Outlook: The energy complex is working sharply higher this morning with WTI up over 5% while products are up ~3%. The markets are reacting to an OPEC+ production cut that took the market by surprise. OPEC+ delegates have been adamant that they did not want to adjust their current 2 million bpd production cut until the end of 2023. While some speculated that they may reduce the production cut to keep pace with growing Chinese demand, the group decided to go the other way adding to the total. Because of the group’s performance below target, RBC estimates the total production loss from current levels will be around 700,000 bpd. Saudi Arabia will account for the majority of the cut, slashing production by 500,000 bpd. The market has cooled off since the open but looks to be holding relative strength. Per Bloomberg research, since the turn of the century, there have been 8 other instances of a surge of at least 7% at the open for Brent crude. In 75% of the cases, prices fell an average of 5% over the next 20 days. OPEC+ has cited the risk of an economic downturn with its current and potential impact on demand which influenced the cut. Economic tightening still poses a significant downside threat to energies and we expect volatility to continue as the market digests the new supply development.
Crude
- OPEC+ announced an unexpected production cut of 1.16 mbpd on Sunday. The voluntary cuts will start in May and run through 2023.
- OPEC+ said additional voluntary cuts amongst states will increase the total to 1.66 mbpd, which accounts for Russia’s 500,000 bpd cut.
- OPEC’s total volume of cuts now totals 3.66 mbpd according to Reuters calculations, or 3.7% of global demand.
- Goldman Sachs increased its 2023 Brent crude forecast by $5 to $95 and its 2024 forecast by $3 to $100.
- RBC says OPEC+ production cut could result in an actual reduction of 700,000 bpd from current levels.
- WTI is currently trading at around a $4 discount to Brent.
- The Biden administration said the move announced by OPEC+ was unadvisable.
- Iraq’s Kurdistan region announced over the weekend an agreement has been reached and oil exports will resume at 400,000 bpd to Turkey later this week.
- Russia’s finance ministry on Monday said the Urals price for crude oil in March was $47.85, down from $89.05 during the same period last year.
- The prompt WTI contract gapped higher on the Sunday night open following the OPEC+ news.
- US oil rig counts fell by 1 to 592 last week.
- As of 8:21 am CST: Brent crude oil up $4.43 to $84.32, US dollar index down $0.108 to 102.398 while the nearby e-mini S&P 500 futures contract is down 4.25 to 4133.00.
Diesel
- India’s diesel and jet fuel sales were up 4.5% in March.
- The diesel net spec and fund long position is near its lowest level since September, leaving the market room for speculative buying capacity.
Gasoline
- The prompt daily RBOB contract gapped higher on the Sunday open.
- The Chinese national oil company forecast fuel demand will be 3% higher than pre-pandemic levels.
- India’s gasoline sales were up 3.4% in March.
Propane
- Conway is trading at .7600 while Belvieu is trading at .7950.
- Conway is trading at 42% of crude.
- The US is exporting 76% of production as of 3/24/23.
Natural Gas
- Overnight weather runs removed 20 TDDs through the two-week forecast.
- Yesterday, US natural gas demand fell to 101.3 Bcf/d.
- US natural gas rigs fell by 2 last week to 160.
Daily May WTI: The gap higher on the Sunday open pushed the nearby WTI contract up near its 200-day moving average of $80.29. This level may act as resistance if the market wants to maintain strength through the first part of the week. Downside support may be found at the session low of $79 before giving way to ~$77.
