Outlook: Buying has returned to the market following a significant selloff during the first two sessions of 2023. The headlines today are providing more of a mixed back with market influence, which is a shift from the strong bearish narrative. Bloomberg data is showing another sharp increase in Chinese traffic levels for the 2nd consecutive week. The effects of the recent covid outbreak have provided increased concern with respect to demand. The Wall Street Journal published notes from a National Health Commission meeting suggesting there were 250 million covid infections in China from Dec. 1st to Dec. 20th. Global demand will remain a concern outside of covid with many countries trying to tame inflation which brings a recessionary threat. The US will report December inflation next Thursday. The EIA is slated to release inventory data today at 10:00 CT. Industry estimates are projecting a build in crude while products are seeing mixed projections.
Crude
- Saudi Arabia officially lowered oil prices to Asia to the lowest since November 2021.
- A Chinese firm signed a deal with the Taliban-led administration in Afghanistan to begin oil extraction in three northern provinces estimated to hold 80 million barrels of crude oil.
- Oil fell over 9% in the first two trading days of the year.
- US crude inventories rose by 13 million barrels in 2022 while the SPR fell by 221 million barrels.
- The US SPR fell by 2.7 million barrels last week to 372.4 million barrels.
- Reuters estimates crude inventories rose by 1.2 million barrels last week.
- An industry survey yesterday afternoon showed a 3.3 million barrel build in crude stocks.
- The EIA will report inventories at 10:00am CT.
- As of 8.08 am CST: Brent crude oil down $0.70 to $78.54, US dollar index up $0.649 to 104.847 while the nearby e-mini S&P 500 futures contract is down 25.25 to 3849.00.
Diesel
- Reuters estimates diesel inventories fell by 0.4 million barrels last week.
- An industry survey yesterday afternoon showed a 2.4 million barrel draw in diesel stocks.
- The Colonial Pipeline has shut down Line 3 due to a leak at its delivery station near Danville, Virginia. The pipeline transports over 800,000 bpd of product from NC to NY Harbor and expects to restart Saturday.
Gasoline
- Reuters estimates gasoline inventories fell by 0.5 million barrels last week.
- An industry survey yesterday afternoon showed a 1.2 million barrel build in gasoline stocks.
- The average cost of gasoline in the US rose over 3 cents yesterday, representing the biggest one-day percentage gain since June, according to AAA.
- Bloomberg Chinese traffic levels jumped 33% this week.
Propane
- Conway is trading at .7650 while Belvieu is trading at .7625.
- Conway is trading at 43% of crude.
- The US is exporting 52% of production as of 12/23/22.
- OPIS estimates propane inventories fell by 3 million barrels last week.
Natural Gas
- Total US gas demand rose to 105.3 Bcf/d.
- Total US dry production rose to 96.3 Bcf/d.
- Overnight weather runs added 5 HDDs through the two-week forecast.
- The EIA is expected to report a 235 Bcf withdrawal from storage today.
Oil Volatility: The elevated volatility we saw in energy in 2022 is expected to linger into 2023. The average three-month implied volatility for Brent crude was the highest since 2009. The high volatility has been detrimental to market participation with high margin calls flushing out traders.
