Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
The petroleum complex came under active selling pressure, with WTI falling to an intraday low at 69.11 basis January before settling 2.94 lower at 69.38. Stop loss selling and doubts that the recent OPEC+ agreement to employ voluntary cuts will succeed pressured values. The weakness developed despite a larger than expected decline in crude inventories in today’s DOE report, as stocks of gasoline rose sharply. In the background was a 50 cent drop in the Official Selling Price by Saudi Arabia, the first reduction in seven months. Although the change was less than expected, it does reflect weaker demand for Middle East crude grades in Asia. A rare visit by Vladimir Putin to the UAE and Saudi Arabia also lent nervousness to the market as it reflected the seriousness of the situation and need for more concrete action, which currently has limited support among other OPEC members.
The DOE report showed commercial crude oil stocks falling 4.6 mb, which was larger than the 1.4 decline expected. Offsetting the impact of the larger crude draw was the build in gasoline inventories of 5.4 mb compared to expectations for a 1 mb increase. Distillate inventories rose 1.3. There was little change in total stocks of crude and products as they fell by 1.3 mb. Refinery utilization rose to 90.5 percent, a .7 percent increase from last week but well below the 95.5 percent seen last year. Products supplied at 19.6 mb remained even with last year, with gasoline at 8.5 mb and distillate 3.8 mb. Net exports of crude and products were weak at 1.5 mb.
The uncertainty over adherence to the voluntary agreement is weighing on values, but the potential for more substantial action by OPEC+ to restrain output should support values below the 70.00 area. The impact of lower crude oil valuations on production will be watched closely, with today’s DOE report showing a decline in US output for the first time since July. The pace of global economic activity continues to be a source of concern and will be a restraining influence on a recovery in values until a more constructive demand environment develops in Asia, the US and Europe. A key question will be whether OPEC+ producers will adjust their production levels in line with potential demand by fully abiding by the new agreement.
Natural Gas
Prices stabilized briefly yesterday as weather reports saw minor demand gains and production slowed, but momentum could not be maintained as the market probed to new lows again today, settling with a 14.1 cent loss at 2.569 basis January. The weekly storage report issued tomorrow is expected to show a higher-than-normal drawdown of 105 bcf compared to the 5-year average decrease of 48. The large potential pull did little to slow the steady slide lower, with expectations for ensuing draws well below average. The 2.50 level remains the next level of support, with the low today at 2.541. To find a downside target beyond that area you have to go to the weekly charts to the lows from early 2023 near 1.945. The RSI is now below 15 percent. A recovery could trigger short covering and technical trade that could speed up the bounce, with the 9-day now at 2.80 offering initial resistance followed by 3 dollars.
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