Outlook: The energy complex is looking to strengthen this week after two consecutive red weeks. The market will be tracking Russian refined product shipments this week to monitor the effect of the recently imposed embargo and price cap. The IEA said that oil producers may need to adjust output policies if Chinese demand surges like anticipated this year. The group is seeing a strong uptick in jet fuel demand to support the narrative. Saudi Arabia continues to express concern about global supply in the future. They have repeatedly spoken out that underinvestment could prevent the industry from keeping pace with growing demand. If Chinese demand does rebound, we can expect their refined exports to fall with domestic demand keeping products in-house. We could see a high volatility scenario if Chinese demand surges while Russian refined supplies struggle to find a home.
Crude
- The IEA expects half of the global demand growth this year to come from China.
- The IEA said that major oil-producing nations may have to reconsider their output policies following demand recovery in China.
- Saudi’s oil minister continues to reiterate that sanctions and underinvestment in oil could lead to a shortage of energy supplies in the future.
- Iraq’s oil production fell by 100,000 bpd to 4.33 mbpd in January, according to a state-owned marketer SOMO seen by Reuters. This is also 100,000 bpd below its OPEC+ quota.
- Ceyhan oil terminal in Turkey was forced to halt after a major earthquake hit the area on Monday. The terminal exported ~1.0 mbpd in January.
- Bakers Hughes reported oil rigs fell by 10 last week to 599.
- As of 7.55 am CST: Brent crude oil up $1.16 to $81.10, US dollar index up $0.401 to 103.316 while the nearby e-mini S&P 500 futures contract is down 33.25 to 4114.00.
Diesel
- The G7, EU, and Australia agreed to a $100/barrel price cap on diesel and other products that trade at a premium to crude, and a $45/barrel for products that trade at a discount.
- An IEA official said Chinese jet fuel demand is exploding, which could provide some support to ULSD prices.
Gasoline
- Lyondell refinery in Houston announced it will run at 85% capacity until the facility permanently closes at the end of the year.
- Retail gas prices are nearly unchanged from year-ago levels.
Propane
- Conway is trading at .8050 while Belvieu is trading at .8225.
- Conway is trading at 44% of crude.
- The US is exporting 59% of production as of 1/27/22.
Natural Gas
- US natural gas demand increased to 144.1 Bcf/d yesterday.
- US dry production fell to 94.6 Bcf/d yesterday.
- Overnight weather runs removed 9 HDD’s through the two-week forecast.
Continuous Daily ULSD: The prompt diesel contract is finding support today with a potential double bottom on the daily chart. The market has been doom and gloom over the last two weeks with growth concerns and ample flows from Russia and China. The contract has also hit its lower Bollinger band which can indicate an oversold market and could bring back some buying.
