Written Commentary
CRUDE OIL
Crude oil extended its recovery to a 3-month high before finishing Friday with a moderate daily gain and a sizable weekly gain. The market has kept within a tight early range as crude oil shook off early pressure and climbed up to a new high for the move. Saudi Aramco said that they will raise their crude oil selling price to Asian customers by 60 cents a barrel next month, which is higher than expected and provided an early boost to crude oil prices. China has made several positive moves to shore up its demand outlook since the start of this year. Although they have not fully soothed concern over the Chinese demand outlook, they helped crude oil to maintain upside momentum since late December. Middle East tensions and the Ukraine/Russia conflict continue to boost risk premiums in energy prices which has kept crude oil near the January highs. Thursday’s EIA report featured a weekly drawdown in US crude oil stocks that supported energy markets, with PADD 3 (Gulf Coast) crude stocks at their lowest levels since December 2022. While it remains below the key 50.0 level, Friday’s better-than-expected reading for the latest ISM manufacturing index helped improve the domestic energy demand outlook, which further boosted energy prices.
NATURAL GAS
The natural gas market turned sharply to the downside and closed Friday with a heavy daily loss and a negative weekly result. However, natural gas pivoted back to the upside and rose sharply early in today’s action as it has fully retraced Friday’s loss. There has been a significant change in the weather outlook for the US, as the latest 8 to 14-day forecast has below-normal temperatures across most of the lower 48 states. Cooler than normal conditions should ramp up residential heating and power plant demand for natural gas over that timeframe and have provided significant support to the market. The EIA’s weekly natural gas storage report showed a draw of 116 bcf, a smaller decline than trade forecasts. Total US gas storage stands at 3,413 bcf, 4.7% above the 5-year average and a larger surplus than expected. Over the last four weeks, however, natural gas storage has declined 524 bcf as they have also been the four largest single-week draws since January.
PRODUCT MARKETS
The sharp weekly pullback with implied demand readings for gasoline and distillates weighed on both product markets on Friday and kept RBOB and ULSD prices close to unchanged levels late in the session. RBOB continues to see tight coiling price action early this week and appears to be near-term overbought, while ULSD reached a 10 1/2-week high with a sizable early gain today. Average US retail “pump” prices for regular gasoline reached a 1 1/2-month high at the start of the new year. While prices modestly declined during the weekend, they are staying clear of their early December lows, which reflects improved US driving demand through the holiday season that has underpinned product prices. Energy stocks at the Amsterdam, Rotterdam and Antwerp hub increased by 3.8% over the previous week, mainly due to a sizable increase in gasoil supply.
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