Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The petroleum complex traded in a firm fashion following yesterday’s weakness with Feb crude settling +.87 at 69.72 and Feb RBOB +4.58 and ULSD +4.23.
The pronounced weakness yesterday to new lows for the move appeared to be based upon growing concerns over OPEC’s commitment to production cuts beginning in January and increases in production levels outside of OPEC as supply chain tightness ease, and on growing well efficiencies particularly in the US which has led to record high US production despite lower rig counts. In addition, demand concerns have also been apparent as demand prospects in China, the US and EU continue to weigh on sentiment.
OPEC, in their latest monthly report released today, suggested that these demand concerns have been exaggerated given their forecast that demand growth in 2024 should expand by 2.25 mb/d in 2024 compared to the expansion in demand growth in 2023 of 2.46 mb/d. The forecast is well above the current forecast by the IEA of only 930 tb/d of growth forecast in November. A new Monthly IEA outlook for December will be released tomorrow with the focus likely to be on not only the demand forecast but also on prevailing inventory trends in OECD countries.
Today’s DOE report helped underpin and extend early strength. The report showed a larger than expected draw in crude inventories of 4.3 mb compared to expectations for a decline of 1.5 mb. Nevertheless, Cushing stocks continue to increase reaching 30.8 mb an increase of 1.2 mb from the prior week. Product stocks also fell short of expectations with gasoline stocks increasing marginally by only .4 mb against expectations for a 2.4 mb increase. In distillate, stocks built by 1.6 mb against expectations for an increase of 1.2. Total stocks of crude and products fell 10.0 mb in the latest reporting week. Refinery utilization was indicated lower at 90.2 percent vs 90.5 perrcent last week. Total disappearance of all products surged to 21.1 mb from 19.6 last week with gasoline disappearance at 8.9 mb and distillate at 3.8 mb.
Trade participants are still skeptical of the ability of OPEC members to cut output levels in order to balance supply and demand. Output levels and shipments from Iran have also increased suggesting shipping data will be monitored over the next few months to assess whether the participants are abiding by the voluntary cuts and whether the projected surplus in the first half of 2024 materialize, and by how much. The Fed left rates unchanged.
Natural Gas
After probing out another new low overnight, prices fluctuated around unchanged levels before experiencing a wave of short covering to end with a gain of 2.4 cents at 2.335. The 15-day forecast cooled slightly overnight to spur minor buying interest, but substantial demand remains elusive. The market continues to be pushed lower by strong production and mild temperatures as December is headed toward being one of the warmest on record. Tomorrow’s storage report is expected to show a 54 bcf withdrawal, well below the 5-year average decrease of 81, helping to reign in any upside attempts. The next few weeks are likely to produce smaller than normal draw-downs as well. If momentum builds, Monday’s gap to 2.538 could be filled rather quickly, with the next level of resistance at the 9-day near 2.56. A return to the downtrend will find minor support in the 2.13-2.15 range, and below there at the psychological 2-dollar level followed closely by the early 2023 lows near 1.945.
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