Written Commentary
Price Overview
The petroleum complex continued to attract modest buying interest on ideas that OPEC+ will extend current output cuts through the first quarter of 2021 at their meeting on November 30th, and on hopes the vaccines awaiting emergency approval will reverse declines in global oil demand caused by COVID-19. The optimism associated with the vaccines and their potential availability during the first quarter has had a greater impact on the upside than we anticipated. The strength to values has taken crude prices toward levels that have not been seen since August. We remain skeptical that recent upside movement can be sustained. Remaining in the background are fears that demand will fall short in the first quarter due to COVID-19 and that increases in output from outside OPEC will lead to a stalling out of progress toward reducing inventories.
With the rolling over of current cuts likely priced in near current levels, the market will be looking at demand trends and output levels outside OPEC more closely. The increase in Libyan production, which is exempt from the current output cuts, along with Iranian exports seeping into the world market despite sanctions are key considerations. Even Russia has come under scrutiny regarding compliance with the current agreement with small producers suggesting that they are likely to expand output levels from startup fields next year.
Natural Gas
The market has reacted sensibly to increased HDD expectations in the two week outlook, with much of the upward changes in the back end of the forecast which is more susceptible to revisions. Ranges were tight with light volume as the January contract ended the session higher by just over 5 cents at 2.823. Steady to higher production in the 92 bcf/d area over the weekend kept the market from getting ahead of itself with caution added due to the recent pullback in LNG loadings due to power issues and maintenance. European and Asian LNG prices have recently strengthened on cooler temperatures, making a quick return to maximum flows likely.
Charts Courtesy of DTN Prophet X, EIA, Reuters
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