Written Commentary
CRUDE OIL
April Crude Oil is lower this morning and is close to taking out yesterday’s lows. The trade is concerned that slower economic activity will lower global oil consumption. On top of that OPEC+ set to start lifting production quotas next month. The CEO of Canadian pipeline company Enbridge Inc. said yesterday that the tariffs on Canadian oil would need to be in place for years before significantly altering the amount of crude the US imports from that country. There is no easy way for the US to replace the approximately 4 million barrels per day of Canadian oil it imports. Approximately 90% of Canada’s crude oil exports go to the US. The decision by OPEC+ to start lifting the output restrictions may have been driven by record output from one of its members, Kazakhstan. Saudi Arabia may be getting frustrated with oversupply from Kazakhstan, Iraq, Russia and the UAE. In the past, similar situations have resulted in Saudi Arabia “opening the spigots,” which ultimately driving oil prices sharply lower. The problem is, the steep decline in prices have hurt the Saudi’s bottom line as well as the scofflaws. The API report yesterday was a bullish against expectations for crude oil but not enough to lift the market The report showed US crude oil stocks falling 1.46 million barrels last week versus trade expectations calling for a 300,000-barrel increase. Gasoline stocks fell 1.25 million barrels versus -400,000 expected and distillates rose 1.14 million versus +200,000 expected. The EIA report will be released this morning. Refinery runs are expected to be +0.2% to 86.7%.
Oil pump jacks at sunset sky background. Toned.
NATURAL GAS
April Natural Gas is higher this morning and is near the upper end of yesterday’s sharply higher move. In his speech last night President Trump touted a potential partnership with South Korea and Japan in developing a natural gas pipeline in Alaska. The pipeline may be years off, but in the meantime, increasing US LNG export capability pulls more supply from the US market. Japan’s trade minister plans to visit Washington this month to seek exemptions from Trump’s tariffs and discuss Japan’s plans to buy more US LNG. For this EIA report this week, the Reuters poll shows an average expectation for a net draw of 67 to 101 bcf for the week ending February 28. The five year average decline for the week is -97 bcf. As of last week supply was down 534 bcf from the previous year (-22.5%) and 10.5% below the five-year average. The weather forecasts show a mix of above normal temperatures in the eastern half to two-thirds of the lower 48 and below normal in the west.
PRODUCT MARKETS
API Gasoline stocks fell 1.25 million barrels last week versus expectations for -400,000 expected, but distillates rose 1.14 million versus +200,000 expected. The EIA report will be released this morning. April RBOB and ULSD are both under pressure this morning along with crude oil.
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