Outlook: A jolt of volatility has entered the market providing another bullish pop today. The US announced another round of sanctions against Russia and looks to be the most aggressive sanctions to date. The sanctions target vessels, companies, and executives on a large scale which has certainly caught the attention of the trade. Previous sanctions have struggled to gain traction but the anticipation of a stricter enforcement for both Russia and Iran has the market feeling vulnerable to the upside. Global supply balances will need to realize tightness for a higher price environment to be sustainable and there remains considerable pressure from OPEC which is sitting on a large quantity of idle production. Today’s move is a good reminder of the headline risk that is always lurking in the energy market.
Crude
- The US announced a harsh round of sanctions against Russia, targeting 180 vessels, dozens of traders, two major oil companies, and some top Russian oil executives.
- While previous sanctions have lack effectiveness, the anticipation of Russia and Iran being targeted in Q1 is enough to move the needle.
- President-elect Donald Trump says he plans to meet with Russian President Vladimir Putin once he takes office.
- Crude spreads are seeing a sharp expansion today with the prompt trading to a high of 96 cents.
- Alberta’s oil production rose 48kbpd to 4.2 mbpd, highest since 2010. Production rose 171 kbpd in the first 11 months of 2024.
- US December nonfarm payrolls were reported at 256k vs 160k est. and 212k last.
- As of 8:52 am CST: Brent crude oil up $3.22 to $80.14, US dollar index up $0.230 to 109.409 while the nearby e-mini S&P 500 futures contract down 71.25 to 5887.00.
Diesel
- Continuous HO is up over 10 cents today surpassing the October high of $2.4183 and testing $2.50.
- An aggressive upside target for HO could be $2.66 if cold weather continues to provide support.
- Basis levels steadied yesterday but remain discounted. Be conscious of your rack basis values if you are looking to store product. Last January Group3 basis fell below -50c while current trade is around -30 cents.
- Feb-Jun HO Backwardated ~13 cents.
Gasoline
- RBOB is the clear weak leg today but remains up ~6 cents.
- RBOB cracks remain subdued with the strength in crude today.
Propane
- Prompt Conway futures are trading at .8550 while Belvieu is trading at .8650.
- Conway Swap Oct25-Mar26 strip indicative midpoint ~.7900.
- Conway propane is trading at 46% to WTI.
- The EIA reported propane stocks fell 2.4 million barrels last week vs -2.7mb est.
- Domestic propane demand rebounded 73% last week to 1.4 mbpd.
Natural Gas
- Overnight weather runs were unchanged through the two week forecast.
- Natural gas futures have seen a move of 5% or higher in 9 of the last 10 sessions.
- The EIA reported natural gas stocks fell 40 Bcf last week. Stocks sit 6.5% higher than the 5-year average.
Continuous Daily WTI: Another breakout move for crude which is surging through its 200-day moving average. Next resistance target is $78.46 which is the October high.
