Written Commentary
CRUDE OIL
Crude oil prices have maintained upside momentum this week as they finished Tuesday with a sizable gain and reached a 2 1/2-month high early today. Saudi Aramco will increase its February price for Asian customers by 10 cents a barrel from January. Although this is a mild increase, higher prices reflect some improvement in Asian demand. However, China’s demand outlook remains a concern as the December Caixin Chinese manufacturing PMI had a surprise downtick. The EIA said that US crude oil production reached a record high of 13.46 million barrels per day (bpd) in October, an increase of 260,000 bpd from September’s output average. US crude production remains far above output from the Saudis and Russia, but the growth over the past year has been subdued and has not been a source of pressure on crude oil prices. The Reuters survey had a median forecast for US crude oil stocks to have a weekly decline of 2.8 million barrels, while the API survey showed US crude oil stocks with a weekly decline of 1.4 million barrels. Any decline in crude stocks would put them at their lowest levels since mid-September.
NATURAL GAS
Following severe price action earlier this week, natural gas has bounced back from early pressure and is posting a mild gain coming into this morning’s action. Russian gas has stopped flowing through Ukraine, but there has been little disruption to Western European gas supply as Slovakian and Austrian customers have found alternative sourcing for their gas needs. Updated 8 to 14-day forecasts have below-normal temperatures across the eastern US. Still, it appears that next week’s “polar vortex” conditions caused a “too fast, too soon” updraft in natural gas prices Monday, which was followed by Tuesday’s sharp pullback. Cheniere Energy’s Corpus Christi Stage 3 facility has started operations that will increase US feed gas demand for LNG production, which should underpin natural gas prices.
PRODUCT MARKETS
While the product markets finished Tuesday on an upbeat note, they initially saw divergent price action today as ULSD found mild pressure before regaining upside momentum. China will increase their domestic prices for gasoline and diesel by roughly four cents a gallon starting tomorrow, due in part to higher crude prices but also reflecting of some demand improvement as well. Average US retail “pump” prices for regular gasoline reached a 1-month high on Tuesday, which reflects an increase in domestic demand from more substantial holiday driving levels this season. The Reuters survey had median forecasts for US gasoline stocks to have a weekly increase of 300,000 barrels, while US distillate stocks have a weekly decline of 100,000 barrels. The API survey saw US gasoline stocks have a weekly increase of 2.2 million barrels while US distillate stocks had a weekly increase of 5.7 million barrels, which were well above market expectations
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