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Energy Brief for Jan 10.24

by market analysts Stephen Platt and Mike McElroy

Price Overview

Crude oil prices saw strong early gains that carried values to a high of 73.55 before succumbing to active selling following the DOE report to settle 87 cents lower at 71.37 basis February. The early strength was tied to ongoing concerns over Middle East geopolitical tension, the closure of the Sharara oilfied in Libya and the API report yesterday which showed a larger than expected draw in US crude inventories of 5.2 mb.

Prices reversed following the DOE report aided by forecasts from the EIA suggesting that US production will rise in 2024 and 2025 on increased efficiencies, which are offsetting the decline in rig counts.

The DOE report saw commercial crude inventories build by 1.3 million barrels compared to forecasts for a 1.3 mb decline. More important was the sizable increase of 8 and 7.2 mb in gasoline and distillate inventories, respectively. Total stocks of crude and products showed an build of 10.1 mb with gasoline stocks reaching their highest level since February 2022. Net exports of crude and products totalled 1.4 mb as crude fell to 3.3 mb from 5.2 a week ago. The slowing in exports could persist as recent declines in OSP’s for Middle Eastern crudes attract Asian interest away from the US. Total disappearance reached 19.6 mb compared to 19.1 in the week prior. Gasoline disappearance reached 8.3 mb compared to 8.0 and distillate recovered to 3.4 from 2.7 last week. Challenging weather over the next 10 days will keep disappearance levels soft for gasoline, while bitter cold should increase usage of distillate. In addition, the early shutdown by Motiva for seasonal maintenance in Port Arthur might provide support to margins.

Crude Chart 1.10.24
Natural Gas chart 1.10.24

The market will continue to watch supply threats in the Middle East but will remain cautious due to questions about the ability of OPEC to further support prices and the appearance that demand growth will continue to soften, particularly in China, as EVs gain a larger market share. Production growth in areas outside of OPEC+ is also providing a headwind to values. Stocks look poised to build modestly in 2024, limiting upside to the 76 area. Support will surface in the 68–70-dollar range basis February given the force majeure in Libya at the Sharara field, prospective action by OPEC in response to lower prices and the risk premium associated with Middle East tensions. 

Natural Gas

The arrival of a colder temperature pattern has finally brought some excitement to the natural gas market, with prices spiking over 40 cents yesterday before closing with a 21-cent gain. Today saw much of those gains relinquished as the February contract settled 15.1 cents lower at 3.039. Increased demand expectations along with potential production losses due to freeze-offs were the catalysts for the move, with a wave of short covering above the 3.05-3.10 area exacerbating the jump. Today’s recoil in prices was indicative of the overdone extent of the rally as well as a loss of demand from overnight forecast revisions. Tomorrow’s storage report is expected to show a 119 bcf draw, well above the 5-year average of 89. The price swings over the last few days have cleared out upside resistance, with the 100-day moving average near 3.25 a key level to watch on a settlement basis. A push above their targets another run at 3.40. Minor support should surface at 3 dollars and below there at the 9-day moving average near 2.80.

The authors of this piece do not currently maintain positions in the commodities mentioned within this report.

Charts Courtesy of DTN Prophet X, EIA, Reuters


Learn more about Stephen Platt here

Learn more about Mike McElroy here

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.

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