Outlook: Fear of escalation in the Middle East has been adding risk premium all week and it's finding a pay-off today following the US and Britain’s retaliation against the Houthis. With reports of multiple missile strikes by air and sea, many shippers that were continuing to navigate the Red Sea have now reversed course. Extra caution is expected to be taken over the next several days as the dust settles and further disruption to trade flows appears likely. Oil production in the Middle East has also seen disruption despite being unrelated to the Red Sea or Israel/Hamas war. Libya’s Sharara oilfield remains shut down due to protests and there remains no timeline for resumption of service. While the short-term trend may be altered, a broader fundamental shift may be necessary before we see a 10% move higher to bring us back to October levels.
Crude
- The US and Britain carried out air and sea strikes on Houthi military targets in Yemen last night.
- Several tankers passing through the Red Sea immediately reversed course following the reports and ship traffic is expected to decline sharply over the next few days. (Reuters)
- China’s crude oil imports hit record levels in 2023, increasing 11% to 11.28 mbpd. (Reuters)
- Alberta’s oil production rose back above 4 mbpd yesterday in anticipation for the Trans Mountain pipeline expansion becoming operable. The pipeline expansion is expected to add 590,000 bpd of export capacity. (BBG)
- Prompt WTI is testing resistance at its 50-day moving average today.
- US December CPI was reported at 3.4% vs 3.2% est.
- As of 8:05 am CST: Brent crude oil up $2.34 to $79.76, US dollar index up $0.098 to 102.390 while the nearby e-mini S&P 500 futures contract is up 0.50 to 4816.00.
Diesel
- Prompt diesel futures have breached the 50-day moving average and is now testing resistance at its 200-day moving average near $2.7685.
- Gasoil stocks at Europe’s ARA hub rose 10% w/w.
- Singapore middle distillate stocks fell to a 5-month low over the last week at 7.1 mb.
Gasoline
- Prompt RBOB futures are testing resistance at the 50-day moving average today.
- Gasoline stocks at Europe’s ARA hub fell 8.1% w/w.
Propane
- Conway is trading at .7750 while Belvieu is trading at .7925.
- Conway Swap Oct24-Mar25 strip trading ~.7700.
- This rally in propane is presenting an opportunity to sell back propane swaps covering this winter if you feel like you have excess length due to the slow heating season.
Natural Gas
- Overnight weather runs added 4 HDDs through the two-week forecast.
- Freeze-offs will remain an upside risk in Texas through the middle of January.
- The EIA reported a larger than expected draw of 140 Bcf for last week.
- Inventories remain saturated and multiple weeks of higher than expected draws will be needed to shift the fundamentals.
Continuous Daily WTI: Geopolitical tensions have allowed crude to break out higher and is now testing resistance at its 50-day moving average.
