Energy Brief for Dec 19.2022
by market analysts Stephen Platt and Mike McElroy
The petroleum complex traded in a firm fashion on optimism regarding China’s relaxation of zero Covid restrictions. Doubts over how quickly mobility increases and the economy recovers remain in the background given a pick-up in infection rates. Other factors are supporting values, which include:
- The Keystone leak which has prevented the movement of tar sand crude from Alberta. Cold weather is impeding the cleanup and repair and might also delay EPA approval of a startup date, keeping pressure on inventory levels at Cushing and in Padd 3, or the Gulf Coast, where many refineries are located.
- Further declines in supplies as the EU ban on Russian crude imports and the price cap by G-7 constrict Russian supplies.
- The US government announcement that they have put out bids for 3 mb to begin to refill the Strategic Petroleum Reserve in February, although its impact was offset by news the DOE will execute an exchange of about 2 mb from the SPR to help relieve some of the shortages linked to the Keystone shutdown that companies will have to send back later.
The DOE report on Wednesday is expected to show crude inventories off .2, distillate up .7 and gasoline up 1.9 mb, with refinery utilization unchanged at 92.2 percent. The status of Cushing inventories will also be watched closely due to the Keystone pipeline closure.
Additional demand losses from weekend forecast revisions lead to another Monday gap, with the January contract opening lower overnight by over 40 cents, and finding additional stop-loss selling as the day wore on to settle 74.9 cents lower at 5.851. The appearance that temperatures will quickly move to above normal levels soon after Christmas has taken the bite out of the extreme cold that will engulf the country this week. The market moved decisively through the 6 dollar level despite production restraints from freeze-offs and LNG flows near 13 bcf/d. The weak close has brought the early December lows near 5.33 into view, with psychological support near 5.50 along the way. The speed and overextension of the move lower opens the market up to additional severe swings if forecasts turn colder, with no significant upside resistance until the 7 dollar area.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.