Written Commentary
CRUDE OIL
Crude oil and the products are under pressure this morning as prospects for a peace deal between Russia and Ukraine seem to be improving. The US and Ukraine have reportedly agreed to terms of a minerals deal that central to President Trump’s efforts to bring an end to the war, which could allow for an end to the sanctions on Russian oil exports. Yesterday’s US Consumer Confidence reading showed a 7-point decline to 98.3 for February, the biggest drop since August 2021. This was the third straight monthly decline and the lowest it had been since June. Lower confidence undercuts expectations for oil demand. The API last night report was bullish for crude oil, bearish for RBOB, and neutral for ULSD. Crude oil stocks were down 640,000 barrels last week, versus expectations calling +2.6 million. Gasoline stocks were up 537,000 versus -800,000 expected, and distillates were -1.11 million versus -1.5 million expected. The EIA report will have the final word later this morning. Refinery runs are expected to be -0.1% at 84.8%.
NATURAL GAS
April Natural Gas saw a rally to its highest level since September 2023 last week, but now that conditions have turned warmer, the market has seen a mild setback. US storage has made a sharp turnaround from being chronically oversupplied to being the tightest it has been for this point in the season in three years, due in part to a slowdown in production last year and the cold weather this winter, but also to steadily increasing offtake for LNG exports. LSEG said yesterday that average gas output in the lower 48 states rose to 104.5 billion cubic feet per day so far in February, up from 102.7 bcfd in January. The record was 104.6 bcfd in December 2023. They look for average daily demand to fall from 124.8 bcfd this week to 118.4 next week due to the warmer weather. Daily output fell from a record high 106.7 bcfd on February 6 to a three-week low of 100.5 bcfd on February 19 due to the record low temps that froze wells. The amount of gas flowing to the eight big US LNG facilities have risen to an average of 15.6 bcfd so far in February, up from 14.6 in January. The record 14.7 bcfd from December 2023 looks like it could be broken this month. For the EIA storage report tomorrow, the Reuters poll calls for a withdrawal of -287 to -263 bcf last week. The average change for the week is -130 bcf. A withdrawal within the range of expectations would pull supply down 23%-24% from a year ago and 11%-12% below the five year average, which would be the biggest decline relative to a year ago since October 2021. The 6-0 and 8-14 day forecasts call for mostly normal to above normal temperatures across the US, with some colder than normal temps out west. Reuters reported this morning that Dutch and British wholesale gas prices fell again today amid comfortable supply and the prospect of a relaxation of European storage targets.
PRODUCT MARKETS
The product markets are being led down by crude oil, which is seeing pressure from apparent progress towards peace in Ukraine and some disappointing US economic data this week. The API last night report was bearish for RBOB and neutral for ULSD. A moderating weather trend in the US should slow the decline in US distillate stocks.
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