Natural Gas
- Total US gas demand rose to 112.6 Bcf/d.
- Total US dry production up to 97.5 Bcf/d.
- Overnight weather runs added 14 HDDs through the two-week forecast.
- US natural gas rig count remained flat last week.
DUCs: The EIA will release their Drilling Productivity Report today and provide new data on drilled but uncompleted wells. Over the past 26 months, more wells have been fracked than drilled, which reduces the supply of quick-and-easy wells to convert to production. A shift to building DUC supply can mean slower growth in production as companies pivot to drilling wells rather than turning them on with frack crews.
